studentaid

U.S. should curtail student loans to help taxpayers and students (essay)

Of late, American higher education has been suffering more than its share of the shocks that flesh is heir to.  As a result, we will likely see soon a retrenchment in government-subsidized student loans.

First, the alarm has gone out following the Federal Reserve Bank of New York’s latest study of student-loan debt. In addition to finding that student debt now exceeds $1 trillion, exceeding credit-card debt, the study found that senior citizens are bearing an ever-greater burden of student loans.

Surprised to read “senior citizens” in the same sentence as “student loans”? The study found that fully 18 percent of delinquent student-loan debt now rests on the slumping shoulders of those 50 and older. Parents increasingly are taking out loans to help their children through college. These late-life excursions into debt threaten parents’ retirement prospects, producing the “possibility of another major threat on par with the devastating home mortgage crisis,” says a recent report by the National Association of Consumer Bankruptcy Attorneys.

With this gloomy prediction, Chase, America’s largest bank, appears to agree. Chase just announced that it will stop providing student loans to those who are not its customers. Bad student-loan debt at the bank has increased 72 percent since 2009. So in a move unnervingly reminiscent of the buildup to the housing-market meltdown, Chase Bank has opted to cuts its losses.

But will those ultimately on the hook for these unpaid, government-subsidized loans -- the American taxpayers -- likewise be able to cut their losses? Not according to Vice President Joe Biden.

The vice president took part recently in a Twitter town hall, at which he was asked, "Have you ever thought about lowering education costs by decreasing the role of government intervention in the education business?" His Twittered response conceded that reducing government subsidies “could reduce [tuition] costs.”

Biden’s concession is noteworthy. Generally, defenders of these loans have been loath to admit that the resulting distortion of market forces escalates precipitously both prices and debt in the same manner and for the same reason as occurred in the home-mortgage industry.

But Biden’s extraordinary concession immediately gave way to an ordinary dodge. Even allowing that reducing government intervention could lower tuition costs, it would be “against [the] national interest to do so,” he tweeted, because fewer students would then be able to attend college, cheaper though it may become.

According to the vice president, then, the trillion dollars of loan debt, the rising defaults on these loans, and the skyrocketing tuition prices (average tuition has risen four times faster than inflation over the past quarter-century) are all worth it. They are the price for increased access to a college degree. Refusing to pay this higher price would be “against the national interest.”

Give the vice president credit for honesty. The question then becomes, “What exactly are we taxpayers getting for the increased price he wants us to continue to pay?”

According to Academically Adrift, last year’s landmark national study of collegiate learning, the answer is “not very much.” Of the national sample of students it surveyed, 45 percent failed to show “any significant improvement” in “critical thinking, complex reasoning, and writing skills (i.e., general collegiate skills)” after two years in college. Even after four years in college, 36 percent continued to show only insignificant improvement.

The disappointment produced by these results magnifies when we consider the cost of the drive for greater access. Today, about half of the students who enter college graduate. Of this half, Adrift tells us, only two out of three succeed at demonstrating some substantial learning. In all, then, only one in three college-headed students leaves with both a degree and the learning a degree is meant to certify.

For this sad outcome, Americans are footing an unsustainable debt burden. The vice president urges that we stay the course nonetheless. Will his countrymen follow him, or will they make like Chase Bank and exit before the bubble bursts? Would growing numbers begin to abandon the quest for a college degree?

This is hard to imagine when for decades we have been told, and with some truth, that a college education is the alpha and the omega. Consensus regarding the value of a degree has served to justify the upward spiral of government subsidies, tuition prices, and student-loan debt. But Chase Bank’s move is only the latest bit of evidence that, for some time now, the benefits of college are plummeting proportionately as tuition prices and loan-debt soar.

Nevertheless, Americans, at least for the short term, likely will continue to borrow for college as long as government-subsidized loans are available. But the short term may prove to be very short.

If we continue on the course urged by the vice president, loan defaults will continue to rise, which means that the bill to the federal government, which guarantees the loans, will continue to rise. The increased dollars required to foot this bill can come only through raising taxes, or cutting funding for other programs, or government borrowing. In a still-stagnant economy, raising taxes is knotty.  Cutting other programs has rarely been an option for which our national leaders have shown much stomach, as it creates only a new class of aggrieved constituents.  Equally problematic is increasing government borrowing when the deficit and national debt already stand at historic highs.

What seems likely, regardless of who wins the November elections, is a cutback in government-subsidized student loans. It seems that as Chase goes, so eventually must go the federal government. As the federal spigot closes, so will be the number of students able to attend college, at least initially. But the resulting downward pressure on demand will force universities to reduce prices, restoring market equilibrium in time.

How and when this will transpire is a matter for speculation, but may be explained reasonably, and not without humor, by what is known in investment circles as the “greater fool theory.” According to this theory, market bubbles are caused by overly cheery investors (“fools”) who buy overvalued products believing that they will be able to sell them at a profit to other (“greater”) fools. The bubble stays intact so long as greater fools are available to prop up the market. The bubble bursts when there are no greater fools left. At this point, the last greater fool finds that he is in fact the “greatest fool.”

Mr. Biden’s critics charge him with betting that there are still fools out there (students, parents, and taxpayers) who will continue to invest in the overvalued asset higher education has become. However, a bubble requires more than the credulousness of fools. It also requires that they be solvent. Collective foolishness has driven the country to brink of insolvency, leaving even the foolish among us with no option save self-restraint.  As the maxim has it, “The wise man does at once what the fool does at last.”  In higher education, the country may be poised finally to do the right thing, having exhausted all other alternatives.

Thomas K. Lindsay directs the Center for Higher Education at the Texas Public Policy Foundation. He served as deputy chairman and COO of the National Endowment for the Humanities during George Bush’s second term.

Critique of Key Figure in Series on Student Loans

"Degrees of Debt," a series of articles in The New York Times this week, explores the impact of rising student debt with compelling stories of individual borrowers and their families. The series has generated considerable discussion among higher education leaders, many of whom don't dispute the central premise that some students are borrowing more than is appropriate. But some are objecting to a key statistic and the choice of examples in the series. The series opens with an example of a woman who borrowed $120,000 for an undergraduate degree, and goes on to say that "nearly everyone pursuing a bachelor’s degree is borrowing." Then it says that 94 percent of students borrow for an undergraduate education.

Molly Broad, president of the American Council on Education, has written to the Times, pointing out that the 94 percent figure is incorrect, and questioning just how typical some of the borrowers in the series are. "While an alarmist tone and extreme examples might make for good stories, they don’t make for an accurate or meaningful portrayal of the experience of millions of students who borrow to finance their college education. To the contrary, the Times presents a seriously distorted and misleading picture," Broad writes. "The Times is wrong when it says that 94 percent of students who earn a bachelor’s degree borrow to pay for higher education. In fact, about 60 percent of students borrow and their average indebtedness is about $25,000, according to the U.S. Department of Education, the Project on Student Debt and the Federal Reserve Bank of New York. While the Times highlighted at length students graduating with six-figure debts, very few borrowers actually owe that much."

 

 

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Families used housing windfalls to send their kids to pricier colleges

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As housing prices rose for some working- and middle-class American families, so did college ambitions of their students, study finds. Which leads to the obvious question: Are those ambitions now dropping as home values fall?

Critique of Pro-Romney Ad on College Graduates

A new ad by the pro-Romney American Crossroads Super PAC tells young voters that President Obama hasn't been good for their interests. The ad uses a statistic that would scare many college students (not to mention parents): 85 percent of college graduates are moving back in with their parents.

 

 

But PolitiFact -- a fact-checking operation of The Tampa Bay Times -- tried to track down that statistic, and couldn't find any proof for it. The best data PolitiFact could find are from the Pew Research Center, which found that among adults ages 18 to 29, 42 percent who have graduated college live with their parents. At the same time, the figure of those 25 to 29 with or without a college degree who never moved out or moved back in with their parents is 41 percent. Figures in the 40s may not comfort students or parents either, but they fall short of 85 percent.
 

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What high-end summer camps say about college admissions and pricing (essay)

Contentious debates about rising college costs during the academic year make summer a welcome break from bad news.  One recent headline was “Political Storm Stirring over Student Loans.” The next day a New York Times editorial urged, “Subsidize Students, Not Tax Cuts!” These articles, unfortunately, forecast that summer is going to provide no vacation from higher education’s political heat wave.  It merely shifts the focus from the campus to camp.

That’s because the spending and choices associated with the American ritual of sending a child to summer camp today is a rehearsal for the kinds of decisions that will face a family about five years later when they consider sending the same child to college. It also reinforces how advantages and inequities are acquired early in the American college sweepstakes. 

For a relatively small portion of prospective college students and their parents who are serious about selective college admissions, here is how choices and opportunity costs have brought camp and campus into a seamless web of deliberations far beyond the planning and pocketbooks of most American families.

How Much Does It Cost?

The answer is that it all depends -- camps are comparable to colleges in their range of prices and services. Among the numerous possibilities is “Pine Forest Camp,” located in the Pocono Mountains of Pennsylvania, conspicuous because it was selected by The New York Times as the subject for a front-page feature story on the changing economics of camp. A glance at the Pine Forest website indicates that in 2011 the charge for seven weeks of a full summer for a stayover camper was $9,700.

Official camp charges do not include such incidentals as travel and supplies.  There is considerable discretion on how much parents must pay versus how much they choose to pay.  And, for families who are newcomers to deciding about camp for their children, there is new information to absorb about camp expenses. The camp’s website provides a camp packing list.  Some clothing items “are only available through Bunkline" -- an internet site for purchase of camper gear. In addition to clothing and accessories, parents can pay for special optional programs: superstar tennis, superstar golf, horseback riding, top cooks, and one-on-one fitness.

Camp as College Prep

Pertinent for connecting camp to college, an upscale camp such as Pine Forest showcases on its website that it offers as a supplement a Scholastic Aptitude Test (SAT) prep course. The catalog elaborates that, “In SAT Prep, campers will spend 4 hours a week preparing for the SAT by learning test-taking techniques and taking 3 practice tests during the summer. Campers have a competitive edge when they return to school in the fall. This extra course is taught by a certified teacher and SAT tutor. Most participants improve their scores by over 100 points."

An option in the leadership track for campers is the “College Bound” program. It is not completely clear whether this entails added charges. Or, if it does, how much? This detail is crucial because it can drive up expenses. Its availability suggests that the clients of the camp are highly concerned about college admissions.  The “College-Bound program combines the best parts of being a camper with additional responsibilities and challenges. 11th graders live together with counselors and enjoy the full range of Hi-Seniors activities. CAs participate in leagues, inter-camp games, socials, Color Days, Banquet, Cabaret…the best parts of camp! Plus CAs have unique ‘college-bound’ opportunities.”

The CAs have a trip to Washington, D.C., with visits to American University, George Washington University, Georgetown University, the Holocaust Museum, the Kennedy Center, and on the way back to camp, a visit to Pennsylvania State University.  The Boston trip introduces camper-students to Boston University, Harvard University, and Boston College, along with walking tours of Cambridge and historic Boston.  Finally, the trip to New York City provided visits to New York University, Greenwich Village, and Broadway.

How Far and How Fast Are Costs Rising?

Both colleges and camps are scrutinized for their rising costs and prices over the long haul. In 1931, when Pine Forest Camp first opened, a seven-week stay cost $85. The summer camp in 1931 costs about 114 times as much today, 80 years later.

Did summer camp really cost 114 times more than now? This may be technically accurate – but it is a calculation so misleading as to be incorrect because it is incomplete.   When one accounts for inflation, that $85  in 1931 translates to $1,263.68 in 2011 dollars. Summer camp has increased by 767 percent -- or, stated another way, it is about eight times more expensive than it was in 1931.  As for comparing costs of college and camp, college presidents may find some relief from critics in now being able to document that colleges are not alone in escalating prices.

Extra Expenses and the Real Cost of Attendance

As preview for the peculiar consumerism of rising college costs, consider a recent development about summer camp expenses that made front page headlines in The New York Times article, “To Reach Simple Life of Summer Camp, Lining Up for Private Jets.” A number of families were chartering private jets from New York and Philadelphia to take their children to rustic summer camps in rural Maine.  What started as an infrequent act spread in popularity, so much so that the small airports in Bangor and Augusta had to increase services to accommodate this expensive practice.  Why would parents pay huge amounts for air service instead of the traditional drive in the family station wagon or SUV?  The explanations provided a look at family discretionary choices about their children’s education and related support services.

Some parents explained that chartering a private jet was useful because it compressed round-trip travel time from several days to six hours.  This could be justified as effective and, perhaps, efficient.  There was a secondary, social effect: bragging rights and prestige among parents and children in which chartering the private jet conferred some reflected prestige of “conspicuous consumption.” All constituents henceforth had to be at least aware of this level, whether they mimicked it or not.

All this took place outside the purview of camp officials.  To the contrary, for some camp staff, it was a disconcerting clash with the values and experiences of camp life they wished to transmit to adolescents. Regardless of the camp administrators’ views, there was little they could do to encourage or discourage the practice.  Parents, meanwhile, had to take these factors into consideration about camp expenses and lifestyle. The summer camp economy had become financially stratified by official price plus added discretionary expenses subject to expensive status pressures. This was a forewarning of decisions about college prices and choices that a family would make in the future.  Most important, it shows how numerous variables need to be considered when one calculates the genuine cost of attendance.

Cost of Attendance (COA). Connections to College Costs: From Camp Back to the Campus

Camps and colleges use similar language such as “tuition and fees” charges. Second, a camp and a campus have comparable investments in residential physical plant with recreational and instructional facilities.  A residential camp enrolling 450 children has an annual budget of more than $2 million, including $1 million for salaries for a staff of 500.  Annual maintenance is about $700,000.  The residential dining hall at Pine Forest serves 4,200 meals per day for a summer total expense of $500,000. Third, the proliferation of expensive accessories illustrates how expenses can snowball. The connection between camp and campus becomes more evident when one recalls that a camp offered two optional programs for which families would have to pay extra: the SAT prep program and the Leadership program dealing with college campus visits.

Escalation of supplements was the focus of another New York Times article last summer on the quest for admissions advantage that high school seniors gain by enrolling in (and paying for) programs that provide unusual summer experiences geared to writing an impressive college application essay.  This new, expensive option in the summer experience was called “priceless fodder for the cutthroat college application process. Suddenly the idea of working as a waitress or a lifeguard seems like a quaint relic of an idyllic, pre-Tiger Mom past."

If one knows that such pre-college socialization and programs make a difference in who goes where to college and how well they are prepared, does one then include the camp and other activities in plan for compensatory programs that increase promote genuine equity and access? The sociologists Christopher Jencks and David Riesman observed in their 1968 classic work, The Academic Revolution, that for the children of education-minded American families, going to college is not a sprint, but a marathon.  Some competitive families start the preliminary heats of this race early, with summer camp as the racer’s edge.

Forty years ago John Gardner, in his 1961 book, Excellence -- asked, “Can we be equal -- and excellent, too?” High prices at camp and campus signal that the answer for today is, “Fat chance!”

John Thelin is professor of higher education & public policy at the University of Kentucky and author of A History of American Higher Education (Johns Hopkins Press, 2011).

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Draft Issued of State Authorization Reciprocity Agreement

In the federally mandated regulation that all distance education programs must obtain authorization from every state in which they enroll students, a much-touted solution has been a reciprocity agreement, under which states would agree to accept each other's authorization and spare large distance education programs from making up to 50 different applications. The Presidents' Forum and the Council of State Governments released a draft of such an agreement this week. The details of the authorization requirements are still scant, and will depend in part on the states who decide to join the effort, but the agreement would require minimum standards, including accreditation and legally mandated disclosures.

A later draft should be complete by this fall, and states are expected to begin joining the reciprocity agreement some time next year. The federal state authorization requirement has been challenged in court, but even if it is struck down, many believe that states will continue to enforce their own authorization rules.

Report Urges Changes in State Grants for Students

State grant programs for college students should move beyond their traditional dichotomy between “need based” and “merit based” aid and instead target students with financial need but set expectations and support for college success, says a report published Tuesday by a Brookings Institution panel. The report, which was discussed at an event at Brookings Tuesday and outlined in an essay on Inside Higher Ed, argues that the grants must be made more effective given their increasing performance as tuition costs rise and other state support for higher education erodes.

 

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Senate Vote Blocked on Interest Rate Measure

A bill to keep the interest rate on subsidized student loans at 3.4 percent for another year failed to pass a key procedural hurdle in the Senate on Tuesday, setting up more conflict over how to stop the interest rate from doubling July 1. Democrats and Republicans have agreed on the need to keep the interest rate at its current, historic low for at least another year, but can't find common ground on how to pay for the extension. House Republicans passed a bill last week to take the needed $6 billion from a preventive care fund in the health care reform law, while Senate Democrats support changing tax laws to require high-earning stockholders in certain types of corporations to contribute to payroll taxes.

The Senate voted 52-45 in favor of allowing debate on the bill, but failed to reach the 60 votes needed to defeat a filibuster.

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Report Faults Student Loan Collection Agencies

The Education Department is increasingly relying on collection agencies to obtain funds from those who have defaulted on student loans, but the department is failing to monitor complaints about these agencies, says a new report from the National Consumer Law Center. The center "found that contractors do not maintain accessible complaint systems and some agencies ignore the department’s minimum requirements for handling borrower grievances," the report says. "Overall, the complaint systems used by some collectors display a haphazard approach to resolving borrower disputes. The department also has failed to inform borrowers of the resources available through the agency to address complaints."

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States should move beyond 'need' and 'merit' in awarding student aid (essay)

Federal financial aid for college students is frequently in the headlines, but the student grants provided by state governments receive less attention.  In recent years, the grants have grown in importance as tuitions have increased and state appropriations for public colleges and universities, which allow these institutions to subsidize the tuition of all in-state students, have declined. Policies vary widely across states, but state grant aid – which provides subsidies to selected students -- has increased to about $9.2 billion in 2010-11.

In our new report, “Beyond Need and Merit: Strengthening State Grant Programs” (co-authored with the other members of a Brookings Institution study group), we urge states to re-examine their state grant programs to more effectively support the goal of increasing educational attainment.

We propose moving away from the dichotomy between “need-based” and “merit-based” aid and instead designing programs that direct aid to students with financial need with appropriate expectations and support for college success.  Too many existing grant programs exclude the students who need them most by rewarding past academic accomplishments. Our goal is to improve the performance of students facing financial and academic challenges.  

Some states ignore financial circumstances in allocating all or most of their grant funds, providing expensive subsidies to many students who would enroll and succeed in college without this assistance.

Other states do target low-income students, but frequently have complex allocation formulas that increase administrative costs and reduce student understanding of the system. The incentives embodied in aid programs for low- and moderate-income students are rarely carefully designed to support academic progress.  Too many state grant programs exclude students without stellar high school records. Not enough provide simple, attainable guidelines for accumulating the credits necessary to graduate.

The recommendations in our report, which was funded by the Lumina Foundation, fall into three categories: targeting, simplification, and incentivizing success. 

First, states should do a better job of targeting aid dollars at students whose potential to succeed is most constrained by limited resources.  These students are most likely to be affected by state grant awards -- in terms of both their ability to attend college and the likelihood that they will graduate.

Second, states should consolidate programs to make the system simpler and easier for prospective students and their families to understand and navigate. Programs can be better targeted but still relatively simple. Look-up tables like those that would base grant eligibility only on income and family size might serve as a model.  In the same spirit, net price calculators that students can use to estimate the cost of attendance at every public institution in the state would be a valuable supplement to the calculators each individual institution is now required by federal law to post on its website. There is strong evidence that complexity reduces the effectiveness of grant programs. The federal government has begun to simplify the financial aid application process and efforts are under way to move further in that direction, possibly reducing the amount of information collected to determine student and family ability to pay. States should welcome federal simplification efforts and should resist any temptation to ask for additional data -- restoring complication even as the federal government reduces it.

Third, state grant programs should encourage on-time degree attainment by rewarding concrete accomplishments such as the completion of credit hours. Academic requirements embodied in state grant programs should provide meaningful incentives for success in college; they should not be focused exclusively on past achievement or be so high as to exclude students on the margin of college access and success. States should provide second chances for students who lose funding because they do not meet targets the first time around.

Many states have been forced to ration funds to balance their budgets. There may be no good options under these circumstances, but some choices are worse than others. An increasing number of states are adopting “first-come, first-served” models, providing assistance to those who apply early and denying aid to eligible students who apply after the money has run out.  Instead, states under pressure to cut spending quickly could lower income limits; cut grants for all recipients, with the neediest students losing the least; or build more incentives for college completion into their programs.

Financial aid alone cannot bring educational attainment to its desired level or close the troubling disparities in outcomes between disadvantaged students and their more affluent peers. And encouraging students to complete more credit hours will not solve the time-to-degree problems at institutions that face capacity problems and do not provide access to the courses students require.

But state grant programs are among a limited set of policy levers available to lawmakers. These programs should be designed to use taxpayer dollars as effectively as possible to increase the educational opportunities and attainment levels of state residents. They should be viewed as part of an integrated system of higher education funding including appropriations for operating expenditures, tuition setting, and student aid.

States should use this time of financial exigency to carefully evaluate the effectiveness of existing grant programs and to put in place systems for periodic review of these programs. Last-minute budget slashing efforts have the potential to do serious damage to the states’ students, colleges and universities, and long-run economic health. Careful planning, program design, and monitoring can increase the effectiveness of vital state grant programs and maximize the impact of taxpayer dollars.

Sandy Baum is senior fellow at the George Washington University Graduate School of Education and Human Development and chair of the Brookings Institution State Grant Aid Study Group. Matt Chingos is fellow in governance studies and research director of Brookings's Brown Center on Education Policy and a member of the study group.

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