Archive for ‘student loans’

October 22, 2014

Federal aid programs allow colleges ‘blithely to raise their tuitions’

by Grace

New York Times economics pundit Eduardo Porter explains “Why Aid for College Is Missing the Mark”, allowing ‘colleges “blithely to raise their tuitions,” at little benefit to students’.

In 1987, when he was Ronald Reagan’s education secretary, the conservative culture warrior William J. Bennett wrote a famous essay denouncing federal aid for higher education because it allowed colleges “blithely to raise their tuitions,” at little benefit to students.

Nearly two decades later, it seems, he was broadly right. Indeed, he didn’t know the half of it.

It’s not just that many colleges and universities are bleeding taxpayers. The government’s overall strategy to subsidize higher education is failing at its core task: providing less privileged Americans with a real shot at a college degree. Alarmingly, it is burdening low-income students with risks they cannot bear and steering them into low-quality educations.

“Institutions of higher education in the United States extract a lot of money without delivering value but the government has no way of influencing that,” said Andreas Schleicher, the top education expert at the Organization for Economic Cooperation and Development, the research organization for the world’s major industrial powers. “It has very few levers of control over equity-related issues.”

Porter comes down on for-profit colleges, leaders in enrolling low-income students.  But their higher tuition does not produce consistently successful outcomes.

Low-income students in the United States often end up with the short straw: no degree, no job and a bundle of debt that they must pay anyway.

The level of government spending on higher education does not seem to be at the heart of the problem.

State and local financing for public higher education fell to some $76 billion last year, nearly 10 percent less than in 2003 after inflation. On a per-student basis it is 30 percent less than it was a decade ago.

But that doesn’t mean there is less government money in the system. Federal aid to college students more than doubled over the period, to some $172 billion last year. Of that, nearly 25 percent went to private, for-profit colleges.

More accountability is needed.

Porter believes the “case for government financing of college is as strong as ever”, but the method of allocation is “wasting both money and opportunity”.  Although I may disagree with his specific recommendations to fix the problem, I wholeheartedly agree with the need “to curb abuses arising from the haphazard distribution of billions of dollars of taxpayer funds with very little accountability”.

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Eduardo Porter, “Why Aid for College Is Missing the Mark”, New York Times, October 7, 2014.

October 13, 2014

Student debt doubled for high-income families

by Grace

Borrowing for college among high-income families increased from 24% to 50% over the last twenty years.  Similar increases occurred among middle-income families.

… A new Pew Research Center analysis of recently released government data finds that the increase in the rate of borrowing over the past two decades has been much greater among graduates from more affluent families than among those from low-income families. Fully half of the 2012 graduates from high-income families borrowed money for college, double the share that borrowed in 1992-93.1.

20141008.COCPewHiIncomeBorrowers1

 

These numbers show how college affordability is no longer just an issue for low-income families, but now affects families across the income spectrum.

What has changed over the course of roughly two decades then is the pervasiveness of student borrowing across income groups: In the early ’90s, only among graduates from low-income families did a majority of graduates finish college with student debt. Now, solid majorities of graduates from middle-income families (both lower-middle and upper-middle) finish with debt, and half of students from the most affluent quartile of families do the same.

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Richard Fry, “The Changing Profile of Student Borrowers”, Pew Research, October 7, 2014.

October 8, 2014

The problem of student loans that don’t deliver on jobs

by Grace

Kevin Carey in the New York Times writes about how vocational training programs over-promise and under-deliver on their promise to train students for well-paying jobs.  He highlights the problems with medical assistant training programs.

Many people who graduate from such programs struggle to find work. Those who do find work often make little money — too little to repay their debts from the program. Despite the happy poster images, the market for medical-assistant education is actually an allegory for the problems in the parts of higher education that tend to attract low-income and middle-class students: little regulation and uneven — often mediocre — results. The same problems afflict many community colleges, lower-tier four-year colleges and training programs in fields like office management and culinary arts.

According to the Department of Labor, the median annual salary for medical assistants in 2011 was $29,100. Yet most recent graduates of medical-assistant training programs earn much less, which suggests the programs are not reliable routes to good jobs as assistants. Among the 100,000 students who earned a medical-assistant certificate in 2008 or 2009, roughly 94 percent attended a program where graduates typically earned less than $20,000 in 2011, the data show. More than 50 percent attended a program where typical graduates earned less than someone working full time at the federal minimum wage would — $15,080. That can only mean many were not working full-time in any job.

Clearly the return on investment is painfully insufficient for many trained medical assistants, as well as for many other graduates of our faltering higher education system.  Carey attributes the problem to false advertising, noting that “it’s nearly impossible to find an employer who explicitly requires a certificate”.  He calls for increased regulation as the solution.

The medical-assistant education market is inefficient because the American higher education system is largely unregulated. Every year, the federal government gives students $150 billion in grants and subsidized loans to attend any program offered by any accredited college. The assumption is that the free market will take care of the rest. But college is what economists call an “experiential good” — something you can’t entirely understand until after you purchase and experience it, at which point it may be too late.

Inadequate loan underwriting creates “distortions and useless degrees”.

I actually agree with Carey’s general point that new regulations are needed to curb abuses arising from the haphazard distribution of billions of dollars of taxpayer funds with very little accountability.  But my take on the problem is closer to how this highly-ranked comment frames the problem, with a need for the federal government to do a better underwriting loans.

It is amazing how this article and most others on the the subject never mention the elephant in the room.

It is the Federal Government’s policy to dump money, in the form of grants or loans and loan guarantees, for virtually any degree, any college, to anyone, that creates these distortions and useless degrees.

Do you think any private bank without the Federal Student Loan guarantees and laws would ever lend $18K in unsecured loans to 18 year olds with no assets and no income attending these programs?

Do you think many parents or family would be writing actual checks of $18K for people to attend without making sure they lead to actual jobs?

Of course not. The Federal Government policies inflate the cost of higher education and preserves the existence of thousands of non-viable programs of higher education.

Until we address that, these distorted results will continue to be with us.

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Kevin Carey, “When Higher Education Doesn’t Deliver on Its Promise”, New York Times, Oct. 4, 2014.

September 23, 2014

Which colleges meet full financial need?

by Grace

Only 62 colleges will meet 100% of a student’s demonstrated financial need.

Schools that meet 100 percent of need can use a combination of loans, scholarships, grants and work-study to fill the gap between the cost of attendance – tuition, fees, room, board and other expenses – and the expected family contribution, a number determined by the information you provide on the Free Application for Federal Student Aid, including tax data, assets and family size. ​

Of the 1,137 colleges and universities that submitted financial need data to U.S. News, just 62 of them cover full need.

Many of these schools rank high, with about one-third placing in the top 10 in their categories.

Among them are Princeton University and Williams College, ranked No. 1 among National Universities and National Liberal Arts Colleges, respectively.

Just three public schools are included on the list that meet full financial need.

  • University of North Carolina—Chapel Hill
  • University of Virginia
  • United States Merchant Marine Academy

Here’s an explanation of how “full financial need” is defined:

FULL-NEED SCHOOL — One that claims to meet the student’s full financial needs, defined as the Cost of Attendance (COA) minus the Expected Family Contribution (EFC). It is worth noting that many families are surprised to learn that the school’s determination of financial need is often lower than the family’s own assessment. Also, the school may decide that a loan “award” will be used to meet all or part of the student’s need.

The complete list of schools can be viewed at the U.S. News website.

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August 21, 2014

Should the government enable every kid to go to college?

by Grace

If college is supposed to represent some sort of advanced or more demanding level of education, why has it become a national priority to send every kid to college?

Jim Geraghty asks this question in an article questioning the wisdom of our government’s expansive student loan policy.

Is it really in the country’s best interest to enable every aspiring college student to attend college? Right now the federal government is in the business of loaning money to young people to attend college, only to watch significant numbers — 600,000 or so last year — fail to pay the money back. College students are defaulting on federal loans at the highest rate in nearly two decades, with one in ten defaulting on their loans in the first two years. This is not merely one late check; to meet the Department of Education’s definition of default, a borrower’s loan must be delinquent for 270 days — nine months.

The college gets its money, the taxpayer loses theirs, and the deadbeat student can be left with all kinds of frustrating consequences — seized tax refunds, garnished paychecks or benefits, or a lawsuit. (Though the deadbeat student is often in this situation because their college education failed to prepare them to find a job in a mediocre-at-best economy and make a living, so there may not be much money in their wages to garnish.)

How many of those students really should go to college? If college is supposed to represent some sort of advanced or more demanding level of education, why has it become a national priority to send every kid to college? Wouldn’t the nation be better off if at some point it said to these young people, “you can go to college if you want, but we’re not paying for it”?

Remember the burst of the housing bubble?

 “If nothing else, the recent financial crisis should have taught us that it’s not in the country’s best interest to enable every aspiring homeowner to buy.”

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Jim Geraghty, “The American Dream Peddlers”, National Review Online, April 23, 2014.

July 24, 2014

Loans overtook grants as the main source of college financial aid in 1982

by Grace

In the early 1980s loans begin to exceed grants as the primary form of college financial aid.

20140720.COCLoansHistory2

Figure 3 shows the amount of financial aid provided in each major category since 1980, in constant dollars (institutional grants are excluded, as they are treated as a discount off of tuition). In the early 1980s, federal, state, and private grants were the largest form of financial aid. But beginning in 1982, loans began to outpace grants, and since then they have remained the largest form of aid available to students to help them pay their costs of attending higher education.

The federal government had first stepped up its role in college financial aid in the 1960s.*

… The United States has long had financial aid for students, awarded in different forms (loans, grants or scholarships, government-subsidized jobs on college campuses, and tax benefits) and from different sources (federal government, state governments, higher education institutions, and private entities). The federal government first began provision of broad-based financial aid in the forms of grants and loans to students with the passage of the Higher Education Act of 1965. This Act also had a provision, the State Student Incentive Grant program, which encouraged states to create their own grant programs. These programs, along with the continued expansion of institutionally-funded scholarships, have helped to subsidize the price paid by students for attending college and have also served to lessen the impact of rising “sticker” prices, or the amount charged by universities before any discount is provided.

*The G.I. Bill began offering federal education benefits to veterans in 1944.

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Geiger, Roger & Heller, Donald. “Financial Trends in Higher Education: The United States” (Working Paper), Peking University Education Review, January 2011.

July 7, 2014

Student debt and net worth

by Grace

College-educated young adults with student loans have a lower net worth than those who did not graduate from college.

Nearly four-in-ten U.S. households headed by an adult younger than 40 currently have student debt and a median net worth of just $8,700.

That’s a stark contrast to the median net worth of $64,700 that young college graduates without student debt have accumulated. Additionally, consumers without a degree and without student debt have a net worth of $10,900, once again greater than that of degree holders with debt.

While student loan debt does play a large role in the low median wealth of college graduates with student loan obligations, Pew found these consumers were more likely to take on other debts that contributed to the wealth gap.

College graduates are making more money.

… College-educated student debtors typically have a household income of $57,941, nearly twice that of homes in which the heads do not have bachelor’s degrees.

And their debt load is greater.

… Among the young and college educated, the typical total indebtedness (including mortgage debt, vehicle debt and credit cards, as well as student debt) of student debtor households ($137,010) is almost twice the overall debt load of similar households with no student debt ($73,250)….

It is reasonable that college-educated young adults, with their higher incomes, are able to take on more debt.

Though student debtor households tend to have larger total debt loads, indebtedness needs to be assessed in the context of the household’s economic resources. In other words, households with greater income and assets may be able to take on more debt. Using the conventional total debt-to-income ratio, where debt is measured as a share of income, college-educated student debtors are by far the most indebted.2 The median college-educated student debtor has total debt equal to about two years’ worth of household income (205%). By comparison, college-educated households without student debt and less educated households with student debt have total debts on the order of one year’s worth of household income (108% and 100%, respectively).

The hope and expectation are that their income will keep pace with inflation, and continue to grow at a rate that will enable them to manage their debt.

These young adults should also start saving for retirement, since the “power of compounding is a reason to start saving for retirement as early as possible”.

Saving “$5,000 per year only from ages 25 to 35 (10 years)” will generate a larger retirement nest egg than saving “$5,000 per year, but from ages 35 to 65 (30 years)”.

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Ashlee Kieler, “College-Educated Consumers With Student Debt Have Median Net Worth Of Just $8,700″, Consumerist, May 14, 2014.

Richard Fry, “Young Adults, Student Debt and Economic Well-Being”, Pew Research Center’s Social & Demographic Trends, May 14, 2014.

July 1, 2014

Student debt: not a crisis but certainly a growing problem

by Grace

A recently published study by the Brookings Institution, supported by David Leonhardt’s commentary in the New York Times, downplays the growing student loan problem.  But other commentators have raised issues about the study’s data, and even questions about conflicts of interest have surfaced.

The Brookings report asked “Is a Student Loan Crisis on the Horizon?”, and the authors found that “the impact of student loans may not be as dire as many commentators fear”.  Fair enough, but criticisms about the study’s sloppy data analysis include:

  • The statistic that only 7% of borrowers have student debt balances greater than $50,000 is challenged by findings from the New York Fed.
  • Measures of student debt exclude borrowers living in households “led by anyone over 40″, effectively missing young borrowers living with their parents.
  • Borrowers who were not making payments on their student debt were also excluded from the findings.  Interesting, since this would include cases where loan payments were postponed as a way to avoid defaulting.

The role of the Luminara Foundation’s donations to Brookings and to the study’s authors looks a little suspicious to Malcolm Harris .

… When the Obama administration nationalized 85 percent of higher education lending in 2010, executives like the ones who now sit on the Lumina Foundation board were the big losers. Since then, college costs have continued skyrocketing, but the tens of billions in profits have gone to the Department of Education instead of private lenders. If you were them, and you were angling to get back in the game, the first step would be to edge the government out, either by getting the feds to withdraw or by keeping costs rising faster and higher than DoE loan limits. Graduate loans are a great place to start in a divide-and-conquer strategy, so it’s no surprise that Delisle concludes in favor of shrinking the government’s role. Nor is it surprising that Akers and Chingos can’t find a cost crisis, even though theirs is a fringe minority opinion among higher education analysts and investors.

Most people probably agree that the student loan issue is a not a crisis, but is a slowly growing problem.

… The student debt bubble isn’t going to explode like the housing bubble. Instead, it’s going to fill slowly as it grows over decades, burdening borrowers further and further into the future….

It’s certainly worth paying attention to it, and trying to find ways to diminish its negative effects on college costs and on the economy in general.

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Beth Akers and Matthew M. Chingos, “Is a Student Loan Crisis on the Horizon?”, Brookings Institution, June 24, 2014.

Choire Sicha, “That Big Study About How the Student Debt Nightmare Is in Your Head? It’s Garbage”, The Awl, June 24, 2014.

Malcolm Harris, “The college-cost denial industry”, Al Jazeera America, June 27, 2014.

June 17, 2014

Proliferation of master’s degrees produces wasteful ‘credential inflation’

by Grace

The master’s degree is the fastest-growing college credential in this country, but is that a good thing?

20140613.COCGrowthAllDegree1

Eight percent of the population now holds Master’s degrees, the same percentage that held bachelor’s degrees (or higher) in the 1960s, reports Vox. Master’s degrees in education were by far the most popular, holding at around a third to a quarter of all such degrees from 1971 to 2012, though MBAs had taken the top spot by 2010. In fact, the increase in the number of MBA degrees is astonishing: Only 11.2 percent of master’s degrees were in business in 1971, but in 2012, they were a whopping 25.4 percent.

This “credential inflation” is “in large part driving the student loan crisis”.

The rise of the master’s degree is likely a product of credential inflation. As more and more people acquire bachelor’s degrees, those who wish to make themselves stand out go on to get the MA. And as Vox points out, while a Master’s degree does have a positive impact on earnings, the overall debt of people with undergraduate and Master’s degrees has grown markedly in the past decade. In fact, as we recently noted, graduate student debt is in large part driving the student loan crisis.

The recently expanded loan forgiveness program is “tailor-made for graduate students”.

Students who took out big loans for graduate school and those with higher incomes stand the most to gain financially under President Obama’s expansion of the federal government’s loan forgiveness program.

Lawyers, doctors and other highly trained professionals who utilized federal loans throughout their post-high school education could walk away with most or all of their graduate school debt forgiven by the federal government under the program, say experts.

Is this good for our economy?

… But we shouldn’t want an economy that favors people with polished résumés over people with good ideas. This data is not a good sign for our economic health.

It seems to be another case where excessive government intervention has created inefficiencies resulting in unintended consequences

Public support for higher education helps to create unnecessary barriers in many fields where advanced degrees are now required credentials. … Neal McCluskey argues that “cheap college has almost certainly fueled credential inflation, not major increases in knowledge or skills.”

ADDED 6/17/14:

Advanced degrees don’t generally improve student achievement levels.

A number of studies have shown that teachers with advanced degrees don’t, necessarily, produce higher student achievement than teachers who hold only a bachelor’s….

One study from the Center for American Progress reported “that states waste money by giving salary increases to teachers as a reward for getting a master’s degree, spending nearly $15 billion annually on such pay hikes”.

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Randy Olson, “College degrees awarded per capita in the U.S.A.”, Randal S. Olson, June 12, 2014.

Walter Russell Mead, “The Rise of the Master’s Degree”, The American Interest, May 22, 2014.

Susan Ferrechio, “The surprising winners of Obama’s student-loan program”, Washington Examiner, June 12, 2014 .

Tyler Durden, “Unintended Consequences Of Obama’s Student Loan Policies”, Zero Hedge, June 13, 2014.

Ida Lieszkovszky, “Liberal Think Tank says Advanced Degrees Don’t Make Better Teachers”, StateImpact Ohio, July 18, 2012.

June 13, 2014

President Obama expands the ‘fat-cat MBA tuition assistance program’

by Grace

President Obama’s executive order to expand student loan forgiveness could be called the “fat-cat MBA tuition assistance program”.

Students who got expensive degrees, even of the type that tend to yield lucrative jobs—like MBAs—stand to gain from these changes. At least, certain ones do.

20140611.COCLoanForgivenessMBA1

Jason Delisle of the New America Foundation calculated a scenario where taxpayers would pay $208,259 to forgive part of an MBA graduate’s student loan.

We have one example of someone who might look similar to an MBA student. He starts out with a starting salary of $90,000 and, by the end of 20 years, is making $243,360. Under the old IBR program, he’ll have paid $409,445 by year 25 and be forgiven $23,892 of his loan balance. Under the new [PAYE] plan, he’ll pay less than half of that, or $202,299, and be forgiven $208,259 by year 20.

Better yet, this MBA graduate could start his career in the public sector, and have his loan balance forgiven after ten years under the Public Service Loan Forgiveness Program (PSLFP).

“If you plan on doing any kind of public service, nonprofit or government work,” said Delisle, “then you should borrow as much money as [your school] will possibly let you.”

Here’s an example of a veterinarian who can get taxpayers to pay off a substantial amount of his student loan.

Consider a vet who earns a salary over the next 20 years that is greater than 75 percent of vets in his age group. Once he accumulates $105,000 in debt while in school, any additional amount he borrows is forgiven under the New Income Based Repayment program after 20 years of payments. He could borrow $150,000, $190,000 or more, but he makes the same monthly and total payments over the next 20 years had he borrowed only $105,000….

Here is the kicker. According to the American Veterinary Medical Association, 70 percent of graduates leave school with more than $105,000 in debt today. And remember, the point at which a vet student stops incurring a cost for borrowing more in federal loans – $105,000 – was calculated for high earning vets, those making more than 75 percent of their peers, not the average.

Sweet deal.

Related:

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Cory Weinberg, “What Obama’s Plan to Lighten Loan Burdens Means For MBAs”, BloombergBusinessweek, June 10, 2014.

Karen Weise, “Grad Students Could Win Big as Obama Slashes Debt Payments”,  BloombergBusinessweek, June 9, 2014.

Jason Delisle & Alex Holt, “Income Based Repayment Is One Sick Puppy”, New America Foundation, August 28, 2013.

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