Archive for ‘higher education bubble’

February 26, 2015

Student loan defaults are the only type that continue to rise

by Grace

Americans are having more trouble paying off their student loans than their mortgages or any other type of debt.

As student debt balances continue to grow . . .

20150224.COCTenYearStudentLoanGrowth2

. . .  student loan defaults have overtaken those for all other types of debt.

20150224.COCStudentLoanDefaultTenYearGrowth2

America’s total student loan debt is now nearly $1.2 trillion. One reason the burden is difficult to pay off, Fed researchers wrote: “Student debt is not dischargeable in bankruptcy like other types of debt … Delinquent or defaulted student loans can stagnate on borrowers’ credit reports.”

The number of student borrowers almost doubled over ten years.

The surge is fueled by more people borrowing — and borrowing larger amounts. The number of borrowers rose 92 percent between 2004 and 2014, according to the Fed researchers. The average student loan balance grew 74 percent.

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Danielle Paquette, “Americans are having more trouble paying off their student debt than their houses”, Washington Post, February 19, 2015.

February 25, 2015

Are we seeing a ‘big quasi-bailout’ for student loan borrowers?

by Grace

The Obama administration projects that the increased use of student loan forgiveness programs will cost taxpayers $22 billion next year.

… Primarily because of the recent growth in enrollment in the program, projected long-term revenues from the federal direct student loan portfolio were reduced by almost $22 billion compared with the best guess from the previous year….

This looks like ‘a big quasi-bailout’

That’s a big quasi-bailout, increasing the deficit nearly 5 percent. The White House budget office was unaware of any larger re-estimates since the current scoring rules for credit programs went into effect in 1992. As a January Politico Magazine feature on the government’s unusual credit portfolio reported, the Federal Housing Administration has stuck more than $75 billion worth of similar re-estimates onto Uncle Sam’s tab over the last two decades, most of them after the recent housing bust led to a cascade of FHA-backed mortgage defaults. But it’s never had a one-year shortfall quite as drastic as this.

Borrowers are made out to be innocent victims of “circumstances beyond their control”.

Regardless of which accounting method is used, the federal government is expecting to write off billions of dollars in future student loan balances under the program in order to reward public service employment and protect borrowers from economic circumstances beyond their control.

It’s not as if a student loan bailout should come as a surprise.  Here’s a question from 2011.

Is a student loan bailout inevitable?

20110913.COCCollegeLoanGrowth

Seeing the trend lines, Mark Gimein wrote this four years ago.

Eventually both private lenders and the government will be on the hook. The government has already moved to ease some loan terms. It will need to find more, especially for those snookered into paying for degrees worthless in the job market. The private loans, meanwhile, will simply blow up. We may as well start figuring now how graduates, taxpayers, lenders, and schools will split the bill.

Taxpayers just took on $22 billion, and there’s probably more to come.

Related:  “Politicized federal student loan program bails out ‘deadbeats’”

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Kevin Carey, “Flip Side of Reducing Student Debt Is Increasing the Federal Deficit”, New York Times, February 10, 2015.

Michael Grunwald, “The College Loan Bombshell Hidden in the Budget”, Politico,  February 05, 2015.

January 8, 2015

Testing out of classes can save money and time in getting your college degree

by Grace

Is this how most college degrees will be earned in the future?

… Emina Dedic of HackCollege used standardized tests to save a ton of money and get two degrees a year earlier than she would’ve otherwise.

After several years of going the traditional college route, Dedic found herself struggling financially.  In her research for options she “stumbled upon the concept of testing out of a degree”.

In the beginning, I was skeptical. I hadn’t heard of anyone in my day to day life who had used this method. I thought it was too good to be true, but after further investigation, I quickly realized this was a legitimate way to get college credit and speed up the graduation process.

I managed to take over 30 tests, for three college credits per class, each test costing me about 129 after administrative fees. Using the test-out method, I was able to obtain my AS in General Studies and BS in Psychology within the span of a year.

At the end of the day, I paid about one semester’s worth of tuition in order to obtain both degrees. The savings were extraordinary!…

She mainly used DSST (DANTES Subject Standardized Tests) and CLEP (College Level Examination Program) exams to earn enough credits to get her degree in psychology from Charter Oak State College in New Britain, Connecticut.  This non-traditional school offering online courses is not prestigious by any stretch of the imagination, but their alumni page shows that graduates have gone on to get advanced degrees from institutions like Harvard and Quinnipiac University.

A pragmatic approach

Dedic appears to be an ambitious person whose next move is teaching English overseas.  While her career path may take twists and turns instead of leading directly to a secure, well-paying job, that is also true for many graduates of traditional colleges who paid much more for their degrees.  And whether it’s AP or CLEP, most colleges allow students to save time and money by testing out of some courses.  Considering the limited amount of learning that goes on at college these days, this emphasis on credentialing may realistically be the best option for many students.

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Tori Reid, “Ask Your Advisor How to Test Out of Classes and Get Your Degree Early”, Lifehacker, 12/31/14.

Emina Dedic, “How to Test Out and Get Your Degree Early”, HackCollege, 12/23/14.

January 6, 2015

Federal student loans continue to grow

by Grace

Federal student loans have climbed sharply every year since 2007.

20150102.COCFEDERAL STUDENT LOAN DEBT-HISTORICAL-CHART-1

From November 2013 through November 2014, the aggregate balance in the federal direct student loan program–as reported by the Monthly Treasury Statement–rose from $687,149,000,000 to $806,561,000,000, a one-year jump of $119,412,000,000.

The balance on all student loans, including those from private sources, exceeded a trillion dollars as of the end of the third quarter, according to the Federal Reserve Bank of New York.

The steep rise starting in 2010 can be partly explained by the elimination of the Federal Family Education Loan (FFEL) program, which allowed private lenders to make federally guaranteed student loans.

In 2010, Congress passed and the President signed into law a bill that eliminated the FFEL program for all new loans made as of July 1, 2010. All federal student loans have been made under the Direct Loan program as of that date….

The federal government now “essentially serves as the banker — it provides the loans to students and their families using federal capital (i.e., funds from the U.S. Treasury), and it owns the loans,.

Wealth transfer from taxpayers to colleges and students

The federal student loan program serves as a transfer of wealth to colleges and universities.  Rich schools like Harvard enjoy rising endowments while their students receive federal loans.

By doling out a net average of about $100 billion per year in student loans, the federal government allows even the nation’s wealthiest universities to charge students more than they and their families can pay without going into debt.

That makes colleges richer and students poorer.

Students benefit from taxpayer-funded loan forgiveness programs.

“Currently, over 50 loan forgiveness and loan repayment programs are authorized, and at least 30 of which were operational as of October 1, 2013,” says CRS.

When the government forgives or repays a student loan, it becomes a redistribution of wealth from taxpayers to a person who attended college.

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Terence P. Jeffrey, “Federal Student Loan Debt Tops $800 Billion”, CNS News, December 31, 2014.

December 30, 2014

How will the new federal college rating system affect higher education?

by Grace

Beginning next year, colleges and universities will be judged on three broad criteria when it comes to meting out federal financial aid: access, affordability and student outcomes, according to a new “framework” released by the Education Department.

Public input on the new framework will be accepted until February 17.

Schools could be rated on a sliding scale, from “high performers” to “in the middle” to “low performers,” based on such indicators as whether they meet a certain average net price, graduation and student loan repayment rates, and whether graduates get a job in the field they studied.

Measuring employment outcomes can be complicated.

One of the most controversial ideas that’s been debated is some kind of jobs measure. This framework includes two different examples: What percentage of students have a job, say, six months after graduation? And what are their median earnings long-term?

The administration says it will collect and present this labor market information in a way that is “sensitive to educational, career, work force and other variables.” In other words, a divinity school won’t be dinged because its graduates are pastors with low salaries.

Two other possibilities on the list for outcomes are grad-school attendance rates, and loan-repayment rates. That last metric has already been put into place as the “gainful employment rule” for for-profit colleges, which are suing to stop it.

What are the chances that once the metrics are in place, schools will try to find ways to game the system?  For example, will they push students to enroll in graduate school so they can be put into the “successful outcome” category?  Will standards for graduation decline?

Related:  ‘Gainful employment rules are applied unequally to colleges’

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Scott Neuman, “Education Dept. Issues Framework For New College Rating System”, NPR, December 19, 2014.

Anya Kamentz, “New Federal College Ratings Will Consider Aid, Total Cost, Employment”, NPR, December 19, 2014.

December 23, 2014

A Marshall Plan for higher education?

by Grace

In consideration of “the sky-high unemployment rate of recent graduates” and soaring student debt levels fueld by clueless students, Victor Davis Hanson proposes a Marshall Plan for higher education.

… There should be a Marshall Plan on campuses to advise and help students in their second and third years about post-graduate employment. Financial counselors should warn students when their tuition debt reaches unsustainable levels. One would think university counselors early on would mandate consultations with students on job preparation, faculty would mentor students about job opportunities, and in general the employment rates of recent graduates would be well-publicized. What sort of business hikes its charges while lowering the quality of its product? Answer: one that is subsidized by the government.

Whoa!  If expansive government intervention is considered detrimental, then a Marshall Plan seems like overkill as an attempt to help solve today’s problems in higher education.  Although the Marshall Plan may be favorably viewed by most people, a credible counter argument is that its sterling reputation is in fact “a modern myth”.

… there is no convincing evidence that the Marshall Plan caused Europe’s growth. For instance, U.S. assistance never exceeded 5% of the GDP of the recipient nations. As Cowen points out, “The assistance totals were minuscule compared to the growth that occurred in the 1950s.”

Moreover, receipt of aid did not track with economic recovery. France, Germany and Italy began to grow before the onset of the Marshall Plan, while Austria and Greece expanded slowly until near the program’s end. Great Britain, the largest aid recipient, performed most poorly.

Far more important for Europe’s growth was policy reform….

The Marshall Plan may have been a generous act, but that doesn’t mean it spurred Europe’s recovery. The real lesson of the Marshall Plan is that entrepreneurial culture, legal stability and free markets are necessary for economic success. Liberty, not money, is the key to prosperity.

In which case the better solution may be for the government to take a smaller role in helping finance college.  Maybe growing subsidies are actually hurting the low-income students they are intended to help.

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.

A Marshall Plan initiative for today’s college woes could easily become a bureaucratic, costly fiasco with unintended consequences that cause more harm than good.

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Victor Davis Hanson, “The Campus as California”, PJ Media, December 14, 2014.

December 18, 2014

Informed consumers put pressure on rising college costs

by Grace

For the first time in years, the rise in tuition at many colleges is expected to be below the rate of inflation.

Today’s college students are more aware and informed about rising costs and financial aid, and more sensitive to price. That’s going to put ongoing pressure on the whole higher education industry’s finances, according to a Moody’s report (paywall) which gave a gloomy outlook for the whole sector.

A severe version of this is putting major pressure on US law schools, which are actively competing on tuition (paywall) for students, slashing faculty, or closing altogether. Since the 1970s, US tuition costs for undergraduate and graduate degrees have climbed to historic highs. But tuition hikes have slowed substantially as the number of schools have grown, spurring more competition.

This year, a far greater number of the graduate and undergraduate schools Moody’s surveyed projected under 2% tuition growth, a fraction of what we’ve seen for years, and below the cost of inflation:

20141214.COCDecliningTuitionIncreases1

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Max Nisen, ” People are getting smarter about college costs and it’s squeezing the whole industry”, Quartz, December 4, 2014.

December 16, 2014

Many college students are clueless about their student loans.

by Grace

The findings of a Brookings Institution study “suggest that a significant share of undergraduate students do not understand how much they are paying for college or how much debt they are taking on”.

20141213.COCMisEstimateCollegeDebt2

Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret. They are also likely to be surprised or even fearful when their first loan payments come due, which may impose an emotional burden on borrowers. More broadly, it may perpetuate popular narratives about crushing student loan burdens, which could discourage promising students from pursuing a college education.

We tend to think that college students are smart, but findings like these certainly put that belief in doubt.

Related:  College students are ignorant about how student loans work

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Beth Akers and Matthew M. Chingos, Are College Students Borrowing Blindly?, Brookings Institution, December 2014.

David Leonhardt, “What Students Don’t Know About Their Loans”, New York Times, December 10, 2014.

December 15, 2014

The decline in college enrollment continues

by Grace

College Enrollments Drop for 3rd Straight Year

Here’s a related trend.

Trend of sharp growth in high school graduates is ending.

20130730.COCDecliningHSGraduates2

The declining number of high school graduates coupled with a (possibly) recovering economy and soaring tuition point to falling college enrollment.

Related:  ‘Budget woes are particularly acute at small, mid-tier private’ colleges

November 12, 2014

Almost every parent in the world wants college for their child

by Grace

A survey asking parents in 15 countries revealed that 89% of them want their children to go to college.

Although parents around the world have different views on what a good education should provide at different stages, they are united in their high educational aspirations for their children, with nearly nine in 10 (89%) parents wanting their children to go to university. More than three in five (62%) want their child to go on to study at postgraduate level.

20141108.COCCollegeForAllAroundTheWorld2

As the chart shows, 55% of American parents want their children to go on to postgraduate school.

“College for all” seems to be a common wish all over the world.

Source:  The Value of Education Springboard for success, an” independent research study was commissioned by HSBC and carried out by Ipsos”.

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