College dreams turn into debt nightmare

In Student Loans Weighing Down a Generation With Heavy Debt, the New York Times introduces yet another debt-doomed borrower: Kelsey Griffith, 23, borrowed $120,000 to earn a marketing degree from Ohio Northern University. She’s working two restaurant jobs and will move in with her parents while looking for a marketing job.

Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to a Times analysis of Department of Education data. This includes federal and private loans.

Elite colleges with big endowments can offer generous financial aid — and a degree that’s valuable in the labor market. Ohio Northern charges $50,000 a year for a degree of moderate economic value. “Pursue your dreams” is a cruel hoax being played on 18-year-olds and their financially naive parents.

Only 38 percent of payments on federal student loans are being paid, down from 46 percent five years ago, the Times reports. Some borrowers are still in school. Others have deferred payments. Some have defaulted.

Forty percent of recent college graduates have delayed a major purchase, such as buying a car or a home, because of college debt, estimates a Rutgers study.  Only half of the surveyed graduates had a full-time job.

Panderfest

Democrats and Republicans have created a panderfest over heavily subsidized student loans that go primarily to middle-class students, writes Rick Hess. Interests rates were cut — “temporarily” — in 2007. Now President Obama argues the lower rate should remain in force because of the tough job market.

But the debate only affects loan costs for people starting college in 2012-13, which means theyre mostly relevant for grads entering the workforce in 2017, or later. Is the President trying to tell us that he expects the job market to still be brutal in 2017?

Keeping interest rates low is “doubling down on failure,”writes Glenn Reynolds (Instapundit) in the New York Post.

His lower-rate plan would apply only to new loans, and only to loans taken out under the federal Stafford Loan program. He’s not helping previous borrowers get out from under their mountains of debt. He’s helping new borrowers build their own debt mountains.

A serious student-loan reform would link “students’ ability to borrow” to “the likelihood that they’d be able to pay” the loans back, Reynolds argues.

Right now, student loans are sold on the basis that “college” promotes higher earnings. But “college” isn’t an undifferentiated product. Some degrees — say in Electrical Engineering — increase earnings dramatically. Others — in, say, gender studies — not so much. A rational lender would be much more willing to finance the former than the latter.

Now, student debt can’t be cleared in bankruptcy. That should change, Reynolds argues. But colleges should bear some of the costs.  ”Obama’s interest-rate ‘fix’ . . .  just pumps more hot air into the bubble.” Reynolds new book, The Higher Education Bubble, is due out in June.

If you fund it, they will spend

When financial aid flows to affluent students, college raise tuition to capture the dollars, writes Andrew Gillen of the Center for College Affordability and Productivity. However, aid to low-income students, such as Pell Grants, is unlikely to push up tuition, he writes in an Inside Higher Ed essay.

Aid restricted to low-income families allows students who were previously priced out of higher education to attend, without giving colleges the ability to raise tuition without again pricing these students out of higher education. That is not the case with aid given to relatively affluent students who will attend college regardless of price.

Not all colleges will raise tuition, when aid rises, he adds. Instead, “many colleges will instead grow their applicant pool, allowing them to become more selective” and move up in college rankings.

“Don’t leave money sitting on the table” was the ethos, when he attended meetings with university administrators to discuss tuition, writes Peter Wood in a Minding the Campus discussion.

The metaphoric table in question was the one on which the government had laid out a sumptuous banquet of increases of financial aid. Our job was to figure out how to consume as much of it as possible in tuition increases. . . . A substantial portion of the money we captured would be reallocated as “tuition discounts” or “institutional aid.”

. . . And we did all this in the pursuit of educational excellence. It was a large private university in the shadow of world-ranked neighbors and it was attempting to pull itself up in the world of prestige and influence by its bootstraps. There were townhouses that needed buying; laboratories that needed building; faculty stars that needed hiring; classrooms and residence halls that needed refurbishing; symphonies that needed performing; grotesque modern sculptures that needed displaying; and administrators that needed chauffeuring.

Herbert London adds a quote from Derek Bok, a former Harvard president:  “Universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.”

The federal government should provide college aid only to low-income students with performance criteria to weed out mediocre students, proposes Richard Vedder, Gillen’s colleague at CCAP.

Make the college absorb some of the risk for loan defaults — a lesson we should have learned from the financial crisis. Give Pell Grants as vouchers directly to students, not schools. Reinstate private lending options. Unveil new human capital contract approaches that reduce debt reliance. Downsize and reinvent federal programs and allow market discipline to operate more.

Student lending needs to be rethought, write Vedder and Gillen in a Chronicle of Higher Ed commentary.

Sallie Mae drops ‘unemployment penalty’

Under pressure from an online petition, Sallie Mae will stop charging a forbearance fee – $50 every three months per loan — to unemployed borrowers. Instead, what the private lender calls a “good faith deposit” will be applied to the balance of the loan.

Colleges should share student loan risk

Fix student loans by giving colleges “skin the game,” writes Alex Pollack in The American.

(Colleges) are the effective originators, the promoters, and the chief financial beneficiaries of student loans. It is their rising costs which result in ever more debt and more risk of default for student borrowers and for taxpayers.

The federal student loan program should make colleges share the risk of bad loans, Pollack writes. Colleges would have an incentive to avoid charging more than students will be able to repay.

 

Ohio cuts funds for university remediation

Ohio is cutting funds for remedial classes at state universities.

North Carolina community colleges are backing out of participation in federal student loans, fearing a high default rate will risk future students’ access to Pell Grants.

$5.3 billion in aid goes to well-off students

Colleges and universities give $5.3 billion a year in financial aid to students from affluent families.

To avoid default, consider technical college, say investors in bonds backed by bundled student loans.

College today: 31% take online class

Thirty-one percent of college students take at least one online class.

Also on Community College Spotlight:  Should the U.S. adopt Australia’s sensible student loan plan or just charge universities for their graduates’ defaults.

College without crushing debt?

Young people need a college degree to get a decent job, which means they need to borrow.  And, if they can’t get that decent job, they’re stuck with crushing, credit-ruining, undischargeable debt, writes Kevin Carey of Education Sector.  Linking all loans to borrowers’ income will help, but the Obama administration also needs to look for ways to provide affordable alternatives to high-priced colleges.

Community colleges will be able to experiment with limiting students’ access to unsubsidized federal loans in the hopes of preventing overborrowing and defaults.

College loan default rate rises

Two years after leaving college, 8.8 percent of borrowers have defaulted on their student loans, up from 7 percent. That includes 15 percent of for-profit college students.

Also on Community College Spotlight:  President Obama wants to spend $5 billion to upgrade and repair buildings at community and tribal colleges. But college leaders aren’t holding their breath.