Student aid leads to tuition hikes

A large fraction of the rise in college tuition is explained by the rise in financial aid, concludes a new NBER paper.

The researchers’ model supported the Bennett hypothesis, which states that colleges will raise tuition to capture increased student aid. (It’s named after William Bennett, Reagan’s Education secretary.)

The Bennett hypothesis “fully explains all the tuition increases between 1987 and 2010, according to the study,” reports Reason.

Increasing subsidies doesn’t increase enrollment because the aid is canceled out by tuition hikes, the study found. Instead, students borrow more, leading to more loan defaults down the road.

A study by the New York Federal Reserve also found linked student aid to rising tuition.

Here’s The Atlantic‘s round-up of proposals to make college affordable from Hillary Clinton, Bernie Sanders and Marco Rubio.

 

 

A teacher who owes $410,000 in student loans


Liz Kelley, left, and her sister and fellow teacher, Sheryl Silverberg, 45, at Ms. Kelley’s home in Ballwin, Mo. Credit: Whitney Curtis/ New York Times

“The federal government has become the biggest, nicest and meanest student lender in the world,” writes Kevin Carey in the New York Times. It’s very easy to borrow for college. It’s easy to defer repayment. But it all comes due eventually.

A Missouri high school teacher owes the federal government $410,000 for student loans. Liz Kelley, 48, hasn’t made a single payment, so the interest keeps mounting.

Liz Kelley received her graduate education degree in 2001.

Liz Kelley received her graduate education degree in 2001.

She borrowed $26,278 for a bachelor’s degree in English from Maryville University, a private school near St. Louis. After graduating in 1994, Kelley enrolled in law school. That delayed repayment on her loans and let her borrow $37,000 for the first three semesters.

After a serious illness, she quit law school and decided to go into teaching. A married mother of four, Kelley borrowed to pay for child care and tuition so she could study education at Maryville. After finding a teaching job, she borrowed again to earn more graduate credits to raise her pay.

She stayed in graduate school for five years, which let her put off repaying her loans. Graduate school and child care added $60,700 to the principal and the interest kept mounting. Her debt totaled $194,603 by 2005.

In the recession, the Kelleys lost their home to foreclosure and divorced. The loans came due — but the teacher was able to defer payments for three years due to hardship. She owed $260,000.

By this time, Ms. Kelley’s children were reaching college age. One received a financial aid package that included $12,000 in Parent PLUS loans, a federal program that allows parents to borrow money for their children’s college education after the children have reached the maximum on loans of their own. She agreed, hoping to minimize her children’s debt. She briefly enrolled in an education Ph.D. program at Texas A&M before withdrawing, but not fast enough to avoid an additional $7,458 in loans.

. . . After her loan deferment ended, she enrolled in another, similar federal program called forbearance, also because of an economic hardship. The hardship this time was the loans themselves.

In a little more than a year, the final forbearance will expire. The loan servicer could garnish her wages — she teaches at a parochial school — and eventually her Social Security.

“She had taken out her first student loan 25 years earlier and had yet to make a single payment,” writes Carey. With accumulated interest, she owes $410,000. Monthly loan payments would be $2,750 for 30 years.

If she found a public school job, she could use income-based repayment, which would link her payments to her income and erase the remaining debt after 10 years. “But that would still mean a decade of what she describes as ‘futile’ payments that won’t even cover her monthly interest expenses, leaving nothing to put away for retirement.” Carey writes.

I guess she objects to paying anything, ever.

For-profit colleges and the mobility lie

As a for-profit college inspector, Michael Fitzgerald called recruiters, pretending to be a potential student, to see if they were lying. His employer in the summer job was a large chain of for-profit colleges that wanted to protect itself from fraud charges, he writes in Pacific Standard.

Recruiters didn’t lie very often, Fitzgerald reports. They didn’t have to. “They were pitching a product—upward mobility via higher education — that the rest of society had already primed their customers to desire, no matter the cost.”

Raised in a low-income family, Fitzgerald turned down a scholarship to University of Vermont to attend the more prestigious Carnegie Mellon. He used a $5,000 annual Pell Grant, and federal loans — the interest rate was seven percent — to pay the $40,960 annual bill for tuition, room and board. He ran up more than $70,000 in student debt.

I wish anyone involved in my indebtedness—my family, Carnegie Mellon, the federal government, the state of Pennsylvania, or even the Middle States Commission on Higher Education (which accredits both Carnegie Mellon and many of the for-profit schools I called as a fake prospective student) had asked me what I planned to major in and what career I aspired to. Then, maybe, when I’d said “English” and “writer,” they’d have denied me a $5 loan for cab fare home, or told me they’d rather see an armed robber in their office. I would have had to seek out a solid, affordable state school.

His Carnegie Mellon degree helped him get “a salaried position in a competitive field of my choosing,” he writes. He’s paying off his loans.

Marginal students drawn to for-profit colleges typically start poor and remain poor — and in debt — after trying and failing to earn a degree, Brookings warns.

Young people are told that “college is a must-make, can’t-lose investment,” writes Fitzgerald. “For some people, it’s a shouldn’t-make, can’t-win investment.”

Every job is a ‘public service’

Two students borrow to earn nursing degrees. The one who works at a public hospital can pay an “affordable” percentage of his income for 10 years, then erase the rest of the debt under the Public Service Loan Forgiveness program (PSLF). The other works as a nurse at a private hospital. That’s not considered public service, so the debt has to be repaid in full.

Every job is a public service, argues Alexander Holt on EdCentral.

Under PSLF, anyone who works for a government agency or non-profit — payroll supervisor, computer tech, accountant — is a public service worker. About a quarter of the workforce qualifies.

Nobody who works for a for-profit company — no matter what they do — can get the same debt forgiveness deal.

Young farmers believe growing the nation’s food is a public service, reports MarketWatch.

Emily Best, 32, works on a Pennsylvania farm for $1,600 a month plus room and board. She “has tens of thousands of dollars in loans, mostly from graduate school, where she studied environmental policy with a focus on farming and agriculture,” reports MarketWatch.

Under the income-based repayment open to all borrowers, she’s able to defer paying her loans without defaulting. But the debt won’t go away.

“Best thinks she deserves to have her loans forgiven” after 10 years like others who serve the public interest, writes Holt.

. . . Best certainly is performing a public service. And so is the truck driver delivering his food to the grocery store, and the grocery store clerk, selling me my food. So too is the parent without any paid job, taking care of a child at home. Children, after all, are the future. The question for Best, and the government, is who isn’t working in the service of the public?

Student debt is worse than you think, writes Kevin Carey. Schools may have low default rates but high non-repayment rates. Students can defer or delay making loan payments “based on economic hardship, continuing education and other factors.” The interest keeps mounting up.

Here’s who can’t repay student loans

To the extent there is a college debt crisis, “it is concentrated among borrowers from for-profit schools and, to a lesser extent, two-year institutions,” concludes a Brookings paper.

Why?  Students who choose for-profit colleges and community colleges disproportionately are less-prepared students from lower-income families. The weakest students gain the smallest benefit from enrolling in college. Even a small loan is hard to repay.

“Colleges with lower standards offer a way to get a degree without being very bright, writes FuturePundit. It’s not surprising that “students who to go the low IQ colleges default at much higher rates.

He adds: “Kids who aren’t too bright are being economically harmed by delaying work to go to colleges where they won’t learn anything useful.”

Income-based repayment soars

Graduates at George Washington University’s 2015 commencement. Photo: Alex Brandon/Associated Press

Student loan holders are jumping to sign up for income-based repayment plans, writes Mikhail Zinshteyn in The Atlantic. That will be costly for taxpayers.

Depending on the program, the qualified borrower pays either 10 or 15 percent of his or her income over a duration of 20 or 25 years (10 years if the borrower spends that entire time employed at a government or nonprofit position). Any amount not paid off after those periods is excused, a perk that can translate into hundreds of thousands of dollars for borrowers with high student-debt loads.

Borrowing is limited for undergrads, but not for graduate students who who average much higher earnings than four-year graduates.

Income-based repayment programs are costing taxpayers $11 billion a year, estimates New America analyst Jason Delisle. But that could rise quickly, writes Zinshteyn. Colleges “could charge higher tuition and encourage students to assume the costs, with Uncle Sam swallowing their debt loads.”

In 2013, Delisle and colleagues wrote about an administrator at Georgetown University’s law school encouraging students to take out large amounts of debt that’d be excused after 10 years as part of the income-based repayment program’s public-service provision.

“We have a federal program that will provide $150,000 of loan forgiveness to someone who graduates from Georgetown Law, but a poor kid who wants to go to Georgetown undergrad can only get $5,000 a year,” Delisle said. “I would struggle to find a more regressive federal education policy.”

Small borrowers are the most likely to default, writes Susan Dynarski. “Defaults are concentrated among the millions of students who drop out without a degree, and they tend to have smaller debts.”

Study: Federal aid fuels tuition hikes

Federal grants and student loans have fueled the rise in college tuition, according to a new report by the Federal Reserve Bank of New York.

Each additional dollar in government aid led to a tuition hike of about 65 cents, the report found. “The numbers were not quite as grim for Pell Grants, where 55 cents of each additional dollar turned into higher tuition, but it was even worse for subsidized student loans (the most common type of aid), where every dollar loaned translates to a 70-cent tuition hike,” writes Blake Neff in the Daily Caller.

This is consistent with earlier research, writes Hans Bader, who’s got lots of links.

Increased regulation also has driven up college costs, argues Bader. Obama’s Education Department has “flooded the nation’s schools with new rules that have never been properly vetted or codified,” college presidents complained recently.

Wastefully run colleges can now increase tuition even faster, at taxpayer expense, as a result of the Obama administration’s recent expansions of the Pay As You Earn program. The Pay As You Earn program limits borrowers’ monthly debt payments to 10 percent of their discretionary income. The balance of their loans is then forgiven after 20 years—or just 10 years, if the borrower works for the government or a nonprofit. It will cost taxpayers a lot, while doing nothing for most student borrowers (who will experience tuition increases as a result), and it will favor imprudent borrowers over prudent borrowers.

. . . (Borrowers) will pay the same amount over 20 years (or 10 years) no matter how much their high-priced college charged in tuition—eliminating any incentive for such colleges to keep costs under control, or to keep their tuition from escalating at a dramatic rate.

Cato’s Neal McCluskey links to eight studies on the inflationary effect of student aid.

Obama’s higher ed legacy includes nearly doubling Pell funding for low- and moderate-income students and more than tripling tuition tax credits for the middle class.

Sanders: “Free” and federalized higher ed


Vermont Sen. Bernie Sanders is seeking the Democratic presidential nomination.

State colleges and universities should be tuition free, says Bernie Sanders. “In exchange for billions of new taxpayer dollars, the federal government would enforce a specific vision of what a high-quality college education means,” writes Kevin Carey, education policy director at the New America Foundation. It’s “a terrible idea.”

States would have to promise that, within five years, “not less than 75 percent of instruction at public institutions of higher education in the State is provided by tenured or tenure-track faculty.” In addition, any funds left over after eliminating tuition could be used only for purposes such as “expanding academic course offerings to students,” “increasing the number and percentage of full-time instructional faculty,” providing faculty members with “supports” such as “professional development opportunities, office space, and shared governance in the institution.”

States would be prohibited from using the money for merit-based financial aid, “nonacademic facilities, such as student centers or stadiums,” or “the salaries or benefits of school administrators.”

This is a professor’s dream, writes Carey. There’s “tenure for everyone, nice offices all around, and the administrators and coaches can go pound sand.”

It will lead to “lengthy regulatory guidance” and lots of lawsuits, he predicts. Meanwhile, new models that might be more affordable, flexible and effective would be shut out.

Responding to middle-class anxiety, candidates are proposing “free college, debt-free college, or some combination of the two,” writes Carey. Federal money “will come with serious conditions based on some vision of what constitutes a high-quality college education.”

It’s time to break up the higher education “cartel,” said Republican candidate Marco Rubio, who borrowed heavily to earn his college degrees.

Rubio pledged to create a new accreditation process that would allow low-cost providers — perhaps largely online – to compete with established schools. He has called for colleges to tell potential students how much salary they can expect to earn for a given degree before they commit themselves to a major.

Loan repayments should be based on postgraduate incomes, said Rubio.

Think before you go to college

Think before you go to college, says blogger/professor Glenn Reynolds in a Reason TV interview. What are you going to study? Will you be able to repay student loans? His book, The New School, predicts “the information age will save American education from itself.”

A country of credentials

The U.S. has become a “country of credentials” because of the U.S. Supreme Court’s 1971 “disparate impact” ruling, argues Bill McMorris in The American Spectator.  Griggs v. Duke Power Company changed how companies hire, pay and promote workers, he writes.

Matt Damon played an MIT janitor who was a  math genius in Good Will Hunting

Matt Damon played an MIT janitor who was a math genius in Good Will Hunting

Black workers complained they had to be high school graduates and pass two aptitude tests to be promoted at their North Carolina plant. Blacks were less likely to pass than whites and less likely to have finished high school.

The court agreed that was racist. “What is required by Congress is the removal of artificial, arbitrary, and unnecessary barriers to employment when the barriers operate invidiously to discriminate on the basis of racial or other impermissible classification,” Chief Justice Warren Burger wrote.

The military used aptitude testing heavily in World War II and businesses followed suit in the post-war era, writes McMorris. Blue-collar workers could rise through the ranks.

“Despite their imperfections, tests and criteria such as those at issue in Griggs (which are heavily…dependent on cognitive ability) remain the best predictors of performance for jobs at all levels of complexity,” University of Pennsylvania Professor Amy Wax has found.

. . . “Most legitimate job selection practices, including those that predict productivity better than alternatives, will routinely trigger liability under the current rule,” Wax wrote in a 2011 paper titled “Disparate Impact Realism.”

The solution for businesses post-Griggs was obvious: outsource screening to colleges, which are allowed to weed out poor candidates based on test scores. The bachelor’s degree, previously reserved for academics, doctors, and lawyers, became the de facto credential required for any white-collar job.

That’s pushed more people to go to college and into debt, McMorris writes. “One out of every four bartenders has a diploma, and though they listen to moping for a living, few majored in psychology.”