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.”

How to prevent college dropouts

The best way to prevent college dropouts is to stop admitting unprepared students to four-year colleges and universities, argues Richard Vedder. People with “some college, no degree” earn little more than high school-only workers, but most have student loans to repay. If they’d started at community college, they might have job skills without the debt.

Colleges limit borrowing, cut defaults

Under pressure to cut student loan defaults, colleges are refusing to accept unsubsidized federal loans that require students to begin making interest payments immediately. Florida’s Broward College won’t accept private loans. Would-be borrowers have to attend a money-management workshop. Defaults are down.

Some colleges get break on default penalties

Fourteen historically black colleges were at risk of losing access to federal student aid because of high default rates on student loans. At the last minute, the U.S. Education Department changed the method used to calculate default rates: 20 for-profit colleges and one public adult education program remain on the list of colleges facing sanctions.

Loan forgiveness rewards big spenders

The public service loan forgiveness  (PSLF) program offers big benefits and bad incentives, writes New America’s Jason Delisle in Zero Marginal Cost. For graduate students planning careers in teaching, social work and government, it’s likely “the federal government will finance the entire cost, without limit, including all living expenses.”

Combining PSLF with Income-Based Repayment encourages graduate and professional students to borrow more and sign up for degree programs of questionable value. Colleges will be able to raise tuition once borrowers realize they’re not going to have to pay back their loans.

At a minimum, lawmakers should cap loan forgiveness under PSLF at $30,000, aligning it with the limit for Pell Grants to low-income undergraduate students. (There is currently no limit.) The federal government should not provide more in loan forgiveness to graduate students than it is willing to provide in grant aid for a low-income student to pursue an undergraduate education.

There is also a case for eliminating PSLF altogether. Because IBR makes any loan size affordable, PSLF isn’t a necessary component of the insurance IBR provides. Rather, it makes IBR do double duty as generous graduate school tuition assistance for those who want to work in non-profit or government jobs—even high-paying ones.

Teachers can use several, overlapping loan forgiveness programs, if they can navigate the complex, confusing federal aid system.