The college debt crisis is worse than it seems

http://www.bostonglobe.com/magazine/2016/05/18/hopes-dreams-debt/fR60cKakwUlGok0jTlONTN/story.html

by elberto34 • 10 years ago

67 108 10 years ago

thearn42• 10 years ago

It seems clear that the American university system is fed by a largely inelastic demand and isolated from larger market forces, thanks in part to the endless spigot of federal loan money (complimented by the strong preference of employers towards traditional degree holders).

What is less clear to me is how to fix this in a reasonable, least-damaging way.

vkou5• 10 years ago

Ban education discrimination against job applicants. (Except for jobs which require certification).

Right now, there is no drawback for an employer requiring a bachelor's degree for a job that has no use for it. Putting an end to this practice will stop the pointless rat race.

Alternatively, cap student loans, and put lower boundaries on what % of tuition goes towards instruction. Most tuition funds do not go towards education, and there is a lot of pressure for universities to spend them on building Potemkin villages.

toomuchtodo3• 10 years ago

Right now, there is no drawback for an employer requiring a bachelor's degree for a job that has no use for it.

Increase an employer's taxes commensurate with the cost of the education for the workers they hire. If you truly need workers with bachelors, masters, PhDs, you pay for the cost. Internalize the externality.

dragontamer• 10 years ago

Right now, there is no drawback for an employer requiring a bachelor's degree

Erm... how about fewer applicants and higher wages?

The average bachelor graduate will demand higher wages than the average high-school graduate. The market is demanding higher education for some reason. If you think its immoral that's one thing... but its completely different to argue that there is "no drawback".

Walmart isn't asking for bachelor degrees to fill in their "Walmart Greeter" or "Walmart Cashier" positions.

lettergram2• 10 years ago

I really want my aerospace engineers to be able to do math...

Universities accredit them, so companies don't have to spend their money doing it (via a ridiculous number of interviews). Interviewing is already one of the largest sinks of money for a largish company, no need to make it worse.

Far better, would removing the guaranteed loan payback the government provides. This would force universities to lower prices as students wouldn't be eligible for loans. Further, it increases the barrier to universities, meaning less people will have degrees and in turn companies would have an incentive to hire people without degrees. Plus people with degrees would get paid more (making it easier to pay off loans).

The whole issue is universities aren't having to deal with market forces. Add back in the incentives and it'll be 10x cheaper.

rm_-rf_slash13• 10 years ago

Great idea!

1: Job gets posted

2: High school graduate applies

3: Manager searches applicant and sees no higher education

4: "Thank you for your interest in this position, however we are looking for someone with a little more experience."

FussyZeus4• 10 years ago

It's not JUST the education though. Holding a degree shows you're capable of following a schedule, arriving to predetermined places on time regularly, keeping yourself relatively organized, receiving and completing assignments from authority, and are willing to work hard at things that aren't immediately obviously essential but you do them anyway.

gherkin0• 10 years ago

Ban education discrimination against job applicants. (Except for jobs which require certification).

All that will do is create a regime of required certifications that people will need to get a job, and it will probably greatly reduce (individual) employment flexibility. Employers need some way of judging applicants ability, and it's my understanding that explicit aptitude tests have basically been banned, employers have to use education as a proxy.

put lower boundaries on what % of tuition goes towards instruction. Most tuition funds do not go towards education, and there is a lot of pressure for universities to spend them on building Potemkin villages.

I think this is a much more reasonable suggestion. Cut out all the extra costs and make college a spartan environment focused on learning.

marincounty• 10 years ago

I always felt a rigorous test could be administered, and tailored to specific job applicants.

And yes, if we had tough tests, make it illegial for an employer to even ask where you went to school.

For example, if a person can pass the CA bar, let him/her practice law?

I bring up the CA bar test because it's especially hard.

There are some professions that wouldn't lend themselfs to testing, but they would be the exception.

danielweber3• 10 years ago

I like this idea, and have recommended it before.

A partial step towards that end would be to return to the situation 20 years where student loans could be discharged in bankruptcy. This would indirectly put the pressure on the other parts of the system that never cared what kind of debt load the student was being saddled with.

replicatorblog2• 10 years ago

Probably impossible politically and even difficult operationally, but cutting off the federal funds would go a long way towards getting these institutions to get competitive.

Texas has been piloting programs that grant BA's for $10K. Not per year, all in (https://www.texastribune.org/2013/01/30/guide-getting-one-te...). If Texas can do it, why not more schools.

There will always be a place for elite educational institutions, the Rolls Royce of higher ed, but there should be a Toyota Corolla equivalent as well. This program in Texas proves that it is possible.

intrasight2• 10 years ago

Makes sense that the states will have to lead the way. And if those programs don't accept federal funds, then that becomes a powerful vote against the current paradigm.

the_watcher2• 10 years ago

It is clear and it's not in part, it's entirely caused by.

mulcahey5• 10 years ago

State funding has also drastically decreased. But perhaps that's because the federal government was willing to help out instead:

https://qph.is.quoracdn.net/main-qimg-d6bcc38832f7f3716570d3...

thescriptkiddie• 10 years ago

Here's an idea. Instead of using federal funds to subsidize the student loan industry, give that money straight to public colleges so they don't have to charge tuition anymore.

rm_-rf_slash13• 10 years ago

The article should have mentioned the inflationary effects of foreign students. A lot of foreigners who study in the US are either A: loaded or B: backed by their home state. It has gotten to the point where foreign students are somewhat expected to come to subsidize American financial aid. Add in the article's woes: increasing value of a college degree, cuts in education budgets, and cutthroat competition leading to a state of constant expensive campus development all leads to an enormous bill just to keep the lights on.

The other aspect I take issue with is the farming out of federal loans to private companies. The US Department of Education doesn't need to make a profit on my federal student loans to exist, but my loan company does, and I'm stuck paying 6%. I have never seen a convincing argument as to why people like me are saddled with profit-seeking companies doing what should be a purely public service.

shas3• 10 years ago

Foreign students are 1.13 million [1] and the sum total of all students in the US is around 20 million ( age < 25 + age > 25) [2]. How much can they really contribute marginally to tuition inflation given that they are only 5-10% of the population? If foreign workers are taking American jobs, Chinese factories are taking over manufacturing, and international students are leading to tuition inflation, in general, US seems to be coping rather poorly with the effects of globalization. More likely, internationals are like Don Quixote's windmills.

Edit: forgot references

[1] http://www.wsj.com/articles/international-students-stream-in...

[2] http://nces.ed.gov/fastfacts/display.asp?id=98

rm_-rf_slash13• 10 years ago

"Coping poorly" is one way of putting it. I prefer "[the American people were] suckered into bad trade deals with countries with nonexistent labor and environmental standards which forced them to compete on the same level even though foreign competitors were handed enormous advantages as though they were US states but immune from regulation, thereby gutting the American middle class and the necessary tax base necessary to foot the bill for the kind of human investments necessary for a large country to succeed in a global information economy," but I guess your way works too.

intrasight2• 10 years ago

At elite technical schools, the figure is more like 60% foreign

ChrisLomont• 10 years ago

How much can they really contribute marginally to tuition inflation given that they are only 5-10% of the population?

Being 5-10% of the population does not imply they only provide 5-10% of the tuition. They might also be more likely to be full time, again meaning they pay disproportionally more.

sotojuan• 10 years ago

Yep. My school (which costs $50-60k full tuition and dorm) gives out generous scholarship... But also has so many international students who mostly pay full price that in some cases classes are 90% international.

It was always funny when I was in the cafeteria and found myself being the only non-Chinese.

Loughla• 10 years ago

To point A: this is 100% true. When consulting for higher educational institutions, the first revenue stream I evaluate is that from international students. They pay their bills, they pay more than native students, and they graduate with few issues - if they do have issues, you just ship them home.

And I don't mean large, prestigious universities - these rules for foreign students apply to everything from large private colleges/universities to small, regional community colleges.

rm_-rf_slash13• 10 years ago

Absolutely right. Also it costs a hell of a lot less for a wealthy family or a poor-to-moddle-income state to be educated in America and use what they learned in their home state rather than build up equivalent educational institutions at home.

That's why you end up seeing a lot of partnerships with US universities on foreign soil (Yale in Singapore, RIT in Croatia, Cornell in Abu Dhabi...)

EDIT: This also helps wealthy Chinese youths who are so committed to disappointing their parents that they fail to score within the .001 percentile on the Gaokao and have to be shipped off to Harvard instead.

chiph• 10 years ago

constant expensive campus development

I don't understand all the amenities that modern universities have (gourmet meals, private rooms, hot tubs, etc). I didn't have time for any of that - I had to study and work at my part-time job so I'd have gas & pizza money. We weren't wearing hair shirts by any means, but living in the dorms made you appreciate things afterwards.

Regarding the rising debt - it's cynical of me, but I wonder if universities don't care about their graduation rates any more. After all, there'll be another freshmen class showing up in a few months and they'll also be waving federal college aid checks at the bursar. So if students drop-out (or are on academic suspension), it's no skin off the universities' back that the student still owes all that money.

nugget2• 10 years ago

The market solution for student loan rates is to underwrite based on factors such as school attended and major/intended career. For whatever reason it seems this hasn't been done at scale until very recently (with SoFi offering low rates to the Ivies). The fact that an art history major at a lowly ranked state school pays the same loan rates as a computer science major from MIT or a medical school student from Duke implies that the market is inefficient. As a result of that inefficiency (which may be purposeful to prevent discrimination - I'm not sure), more qualified borrowers subsidize less qualified borrowers.

rm_-rf_slash13• 10 years ago

I suspect the market appreciates the art history graduate going through cycles of forbearance and capitalization which allow them to charge higher interest rates on the reliably solvent MIT software engineer.

gshubert17• 10 years ago

Would another market solution be to have the university underwrite the first 10% or 20% of the loan. In effect, they would be on the hook if the student tried to take on too much debt, etc. As it is, universities seem to have little motivation when the debt is carried by third parties to help their students after graduation.

replicatorblog2• 10 years ago

A bit off-topic, but this is also true of many hospitals. The private insurers and government programs fight with hospitals to drive down rates, so the elite hospitals are aggressively marketing in the Middle East and China for rich patients who can pay the full ticket price. I lived at Children's Hospital with my daughter for ~2 months and ~1/3 of the patients were international.

dman• 10 years ago

There is a reverse effect as well, good hospitals in developing countries are aggressively marketing their services for medical tourism by customers in developed nations. I dont know if this has any measurable effects for pricing in those countries.

eastbayjake• 10 years ago

It seems like these thinkpieces about "debt" are really about two separate issues:

(1) College debt is a good investment if you learn things and graduate, but too many colleges are failing to educate students and too many students end up dropping out with debt and no degree. The good news is that this problem has a pedagogical solution, but it requires many colleges to hire faculty based on teaching skill rather than research achievements. The US is doing some of the world's best research, but too many academics are doing second-rate research at third-rate institutions. Many of those academics should instead be focused on teaching instead of research.

(2) Everyone can benefit from learning new things -- even (or perhaps especially) a liberal arts education -- but many students are attending college to get a credential and land a good job. We should be clearer about what we want institutions of higher learning to teach: life's big questions or job skills? I could imagine a higher education system that does both, but there's no good reason it should cost $50k/year to read literature/philosophy with thoughtful guidance and peer discussion. Maybe our liberal arts educations should look more like structured gap years, while technical education would have specific learning outcomes tied to workforce demand and better information for prospective students about passing rate, job placement rates, and starting salaries so they can make informed decisions about their financial risk.

My final complaint: I've never wanted my student debt forgiven, but it does sting to make student loan payments with after-tax income that goes directly to banks bailed out at taxpayer expense during the recession. If lawmakers wanted to help the student debt crisis, a great start would be making student loan payments tax-deductible (up to a certain total, and only below a certain income level) instead of just having student loan interest be tax-deductible.

jdmichal2• 10 years ago

We should be clearer about what we want institutions of higher learning to teach: life's big questions or job skills?

This used to be easy to answer. The first is a university and the second is a trade school or apprenticeship. However, the latter has fallen out of favor (for some reason?), and universities are having to pick up both roles. I don't think this is the right answer, but it's the only one that seems to have political / financial support. Interestingly, software rediscovered "trade school light" in the form of coding bootcamps.

If lawmakers wanted to help the student debt crisis, a great start would be making student loan payments tax-deductible ... instead of just having student loan interest be tax-deductible.

Tuition is deductible. So you effectively deduct the principle payments the year you pay tuition. It makes perfect sense for only the interest to be deductible the second time around.

the_watcher2• 10 years ago

Tuition is only deductible up to $4000 per year. Which would be reasonable if that were remotely close to what any college (outside of a few notable, laudable exceptions) are charging.

jseliger• 10 years ago

College debt is a good investment if you learn things and graduate, but too many colleges are failing to educate students and too many students end up dropping out with debt and no degree

I teach college and will also add that there are a large number of students who have no business being there. They aren't prepared, don't know why they're in college, don't have the skills (and frequently disposition) to succeed, and only go because parents / teachers told them they should. Many are poorly served by sitting quietly and doing abstract symbol manipulation; they'd be better served by schools of shorter duration that teach practical skills.

This is pretty obvious to anyone teaching at non-elite schools.

ghostcat0248• 10 years ago

Out of curiosity, what sorts of skills/etc would you want to see for students to succeed in college, that they don't have now?

Overtonwindow2• 10 years ago

At one of my former universities we had a glut of professors who were tenured, teaching courses no one wanted, or needed. The only way to keep these classes filled was to require students to take the classes, and if that didn't work, to require labs on classes that traditionally did not have, or need, a lab, and then make the professors teach those. That worked until the foreign student glut. Now that same university (George Mason fyi) has to dramatically increase the number of senseless labs so they can provide graduate teaching assistants jobs to the foreign students. It's more like a shell game than an actual education. Serious question: Does Research Methods in Psychology really need a four hour lab???

dsr_• 10 years ago

The problems with student debt are (a) it is not affected by bankruptcy and (b) the Federal government guarantees it, either via the pre-2010 program or the subsequent direct loan program.

The result is that colleges and universities do not experience meaningful declining rates of acceptance (demand) when they raise their prices.

One alternative would be to stop government support of loans entirely. That would tend to re-price college at a level closer to its actual value.

Another alternative would be to nationalize higher education.

r00fus• 10 years ago

What about rolling back the disastrous 2005 bankruptcy "reform" legislation?

I mean, in terms of political viability, that'd be just as viable as the two options you mentioned...

rm_-rf_slash13• 10 years ago

There is literally nothing wrong with studying the humanities. I am amazed at how many brilliant engineers skip history and literature and become predictable consumerist cogs because "that's how the world works" as far as they've ever known.

Time was you'd go to college, get a job, and get trained while you work. Of course I'm not saying a rocket scientist opening should cater equally to the engineer and the artist, but we have become so addicted to pedigree that we forget how differently things can be done when we don't expect a new CS graduate to build a mobile API on their first day.

enraged_camel• 10 years ago

>Time was you'd go to college, get a job, and get trained while you work.

You got trained while you worked because most people stayed at the same company from the day they started until the day they retired. So it was easy for companies to justify investing time and money into training: barring unusual circumstances, they expected that person to remain an employee for a long time.

Nowadays though, job-hopping is the norm. If the company cannot expect you to stay for longer than X years, they're going to adjust their hiring practices to make sure new hires are "safe", i.e. have degrees from prestigious colleges. Of course that still doesn't guarantee they will have the necessary skills from the get-go, but if things don't work out the hiring manager can at least cover his/her own ass by saying, "well, he/she was a <prestigious college> graduate..."

caseysoftware• 10 years ago

The opposite is just as bad.

If all you learn is history and literature and nothing about how the world around you works - aka science and math - your deficiencies are just in other areas.

If something is "well rounded," it has shape in all directions.

AnimalMuppet6• 10 years ago

There is literally nothing wrong with studying the humanities.

There's a lot wrong with going deeply into debt to study the humanities, though - especially when you wind up surprised that you can't make enough of a living to pay off your loans.

Kinnard• 10 years ago

I think it's obvious to anyone not living under a rock that the higher education cliff is in view.

EnFinlay• 10 years ago

That first graph is really confusing.

mswen3• 10 years ago

Here is my observation: based on oldest kid graduating 1.5 years ago from a Big 10 University with a degree in Scientific & Technical Communication. It was substantially harder to get a job than we expected. With my network - I finally located her a summer internship on 1099 basis that has turned into a year long engagement - still on a 1099 basis. To date she is showing no financial advantage from attending college. She could make the equivalent doing any number of things that don't require a 4 year degree. They are finally making noise about bringing her on FT salaried with benefits.

Then we run into someone who graduated in her same class - still hasn't found work in her field and is making do as a hostess at a restaurant. No financial advantage.

These are kids who graduated from respected university and yet here they are still struggling to see a financial benefit.

My daughter's debt is fairly low because: she took advantage of a state program that pays tuition to start college early, she lived at home, took public transportation, didn't buy a car until she got this 'job' and still lives at home with our support so that she can focus on paying off the education loans that she did end up with.

Was college worth it? I still think so and I have 3 more to go, but I have to say that I am really starting to think hard about the value of higher education.

brians• 10 years ago

What department at your employer would you expect to hire a Comms major? How many do they need per year? What fraction of those are college hires, vs people who have paid their dues in some trench elsewhere?

mswen3• 10 years ago

She is working in an Engineering department for a company that does sensors and cloud monitoring in a specific vertical industry. She does a combination of QA for devices and related software plus has been migrating their documentation from a wiki to SharePoint and editing the entries for clarity, grammar and writing style of the documentation as she does the migration.

People from her degree typically would work with product and engineering teams to do both internal documentation as well as user manuals, well written FAQs and other support documentation. In a major medical device company located near here they have teams of people doing this working with expert translators to appropriately localize surgical guides for surgeons around the world. In more academic settings they are sometimes employed to provide assistance in grant writing.

You make some good points about new college hires versus experienced people who have paid their dues - but that is true of any field. I am not saying I expected that she would match the salary of CS or engineering grad from the same university. But in comparison to pure communications degrees or English lit degrees - this degree is positioned as the sensible writing degree that actually has corporate positions available.

And, to the point of the article - which focused on people who maybe aren't quite ready for college and don't finish their degree but still end up with debt. If anything she is the opposite - qualified to start college 2 years early. Finished in a total of 4.5 years and for what?

Now it may payoff as she continues to pay dues in entry level work but for now she could make as much money doing any number of jobs that don't require a 4 year degree.

AnimalMuppet6• 10 years ago

she took advantage of a state program that pays tuition to start college early...

Tell me more. What state, and what program? I'd love to have something like that for my kids...

mswen3• 10 years ago

Minnesota. It is called PSEO. If a student scores above some threshold on standardized testing and is in the top third of their class in high school they qualify to enter college as a Junior in high school.

Some students just take a handful of college classes while others like my daughter attend FT and get their freshman and sophomore years of college done while still in high school. And, the state of Minnesota pays full tuition as well as books. It is a great deal for hardworking capable students who are willing to take on regular college work and expectations 1 or 2 years early.

avnfish• 10 years ago

Maybe we should learn from the ‘controlled’ experiment in the UK. There the new fees structure caps undergraduate tuition at £9k per year. Gov loans with very forgiving repayment terms are provided for students. The government expected only a few elite universities to charge the full £9k, with the rest charging between 6k and £8k. Their rationale was that universities would compete on price and try to deliver value for money. In reality, universities interacted with each other in entirely the opposite direction – they raced to the top. This is quite surprising, considering the huge variability between universities and courses: 3 years of tutorials in economics at Cambridge cost the same as staying at home and doing social work at the University of Huddersfield. LSE used to charge £8.5k (a symbolic gesture, more than anything), but bumped it up to £9k when it realised (1) their perceived value was derived from their price tag (the higher the better) and (2) that hyper-competition over league tables encourages aggressive spending programmes.

I think this tells us that universities will always charge as much as they can get away with, and that laissez faire economics does not work well in a market filled with institutions that are often shielded from free market effects (e.g. ‘lock-in’ to past choices, difficulties for new entrants into the market, no easy way to weigh-up costs/benefits of investment, etc.). Colleges in the US have a broad range of incentives to charge the highest acceptable market rate (which is usually between $55k and $85k for undergraduate tuition).

maxerickson7• 10 years ago

It think that gets a lot of it. If everyone has loan money, universities get less out of competing for students than students get out of competing for spots at universities. So the universities stop competing (financially) for students (that's a euphemism for charging the maximum).

To me it makes sense to limit the support that students see to competitive grants that only cover most of the cost of tuition (like 75 or 80 percent). Then universities have some reason to keep tuition lower (students will be somewhat price sensitive), students have motivation to examine whether they should go to school. There's probably some fairness issues to address with that, I guess the competitive aspect of the grants could be the size of the grant, with every student having some access.

edited in the (financially) in the first paragraph.

danielweber3• 10 years ago

Yes. For a long time, most schools never competed on price, because the student was never seeing the price. The result was predictable: skyrocketing costs.

zackmorris• 10 years ago

The college debt crisis is not so much about specifics like the rising cost of education or that more women and minorities are attending now than in the past. It's really about corruption.

Fannie Mae and Freddie Mac got big after the saving and loan scandal in the 80s, orchestrated by Neil Bush:

https://en.wikipedia.org/wiki/Savings_and_loan_crisis

https://en.wikipedia.org/wiki/Neil_Bush

Sallie Mae got big after Reagan largely defunded public universities, switching to student loan based funding with the goal of moving those loans over to private institutions.

So what it basically comes down to is each generation keeps getting fleeced by these private firms while the government looks the other way, and taxpayers pick up the tab.

Just watch as this thread fills up with thousands of comments blaming this or that. They have us all distracted bickering amongst ourselves so we don't see who is profiting. If we want to fix higher learning in America, we need to go back to pre-1980s policies and get private financing out. Universities should be funded by endowments set up by the alumni who have profited greatly by the quality educations they received. It's no wonder that people are doing the math and opting out of college because the loans are too expensive. It was never supposed to be like that in the first place.

Overtonwindow2• 10 years ago

This is another article beating the college debt drum, and unfortunately it also misses a few critical points: Students are attending expensive schools, with expensive private loans. Instead of going to a community or state school, paid for by the federal Stafford loan, they choose to take out loans from banks to go to private, or worse, for-profit schools, with zero certainty and little guidance. This is further compounded by the endless number of require classes students are forced to take, that have little to no impact on their major, career choice, or academic goals, and are further saddled with endless labs, and fees.

Large student debt is the fault of both the students, and the schools. Both need to take responsibility.

scarface74• 10 years ago

No one is forced to go to a private college and rack up debt. Go to a state college. Most students could probably go to a junior college their first two years close to home and transfer. I always laughed seeing people thousands in debt getting a comp Sci degree making no more than me - a graduate of an unremarkable state school.

The college debt crisis is worse than it seems

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