BY HANK REICHMAN
In his essential and devastating critique of the privatization of public higher education, The Great Mistake, Christopher Newfield concludes a chapter on the student debt problem with the observation that “the current financial aid system is structured to translate either flat tuition or higher tuition into higher debt.” Here’s how this works:
The state once paid for the public good of education, and the university tried to keep students in school by minimizing student costs, which did not hurt university finances. The university also tried to maximize human capital outputs in teaching and research by “spending all that they make.” Under the private funding model (that leverages public funding), tuition goes up, student debt increases, states spend more public funding on financial aid, which inspires them to deduct this from their spending on university operations, and that induces universities to increase both tuition and the gap between student need and actual aid, which both further increase debt. As higher education is defined as a private good,, the state and the university become antagonists, as do students and their universities. And everybody’s costs go up.
In her equally essential and devastating critique of contemporary financial aid policies, Paying the Price, Sarah Goldrick-Rab demonstrates in graphic terms how federal, state, institutional, and private financial aid is grossly inadequate. As a consequence, students work too many hours at outside jobs, go without food and sometimes are even homeless, and in the end too often leave without degrees but with crippling debt nonetheless.
Now, in an op-ed piece published this past weekend in the New York Times, Ben Miller, senior director for postsecondary education at the Center for American Progress, reports that “The Student Debt Problem Is Worse Than We Imagined.” According to Miller, federal law requires the Department of Education to calculate student default rates based solely on default rates over the first three years of repayment. That method produces results that, in Miller’s terms, are “not too bad.” Of those who started repaying in 2012, just over 10 percent had defaulted three years later. However, in response to a FOIA request by Miller, the department has released data that reveals a more complete — and more troubling — story. According to this new data, “the default rate continued climbing to 16 percent over the next two years, after official tracking ended, meaning more than 841,000 borrowers were in default. Nearly as many were severely delinquent or not repaying their loans (for reasons besides going back to school or being in the military). The share of students facing serious struggles rose to 30 percent over all. Collectively, these borrowers owed over $23 billion, including more than $9 billion in default.”
Miller continues,
Federal laws attempting to keep schools accountable are not doing enough to stop loan problems. The law requires that all colleges participating in the student loan program keep their share of borrowers who default below 30 percent for three consecutive years or 40 percent in any single year. We can consider anything above 30 percent to be a “high” default rate. That’s a low bar.
Among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid. Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates.
For-profit institutions have particularly awful results. Five years into repayment, 44 percent of borrowers at these schools faced some type of loan distress, including 25 percent who defaulted. Most students who defaulted between three and five years in repayment attended a for-profit college.
Miller concludes,
The federal government, states and institutions also need to make significant investments in college affordability to reduce the number of students who need a loan in the first place. Too many borrowers and defaulters are low-income students, the very people who would receive only grant aid under a rational system for college financing. Forcing these students to borrow has turned one of America’s best investments in socioeconomic mobility — college — into a debt trap for far too many.
The author highlights an interesting problem but that problem may be more the translation of university costs.–especially professor, staff and administrative overhead–into student debt. That is, students and their families are underwriting a rather corrupt educational bureaucracy whose costs, like government itself, are out of control. That combined, as the NYT oped writer noted, with elongated degree durations (even 4 years for an undergrad; 3 for law or 5 or more for the MD or PhD, is an utterly unnecessary indulgence) creates a breathtaking inefficiency all monetized by debt. Universities have been milking this system for a long time. Parent protests, perhaps? Part of the problem is the monopoly stranglehold the Academy maintains on both curriculum and administration. It is a racket no different in economics than its commercial market counterparts. Antitrust cause of action, perhaps? University costs need to be out back into control. That will require a market response–hostile takeover–or a regulatory intervention. In the meantime, parents and students may want to ask why they are subsidizing the Academy’s lavish lifestyle, salaries, benefits that rival Congress and a workload that more resembles work loafing. Regards. Post script: readers may enjoy some letters provided by myself and fellow parents in the same NYT edition cited here.