Tag Archives: student debt

Education and Student Debt

A few days ago, I wrote about the increasing tendency to rank colleges on the basis of alumni earnings, as if higher education is simply another venue for job training.

In the comments, people pointed out the importance of earning power, especially in light of the staggering expense of a college education.

Believe me, I get that.

Nothing I wrote was intended to justify the increasing costs of a university education and the resulting sky-high levels of student debt. Indeed, to the extent that we are pricing education out of the reach of many, we are sabotaging the educational mission I was defending.

Student debt is not only a huge problem for recent graduates; it is dragging down the economy. As Matt Impink and I wrote in an article for the Chronicle of Higher Education,

Student debt constrains individual decision-making in a number of ways, and its growth affects the entire economy. For example, people paying back student loans are less likely to start businesses. Considering that 60 percent of new private-­sector jobs are created by small businesses, diminishing the ability to create businesses does considerable harm to the economy.

Debt loads also affect overall consumption. According to research by the Federal Reserve Bank of New York, fewer 30-year-olds in general have bought homes since the recession, but the decline has been steeper for people with a history of student-loan debt and has continued even as the housing market has recovered. In an economy that depends upon the ability and willingness of consumers to purchase homes, furniture, automobiles, and other goods, a debt load that effectively precludes such purchases poses a real problem.

The Consumer Financial Protection Bureau has found that three-quarters of the overall shortfall in household formation can be attributed to younger adults, ages 18 to 34. In 2011, 1.3 million more Americans in this age group lived with their parents than in 2007. Although it is impossible to determine the relative contribution of student-loan debt and the economic downturn to that phenomenon, student debt is clearly implicated. Any program that reduces the need to borrow can only improve the situation.

According to a report from Zillow, the relatively few millennials who are thriving economically are the ones whose parents are able to subsidize college tuition or a down payment on a home. Help with education and buying a home were the two primary ways in which the original GI Bill created upward social mobility. Estimates are that each new household leads to $145,000 of economic impact. If student debt is keeping just a third of those two million young Americans from living on their own — a reasonable, if undocumented, assumption — that adds up to a $100-billion loss or delay in economic activity.

Student debt is an enormous issue for the country. The Democratic presidential candidates have all addressed it; Senator Elizabeth Warren has proposed measures to ameliorate it.

If any of the Republican presidential candidates have paused their attacks on immigrants, reproductive choice and various kinds of “losers” in order to address student debt levels and their impact on either young people or the economy, I’ve missed it.

Playing “What If”

The Chronicle of Higher Education (subscription required) recently published an essay written with my former Graduate Assistant. Hey–if you’re going to dream, might as well dream big….Anyway, here’s our original draft, appropriate for a Sunday Sermon.

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Americans are increasingly concerned about two seemingly unrelated issues: a distressing lack of civic literacy and informed civic engagement among the general public, and the escalating burden of student loan debt.

We could make significant progress on both of these issues with a new G.I. Bill.

In the wake of World War II, Congress passed the Servicemen’s Readjustment Act of 1944, better known as the G.I. Bill. It provided a wide range of benefits for returning veterans, including subsidies that allowed G.I.’s to obtain low-cost mortgages, low-interest loans that could be used to start a business, cash payments of tuition and living expenses to attend a university or vocational training program. All soldiers who had been on active duty during the war for at least one hundred twenty days and had not been dishonorably discharged were eligible. By 1956, estimates were that roughly 2.2 million veterans had used the G.I. Bill education benefits in order to attend college, and an additional 5.6 million had used them to obtain job training of some sort.

The G.I. Bill was expensive, but by all accounts it was a major political, humanitarian and economic success. It contributed significantly to the creation of a skilled workforce, moved thousands of people into the middle class, and was a spur to long-term economic growth.

The G.I. Bill was originally an effort to reward those who had manifested a willingness to risk their lives for their country, but it has had a number of other salutary consequences: it raised the skill level of the American workforce and provided an avenue for social mobility.

Defending the United States is an important goal, but military service is only one aspect of that defense. It is equally important that citizens understand just what it is that our military is protecting. Citizenship is more than residence; patriotism requires informed engagement by people who have earned the right to be considered citizens. Survival of America qua America is not the same thing as physical survival.

To put it bluntly, there is more than one way to lose one’s country.

If we are to provide that second kind of defense—defense of the American system of law and government—we require a civically educated populace, and it is increasingly obvious that current patchwork efforts to boost civic literacy are not producing that populace.

Our proposal builds on the laudable efforts of others—including, recently, General Stanley McChrystal– who have called for a renewal of national service. It’s important to challenge the notion that military service is the only way to serve one’s country. While military service has been shown to significantly increase voting rates and other forms of civic engagement, fewer Americans serve in the military than in past generations, and we need to consider what sorts of national programmatic efforts might begin to change the civic culture.

We propose a National Service program for high school graduates who would be paid minimum wage during a one year “tour of duty.” At the end of that year, assuming satisfaction of the requirements, participants would receive stipends sufficient to pay tuition, room and board for two years at a public college or trade school. The public service requirement would be satisfied through employment with a government agency or not-for-profit organization focused upon civic improvement.

In addition, students would be required to attend and pass a civics course to be developed by the U.S. Department of Education in cooperation with the Campaign for the Civic Mission of the Schools.

What sorts of outcomes might we expect from such a program? Since the program is likely to be most attractive to those struggling to afford higher education, we could expect broader civic participation from populations whose voices are largely missing from today’s civic conversation. A better-educated population should engage in better, more nuanced policy debates, leading (hopefully) to more thoughtful policy choices. We might even see more meaningful and issue-oriented political campaigns, with fewer of the “dog whistles” and less of the intemperate rhetoric that characterizes messages crafted to appeal to uninformed voters.

A program of this sort would also have an enormous and positive impact on the level of student debt.

According to a 2014 report by the New York Times, total student loans outstanding have risen to $1.1 trillion, compared with $300 billion just a decade before. The average total debt for student borrowers was around $30,000 in 2013.

Student debt has thus become a significant impediment to America’s economic growth.

Studies show that the burden of student debt constrains individual decision-making in a number of ways, and affects the entire economy. People with student loans, for example, are less likely to start businesses. Considering that 60 percent of jobs are created by small business, diminishing the ability to create new businesses does considerable harm to the economy.

Debt loads also affect overall consumer consumption. According to research by the Federal Reserve Bank of New York, fewer 30-year-olds in general have bought homes since the recession, but the decline has been steeper for people with a history of student loan debt and has continued even as the housing market has recovered.

In an economy that depends upon the ability and willingness of consumers to purchase homes, furniture, automobiles and other goods, a debt load that effectively precludes such purchases poses a real problem. According to the Consumer Financial Protection Bureau, three-quarters of the overall shortfall in household formation can be attributed to younger adults ages 18 to 34. In 2011, 2 million more Americans in this age group lived with their parents than in 2007.

According to a recent report from Zillow, the relatively few millennials who are thriving economically are the ones whose parents are able to subsidize college tuition or a down payment on a home. Help with education and buying a home were the two primary ways in which the original G.I. Bill created upward social mobility. Estimates are that each new household formed leads to $145,000 of economic impact. If student debt is keeping just a third of those 2 million young Americans from living on their own, that adds up to a $100 billion loss or delay in economic activity.

The G.I. Bill was a social contract that said if you invest in your country’s future, your country will invest in yours.

A national public service program of the sort contemplated here would significantly reduce student loan debt, increase civic competence, and provide local communities with additional human capital— resources they can deploy to improve the quality of local life. (Kalamazoo, Michigan, where a local program has been providing subsidies for college tuition to high school graduates since 2005, the city has seen a 4.7 dollar return for every dollar invested, according to a recent Upjohn Institute Study.)

In addition to the economic benefits, a national program encouraging increased civic knowledge and engagement would also move the culture, since an informed citizenry with experience in civic life can be expected to vote, volunteer and engage at substantially higher levels.

The real question is: do we Americans still have the ability to think big?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Student Debt is a Very Big Problem

The Consumer Financial Protection Bureau recently estimated the amount of total student debt at nearly $1.2 trillion. (Yes, that’s trillion with a “t”) and reported that federal student loans alone make up more than $1 trillion of that amount, with private loans making up the remaining $165 billion.

But as the website Vox reports, actual debt incurred for college is probably higher. Some students or parents use credit cards, loans from retirement plans, or home equity lines of credit to pay tuition, fees, and living expenses. Those financial products aren’t included in the $1.2 trillion estimate.

The total amount of student debt in the US has more than tripled in the past 10 years, as more students attend college and a higher proportion of those students take out loans. Thanks to rising costs, they’re also borrowing more than students did in the past.

The staggering amount of student debt isn’t just bad news for the students anxious to find good paying jobs that will allow them to repay those loans; it’s a huge drag on the economy. Student loan borrowers are less likely to buy a car or a house, in part because they can’t save for a down payment. They have less disposable income for consumer spending. Their credit scores are worse.

And since the students taking on debt tend to be from needier families, the student loan crisis is yet another structural impediment to greater income equality.

There has to be a better way.

Many countries have either free higher education, or extremely low tuition and grant aid: Germany, Denmark, Finland, Iceland, Norway, Sweden, Mexico and Brazil. Other countries that don’t offer free higher education have instituted small student fees. Australia and New Zealand have a system tuition and fees, but student loan repayment is entirely based on later earnings; student borrowers who make less than $50,000 a year owe zero monthly payments, and never pay more than 8 percent of income.

If they can do it, so can we.

Remember when America was the land of opportunity and social mobility wasn’t just a story we told each other?

A Reform Worth Considering

I have long believed that America’s patchwork, complicated method of financing higher education makes no sense. I watch working students taking one more class than they can really manage in order to meet aid eligibility requirements; I see the university employing dozens of people to shuffle the paperwork; I see parents struggling to complete complex forms–and of course, we’ve all seen the reports of unmanageable student loan debt. The need to repay that debt constrains the choices of graduates who might go into lower-paying but more satisfying jobs, makes periods of unemployment more terrifying, and probably restrains the sort of consumer spending that would boost economic growth.

An article in the recent issue of the Atlantic suggests scrapping the whole system and replacing it with a far simpler, more transparent approach. I hope a couple of paragraphs from that article will tempt you to click through and read the whole thing.

With what the federal government spent on its various and sundry student aid initiatives last year, it could have covered the tuition bill of every student at every public college in the country. Doing so might have required cutting off financial aid at Yale, Amherst, the University of Phoenix, and every other private university. But at this point, that might be a trade worth considering.

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The under-funding of public university systems and Washington’s attempts to compensate have also helped nourish a giant barnacle on the side of higher-ed: the for-profit college industry. As scarce classroom space at community and open-admission state colleges has filled up, students turned towards alternatives like Kaplan University and University of Phoenix, which charge tens of thousands of dollars for degrees with dubious job market value. They get away with it because of federal aid. I call it the 10, 25, 50 problem: They educate ten percent of students, who take out about a quarter of all student loans and are responsible for about half of all defaults. In the meantime, they suck up about $8.8 billion, or around 25 percent, of all Pell Grant money.