Posts tagged with: student debt

In addition to my post yesterday and other education related posts on the Powerblog (here, here, here, here, and here), I highly recommend this analysis of the higher ed bubble from educationviews.org if anyone is interested in learning more.

I would emphasize that this is not simply an economic problem but a moral one. We cannot in good conscience continue to promote higher education to our youth while its quality continues to diminish and its price continues to rise. To do so is to fail to fulfill our moral duty to leave an inheritance to the next generation from the good that previous generations have passed on to us. The bar needs to be raised as a matter of human dignity. On the whole, people will rise (or fall) to the level of the expectations that we have for them. The level of expectations placed upon a person sends a message about their perceived ability and value. In addition, needless spending needs to be cut, and our government and banks need to stop handing out loans like candy to pursue degrees that will not realistically secure the income needed to pay them back. This is a present moral failing that is leading us to a future economic collapse.

From the article:

As George Will describes it, the bubble is what happens “when parents and the children they send to college are paying rapidly rising prices for something of declining quality.” The point at which parents cease to be willing to pay those rising prices is when the bubble bursts. When that happens, the financial assumptions on which American higher education has been based for many decades will come crashing down.

There are, however, two highly unpredictable elements in the current situation. One is the willingness of the Obama administration to sustain the bubble by encouraging more and more students to attend college and by using student loans to support this expansion. The other is the bubble-deflating power of online education.

Read more . . .

Dr. Richard Vedder, the Edwin and Ruth Kennedy Distinguished Professor of Economics at Ohio University and the director of the Center for College Affordability and Productivity, recently addressed the topic of federal aid and the cost of higher education, an issue that has received some attention on the PowerBlog as of late. Vedder critiques federal aid initiatives like the Pell Grant, which today helps the middle class more than the poor, but saw a twofold size increase from 2007 to 2010. Vedder’s article, titled “Federal Student Aid and the Law of Unintended Consequences,” levels a string of critiques against the current system and ultimately argues for a complete re-examination of federal student aid programs. A portion of his argument his excerpted below:

In the real world, interest rates vary with the prospects that the borrower will repay the loan. In the surreal world of student loans, the brilliant student completing an electrical engineering degree at M.I.T. pays the same interest rate as the student majoring in ethnic studies at a state university who has a GPA below 2.0. The former student will almost certainly graduate and get a job paying $50,000 a year or more, whereas the odds are high the latter student will fail to graduate and will be lucky to make $30,000 a year.

Related to this problem, colleges themselves have no “skin in the game.” They are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults are extremely high, imposing costs on taxpayers.

In the conclusion of his article, published in Hillsdale College’s monthly speech digest Imprimis, Vedder notes the good intentions with which federal aid programs were established. Unfortunately, these good intentions do nothing for the effectiveness of the system, now responsible for more debt than credit cards. With the debt crisis handcuffing so many Americans, a strong sense of moral urgency–paired with sound economic thinking–is necessary in rethinking the future of student aid in America. Vedder’s article is a useful start.

One of the most worrisome economic troubles coming down-the-pipe is the “student debt bubble” which many argue is caused by too many students seeking degrees in higher education as the costs of tuition increase. Because we understand that poverty and economic misfortune are serious barriers to human flourishing, it is very important to try and understand the economics involved in the education market. Dylan Pahman gave a good explanation earlier today about how administrative costs are rising to promote a myriad of diversity-advocacy programs, a process which is clearly affecting  the supply-side of the issue. What about the demand side where students are making the decision to go to college?

How is it that so many students are making a seemingly irrational choice? In a post at strategyprofs, Steve Postrel explains here that while it may be true that college degrees may be becoming more common and watered down in the quality of education they represent, that it is also true that high school quality is dropping. This means that college degrees represent a greater increase in knowledge than they used to, signaling a greater value relative to non-college educated persons.

Typical graduate business school education has indeed become less rigorous over time, as has typical college education. But typical high school education has declined in quality just as much. As a result, the human capital difference between a college and high-school graduate has increased, because the first increments of education are more valuable on the job market than the later ones. It used to be that everybody could read and understand something like Orwell’s Animal Farm, but the typical college graduates could also understand Milton or Spencer. Now, nobody grasps Milton but only the college grads can process Animal Farm, and for employers the See Spot Run–>Animal Farm jump is more valuable than the Animal Farm–>Milton jump.

So the value of a college education has increased even as its rigor has declined, because willingness to pay for quality is really willingness to pay for incremental quality. This principle holds true in many markets.

Interestingly, one of the best ways to help lower the cost of college education might to be to improve the quality of education that a high school diploma represents. Understanding why high school education is declining requires us to think beyond a knee jerk “just spend more” reaction and understand that our current public education system is insulated against the processes that wipe out nearly all other inefficient and inferior services: the market.

To effectively help others become productive agents in the market and realize their vocations, we need to advocate for steps that will cause education at all levels to reflect a true added value. School choice seems to be an obvious candidate for improving educational outcomes.

H/T Marginal Revolution

The Obama administration has placed a high priority on making higher education affordable. In January, President Obama spoke to students at the University of Michigan about steering American colleges and universities towards more “responsible” tuition costs.

It’s an admirable goal. According to the College Board, from the 2001-2012 school years, college tuition and costs at public universities increased at 5.6 percent a year more than the cost of inflation. For the 15 percent of consumers responsible for it, college debt totaled $900 billion in the third quarter of 2011, according to a recent Federal Reserve Bank of New York report. Such staggering figures invite questions not only about debt, but ones of morality.

The Bible does not shy away from the issue of debt. Psalm 37:21 demands that debtors pay back what was borrowed. In both the Old and New Testaments, the system of debt is likened to slavery. The issue carries moral implications for both borrower and lender. With as many outstanding college debtors as there are graduates (also from the NY Fed study), the financing of American higher education is not sustainable on its current path.

But Obama’s proposed plan, which includes a $10 billion addition to three federal grant programs, complicates itself through size and scope. Obama’s plan is performance based. It will apply sweeping categorical evaluations to public colleges and universities in varying fiscal circumstances. Schools that constrain net tuition increases will be rewarded. Those that don’t risk losing federal assistance.

The proposal forces the White House into the contentious and ongoing debate about the funding of state universities. Many states, California, for instance, have already imposed massive tuition increases as a result of equally enormous cuts to state aid.

Instead, look to Texas, another state that has faced significant education-related budget struggles in recent years. At last month’s SXSWedu conference, Texas A&M-San Antonio introduced an affiliation with Alamo Colleges, a group of local community colleges, and local high schools to give a number of accepted high school juniors a college degree at the age of 20, all for under $10,000.

The partnership, which was detailed by Thomas K. Lindsay at National Review Online, offers a bachelor’s degree of applied arts and sciences in information technology. The A&M system of schools has also announced plans to offer two additional degrees under the same program. With continued success, the model could potentially be expanded to suit a range of degrees.

The Texas A&M model, unlike the Obama administration’s, is locally-based and promises an efficient, cost-driven approach to higher education. It presents a model of loaning and spending that may be closer to Scripture’s ethical call for fair and honest fiscal relationships.

If more public colleges and universities follow suit by establishing programs similar to A&M-San Antonio’s, the nation could take a large step towards a more educated population with a strong sense of fiscal and moral responsibility.