Showing posts with label Inside Higher Education. Show all posts
Showing posts with label Inside Higher Education. Show all posts

Monday, September 21, 2015

Private Colleges Behave Like Car Salesmen and They Deserve the Same Level of Respect

When I was young, car buying was a very stressful experience. In the old days, car buyers were always at a disadvantage. They didn't actually know the fair price of 1962 Ford Fairlane, and they didn't know how much other people were paying for them. Thus car buying involved tense negotiations, urgent consultations between car salespeople and their supervisors, and sweaty car buyers sitting in showrooms wondering if they were about to pay too much.

And sure enough, right after you drove your shining new Plymouth Fury home and parked it proudly in the driveway, your neighbor came over to tell you that his brother-in-law got the same model for a hundred bucks less and the dealer threw in whitewall tires for free.

How much is this beauty really worth?
Today, car buyers have a lot more information about car prices, thanks to websites like Edmunds.com. But families are much in the same position as car buyers in the 1960s when they shop for a college. They really don't know what the fair price of a college education is, and they don't know what other families are paying. And colleges, just like 1960s car dealers, do all they can to obscure the fair price of a college education.

For example, Utica College in central New York and Rosemont College in Pennsylvania recently slashed their tuition prices drastically. Utica cut its tution from $35,466 to $20,000--a 42 percent price reduction. Rosemont dropped its tuition price from $46,000 ($46,000!) to $30,000--a discount of more than 30 percent.

Wow! Prices Slashed! Everything Must Go! What a lucky break for college students and their families. Just like the end-of-the-year sale at the Chevy dealer.

But wait. According to Inside Higher Education, very few Utica and Rosemont students were actually paying the full cost of tuition. At Utica, only 271 out of 2,300 students were paying the sticker price. And at Rosemont, only 9 out of 1,100 students were paying full tuition--less than 1 percent!

Rosemont and Utica, like most American colleges and universities, are engaging in differential pricing. They set a very high sticker price, hoping a few suckers will pay it; and then they offer steep discounts to the students they really want to attract--minorities, students with high SAT scores, athletes, legacies, etc. In fact, nationwide, the average tuition price at private schools is about half of the posted tuition.

Of course, all businesses adjust their prices somewhat to attract buyers at various income levels. That's the way business has been done since the beginning of time.

But American colleges have taken differential pricing so far that they've tarnished their integrity. How can a college honestly say that its tuition price is $46,000 when less than one percent of its students actually pays that price?

The hocus pocus about college tuition prices is part of the general confusion about college costs. The FAFSA form for financial aid is unintelligible, tuition varies from student to student, and the student-loan process is so complicated that many students don't know how much money they borrowed, how much they still owe, or whether their loan is a federal loan or the loan from a private lender.

But that's the way the colleges like it. Keep 'em confused. And if a customer asks too many difficult questions, throw in a set of whitewall tires to seal the deal.



My brother-in-law told me you'd give me a really good deal . . . .
References

Big price cuts, small savings at two private colleges. Inside Higher Education, September 17, 2015. Accessible at: https://www.insidehighered.com/quicktakes/2015/09/17/big-price-cuts-small-savings-2-private-colleges

Friday, April 4, 2014

More Bad News About Student Loans: The Default Rate for Parent PLUS Loans Has Nearly Tripled Since 2006

Inside Higher Education reported today that the default rate for Parent PLUS loans has nearly tripled since 2006.  According to the Department of Education's most recent report, the three-year default rate on these loans is 5.1 percent.  In 2006, the PLUS loan default rate was only 1.8 percent.

The higher PLUS loan default rate doesn't sound too bad when compared to the overall student-loan three-year default rate--about 14 percent, according to DOE's report last October.  But let's look at the PLUS Loan default rate for parents of students attending for-profit colleges--13.3 percent! 

That's a scary number. And keep in mind that parents are not required to begin making loan payments until their children complete their studies.  If a student takes six years to graduate  (which is typical) or enrolls for graduate studies, the parent is not obligated to make loan payments until those studies are complete. Meanwhile, the interest is accruing on those loans--making them more difficult to repay.



Some institutional players--the Historically Black Colleges and Universities, in particular, are protesting recent efforts by DOE to tighten loan standards for PLUS loans. They say that making it more difficult for parents to borrow money for their children to attend college will disproportionately effect African American families and make it more difficult for African Americans to attend college.

But the HBCUs are primarily thinking about themselves, don't you think?  They don't want the feds to reduce the flow of federal student-aid dollars by making it harder for parents to take out PLUS loans.

A number of people commented on today's Inside Higher Education article, and it is clear to me that many of the commentators know a lot about the PLUS loan issue.  But as of this morning, not a single commentator pointed out that PLUS loans, like all federally-sponsored student loans cannot be discharged in bankruptcy unless the parents can show "undue hardship."

In other words, parents who borrow money under the PLUS program don't have reasonable access to the bankruptcy courts if they run into financial trouble caused by illness or the loss of a job. Thus, if their children get in over their heads by borrowing more money than they can pay back, both the student and the parents will be saddled with a debt that cannot be discharged in bankruptcy absent very unusual circumstances.

The higher education industry's discussions about the federal student loan crisis has an Alice in Wonderland quality about it.  The colleges and universities--whether public, private, for-profit or HBCUs--are primarily interested in keeping that federal student aid money flowing. They are like crack addicts--addicted to federal money just to keep their doors open.

We should be making every effort to keep college costs from continuing to rise. We should discourage parents from taking out personal loans to pay for their children's education. And--this is very important--we should amend the Bankruptcy Code to allow overburdened student loan debtors to discharge their debts in bankruptcy, whether they are students or the parents of students.

References

Michael Stratford, Education Department releases default rate data on controversial Parent PLUS loans. Inside Higher Education, April 3, 2014.  Available at:




Friday, June 28, 2013

Warning: Don't Enroll in an Elite College if You Are Poor

The U.S. Department of Education has a so-called "College Affordability and Transparency Center." I'll bet you didn't know that.

 Of course, DOE isn't completely transparent.  It won't tell you the true student-loan default rate, for example.  But you didn't want to know that anyway, did you?

DOE's center recently posted its so-called  "hall of shame,"  a list of the country's most expensive colleges.  In 2012, the most expensive private nonprofit college was Columbia University, where it costs $45,000 a year to attend.

Interestingly, DOE's "hall of shame" list posts two prices for each institution--the college's list price and its net price, which is lower.That's right--colleges are just like car dealers.  They have a sticker price for suckers and a lower price for favored clients.

Who are the colleges' favored clients?  Athletes, people with high SAT scores, offspring of alumni and minorities.

Oh, yes--and poor people.  The elite colleges say they want a "socioeconomically diverse" student body and they often offer financial aid to poor students, which the colleges call the "socioeconomically disadvantaged."

This is how it works at Columbia University, as explained by Robert Hornsby, Columbia University's Vice President for media relations.  "As a result of our full-need financial aid program," Hornsby said, "Columbia has continued to attract among the most socioeconomically diverse student bodies among peer institutions. The university takes pride in its continued commitment to ensuring that students can attend Columbia regardless of their family's financial circumstances."

Don't you wish you could sling bull around like Mr. Hornsby? Well, you can learn to talk like that if you get a degree from Columbia and it will only cost you about a quarter of a million bucks (including living expenses).

And if you are poor it will cost you less to attend Columbia, because you will be eligible to participate in Columbia's "full-need financial aid program." Sounds great doesn't it?

Unfortunately, poor people who attend elite colleges don't always fare well.  For example, let's look at Angelica Gonzales, a young Hispanic woman who was featured in a recent New York Times story.  Angelica was from a low-income family in Galveston, Texas, but she was admitted to Emory University in Atlanta--the Harvard of the South.  Because of  her family's income status, she was eligible to participate in Emory's financial aid program, which was supposed to cover most of her costs.

What a great opportunity!

Unfortunately, things did not work out well for Angelica.  Because of miscommunication with the university, Angelica wound up borrowing $40,000 for her first year at Emory. Later, Emory miscalculated her family's income, making her ineligible to participate in a grant program for families making less than $50,000 a year. As the Times reporter described the error, "Emory repeatedly inflated her family’s income without telling her."

Angelica wound up borrowing $60,000 to attend Emory.  Worse--she was unable to complete her degree and dropped out of college. At the time the Times story was published, Angelica was back in Galveston making $8.50 an hour working at a Galveston furniture store. And she is burdened with $60,000 in student-loan debt.

Emory's Lynn Zimmerman
photo credit: Emory Univ.
Did Emory try to make things right for Angelica? According to the Times, Emory refused to recalculate Angelica's student aid in spite of its error. Lynn Zimmerman, a senior Emory administrator, put part of the blame for the mistake on Angelica, saying she should have advocated for itself.  (Let's hope Emory later reconsidered.)

I don't know how Angelica feels about her Emory experience; she may have no regrets.  But in my opinion, Angelica would have been better off if she had never heard of Emory.

Angelica Gonzales' story may be unusual, but I don't think so. I think a lot of low-income kids get lured into attending elite colleges thinking this will be their ticket to a better life.   Often the financial aid does not cover all costs, and they are forced to borrow heavily.  And often the support networks are not in place to make sure low-income students are successful when they enter the rarefied world of the elite private college.

If things don't work out for these low-income students--if for some reason they don't complete their degree or they complete their degree and don't get a good job--they are in real trouble if they took out student loans.

And if a student runs into financial trouble, do you think that elite college is going to be around to help? I don't think so.

In my opinion, most young people who come from low-income or modest-income families would be better off going to a state university or even a community college rather than borrowing a lot of money to attend a fancy East Coast university or a joint like Emory. 

Let's face it, you don't have to attend an elite private college to get a good education.  You can get one for a lot less money closer to home.

References

Jason DeParle (2012, December 22). For Poor, Leap to College Often Ends in a Hard Fall. New York Times, p. 1.  Accessible at: http://www.nytimes.com/2012/12/23/education/poor-students-struggle-as-class-plays-a-greater-role-in-success.html?pagewanted=all&_r=0

Libby Nelson (2013, June 28). Education Department releases annual tuition pricing lists. Inside Higher Education

Note: All quotes in this essay came from the Times article cited above or the above-cited article in Inside Higher Education.

Monday, November 19, 2012

10,000 law review articles are pubished each year--most of them useless. Meanwhile law school tuition has gone through the roof.

Let's write more law review articles!
John G. Browning published an essay in today's Inside Higher Education (www.insidehighered.com) criticizing law reviews. Browning points out that 600 law journals publish 10,000 law review articles each year, and 43 percent don't get cited by anyone.  And these articles are not cheap. Browning estimates that the cost of a law review article written by a tenured professor at a top-tiered law school is around $100,000!

I have written a few law review articles myself, and I have been cited more than 100 times in the law reviews, including Harvard Law Review. I admit, however, that most citations to my work are in law students' articles, not articles written by law professors. I suspect the law students cite me to demonstrate that they did a superhumanly exhaustive review of the literature: "See, I even cited an obscure article by some nobody College of Education professor from Texas!"

Professor Browning cites one article as an example of how esoteric most legal research is: "Historic injustice and the Non-identity Problem: The Limitations of the Subsequent-Wrong Solution and Towards a New Solution." But there are many law articles with similarly obscure titles. How about this 2004 essay: "Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance, and Kant: Toward a Moral Theory of Good Governance."

It is shocking that law professors churn out articles at the rate of 200 a week, most of which have little or no value, while law-school tuition is going through the roof; and the market for law graduates has shrunk.  As a bankruptcy judge pointed out in a recent opinion, the law schools will turn out around 45,000 graduates a year in the coming years for a job market that only needs 25,000 jobs.

Meanwhile, so far this year, the federal government has garnished the Social Security checks  of 120,000 elderly student-loan debtors who defaulted on their loans. One might hope that at least one of the 10,000 law review articles that will published in 2012 will recommend that this practice be stopped. But don't count on it.

References

John G. Browning (2012, November 19). Essay criticizing law reviews and offering some reform ideas. Inside Higher Education, www.insidehighered.com