Luigi Zingales,an economics professor at the University of Chicago, recently proposed an innovative way to finance students' college education costs: allow the venture-capital industry to finance students' college education in return for a share of the students' future income.
This is how Zingales explained his proposal in a recent New York Times essay: "Investors could finance students' education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student's future income--or, even better, a fraction of the increase in her income that derives from college attendance."
Zingales insists that his plan is not a new form of indentured servitude but a way of having the beneficiaries of a college education pay for it--not the taxpayers.
Only an economist from the University of Chicago could come up with such a wacky idea.
A few comments:
First, contrary to Professor Zingales's assertion, the plan is indeed a modern form of indentured servitude, whereby the rich finance the education of the poor for a share of the poor person's future wages.
Second, until recently, most Americans considered a college education as a benefit not only for the degree holder but for society at large. We all grow richer when we enable people to become more productive through becoming better educated. Thus, it makes sense for our society to invest in higher education and to broaden opportunities for people to earn college degrees. To suggest that venture capitalists--not the taxpayers--should finance students' college costs negates the American philosophy of public education, which is to make it available to everyone and to at least partially subsidize it so that no one is excluded based on poverty.
The federal student loan program is indeed in crisis, but we won't end the crisis with oddball ways to finance it cooked up by economics professors. We saw what happened to the housing market when the venture capitalists got involved with it. Why would we want venture capitalists mucking up higher education?
Friday, June 15, 2012
Friday, June 8, 2012
Thanks, NY Times, for Another Tepid Editorial About the Student Loan Crisis
In The Big Lebowski, Bunny Lebowski tells the Dude that her boyfriend is a nihilist. "He doesn't care about anything," she explains.
"That must be exhausting," the Dude replies sympathetically.
This scene reminds me of the New York Times editorial writers. Every day, they go to work and pen editorials opining on all the world's problems: global warming, the crisis in the Middle East, the European Debt crisis, obsesity--it must be exhausting!
Of course, not all of the Times' editorial advice is useful. Earlier this week, a Times editorial, entitled "College's True Cost," commended the Obama administration's efforts to get colleges to communicate more clearly with students about the cost of attending college. As the Times reported approvingly, "[t]he Obama administration is developing a standardized form" that all colleges can use to report on how much a year of college costs and estimating the monthly payments students will owe when paying off their student loans.
"Unfortunately," the Times concluded, "colleges are unlikely to embrace this forthright approach unless the federal government makes it mandatory." Right. More government regulations will solve all our problems.
Obviously, givng students more information about their student-loan obligations is a good thing. But giving students clearer information about their student-loan debt burden is not going to solve the student-loan crisis any more than telling people how many calories are in a Big Mac will solve the nation's obesity crisis. People are still going to buy those Big Macs and students are still going to take out college loans because most of them can't afford to attend college without borrowing a lot of money.
Solving the student-loan debt crisis is going to take more than the creation of a standardized form for colleges to give students when they dole out student-loan money. As I've said before, these things must be done:
References
Editorial (2012, June 7). College's true cost. New York Times, p. A24.
The Dude, Donny and Walter: |
This scene reminds me of the New York Times editorial writers. Every day, they go to work and pen editorials opining on all the world's problems: global warming, the crisis in the Middle East, the European Debt crisis, obsesity--it must be exhausting!
Of course, not all of the Times' editorial advice is useful. Earlier this week, a Times editorial, entitled "College's True Cost," commended the Obama administration's efforts to get colleges to communicate more clearly with students about the cost of attending college. As the Times reported approvingly, "[t]he Obama administration is developing a standardized form" that all colleges can use to report on how much a year of college costs and estimating the monthly payments students will owe when paying off their student loans.
"Unfortunately," the Times concluded, "colleges are unlikely to embrace this forthright approach unless the federal government makes it mandatory." Right. More government regulations will solve all our problems.
Obviously, givng students more information about their student-loan obligations is a good thing. But giving students clearer information about their student-loan debt burden is not going to solve the student-loan crisis any more than telling people how many calories are in a Big Mac will solve the nation's obesity crisis. People are still going to buy those Big Macs and students are still going to take out college loans because most of them can't afford to attend college without borrowing a lot of money.
Solving the student-loan debt crisis is going to take more than the creation of a standardized form for colleges to give students when they dole out student-loan money. As I've said before, these things must be done:
- The Department of Education must stop hiding the true student-loan default rate and give the public more accurate reports on how many people have stopped paying on their student loans.
- Insolvent student-loan debtors must be given reasonable access to the bankruptcy courts.
- The Federal government must stop financing the for-profit schools and colleges, which have extraordinarily high student-loan default rates.
- Colleges must operate more efficiently and rein in their costs.
References
Editorial (2012, June 7). College's true cost. New York Times, p. A24.
Thursday, June 7, 2012
The Federal Government Should Stop Bankrolling the For-Profit College Industry
Floyd Norris recently wrote a mild but provocative article in the New York Times that focused on ITT Educational Services, a for-profit corporation that offers post-secondary education programs in 48 states. Norris reported that ITT students pay an average cost of $48,000 in tuition and fees to receive a two-year associate's degree in business administration.
Of course students can obtain a two-year associate's degree from a public community college for a fraction of that cost. One would think the federal government would develop policies to encourage students to attend reasonably priced community colleges instead of supporting the for-profit college industry.
As has been widely reported, for-profit colleges enroll about 10 percent of all post-secondary students but get about 25 percent of the federal student-aid money. According to Norris, the federal government guaranteed nearly $24 billion in loans for students attending for-profit schools in 2010-2011 and distributed nearly $9 billion in grants that went to for-profit institutions.
Without question, most of the for-profit colleges could not exist without federal student-aid money. For example, in 2011, ITT received 89 percent of its revenues from the federal government in the form of student loans and grants. (Norris, 2012, p. B7) Meanwhile, state and local-government are drastically cutting their financial support for public colleges and universities.
In my opinion, the federal government should stop funding the for-profit colleges altogether and redirect the money toward public community colleges. Unfortunately, such a reform is not coming any time soon. The for-profits pay highly effective lobbyists to protect their interests (Kirkham, 2012), and they make strategic political contributions to key legislators in Washington (Kirkham, 2011).
So this is the situation. Billions of federal dollars flow each year into the coffers of for-profit schools and colleges that educate about 10 percent of the nation's post-secondary students and account for about half of all the student-loan defaults (Kirkham, 2012). Until Congress stops subsidizing the for-profit colleges industry, we will never solve the student-loan crisis, which is growing worse with each passing year.
References
Kirkham, C. (2012, February 3). Auction 2012: For-profit colleges win when lobbying blitz weakens regs. Huffington Post. http://www.huffingtonpost.com/2012/02/03/auction-2012-education-for-profit-colleges_n_1251072.html
Kirkham, C. (2011, July 29). John Boehner backed deregulation of online learning, leading to explosive growth at for-profit colleges. Huffington Post. http://www.huffingtonpost.com/2011/07/29/john-boehner-for-profit-colleges_n_909589.html
Norris, F. (2012, May 25). Colleges for profit are growing, with U.S. aid. New York Times, p. B1.
Of course students can obtain a two-year associate's degree from a public community college for a fraction of that cost. One would think the federal government would develop policies to encourage students to attend reasonably priced community colleges instead of supporting the for-profit college industry.
As has been widely reported, for-profit colleges enroll about 10 percent of all post-secondary students but get about 25 percent of the federal student-aid money. According to Norris, the federal government guaranteed nearly $24 billion in loans for students attending for-profit schools in 2010-2011 and distributed nearly $9 billion in grants that went to for-profit institutions.
Without question, most of the for-profit colleges could not exist without federal student-aid money. For example, in 2011, ITT received 89 percent of its revenues from the federal government in the form of student loans and grants. (Norris, 2012, p. B7) Meanwhile, state and local-government are drastically cutting their financial support for public colleges and universities.
In my opinion, the federal government should stop funding the for-profit colleges altogether and redirect the money toward public community colleges. Unfortunately, such a reform is not coming any time soon. The for-profits pay highly effective lobbyists to protect their interests (Kirkham, 2012), and they make strategic political contributions to key legislators in Washington (Kirkham, 2011).
So this is the situation. Billions of federal dollars flow each year into the coffers of for-profit schools and colleges that educate about 10 percent of the nation's post-secondary students and account for about half of all the student-loan defaults (Kirkham, 2012). Until Congress stops subsidizing the for-profit colleges industry, we will never solve the student-loan crisis, which is growing worse with each passing year.
References
Kirkham, C. (2012, February 3). Auction 2012: For-profit colleges win when lobbying blitz weakens regs. Huffington Post. http://www.huffingtonpost.com/2012/02/03/auction-2012-education-for-profit-colleges_n_1251072.html
Kirkham, C. (2011, July 29). John Boehner backed deregulation of online learning, leading to explosive growth at for-profit colleges. Huffington Post. http://www.huffingtonpost.com/2011/07/29/john-boehner-for-profit-colleges_n_909589.html
Norris, F. (2012, May 25). Colleges for profit are growing, with U.S. aid. New York Times, p. B1.
Wednesday, May 23, 2012
Today’s New York Times Editorial About Student Loans is Not Very Useful
Today’s lead editorial in the New York Times is entitled “Full Disclosure for Student Borrowers.”
Basically, the Times says that “[c]olleges,
lenders and Congress must ensure that students understand their debt burden.”
Pardon me, Mr. and Ms. New
York Times editorial writers, but that advice is not very useful. It is
true that a lot of student-loan borrowers did not understand the nature of
their loan obligations. Some did not realize they had borrowed from private
lenders instead of the federal student loan program, for example; and a great
many made poor decisions with regard to what they chose to study. People who
borrowed a $100,000 or more to pursue degrees in religious studies, sociology,
or some other non-remunerative field did not make smart decisions.
But the fact that many students took out college loans
without understanding the consequences is only part of the problem. A bigger
part of the program is this: The student loan program has spawned a rapacious
for-profit college industry, which Congress refuses to regulate. As a whole,
this industry has very high student-loan default rates; and many of them are
much more expensive than public-college alternatives. Today, the for-profit
institutions enroll about 10 percent of all the post-secondary loan borrowers
but they receive about 25 percent of the Federal student aid money.
Another problem is the private student-loan market, which
generally charges students higher interest rates than the federal student-loan
program and offers students fewer protections like economic hardship
deferments. Congress passed legislation that makes it almost impossible for
students to discharge their private student loans in bankruptcy, which is an
outrage.
If the New York Times
wishes to offer useful advice about solving the trillion-dollar student-loan
mess, it needs to endorse the following actions:
More accurate reporting of student-loan default rates by the
U.S. Department of Education, particularly the default rate for students
enrolled in for-profit schools,
Repeal of the statutes making it nearly impossible for insolvent
students to discharge their student loans in bankruptcy,
Passage of effective consumer-protection laws that will
protect students from unscrupulous college recruiters and colleges’ misleading representations
about job prospects for graduates of post-secondary programs,
Congressional or executive action to stop the federal
government and the student-loan guarantee agencies from garnishing elderly
defaulters’ Social Security checks.
Perhaps the New York
Times has offered more useful information about the student-loan crisis in
the past. But the advice offered on
today’s editorial page does not go nearly far enough toward solving a problem
that is causing hardship and suffering for millions of people.
References
Editorial (2012, May 23). Full disclosure for student
borrowers. New York Times, p. A20.
Tuesday, May 22, 2012
President Obama Can Do ThreeThings Right Now To Show He Cares About Student Loan Debtors
According to Bloomberg, the Obama campaign has produced a television ad that showcases President Obama's efforts to aid college students. As president, the ad states, Obama "doubled funding for college grants, capped federal student loan payments, passed the largest college tax credit ever."
Certainly, President Obama has expressed a genuine interest in helping students fund their college education. But here are some tangible things President Obama can do immediately to ease the burden on student-loan debtors, a group that has received a lot of media attention recently.
1. Tax Consequences of Forgiven Student Loans. Currently, students whose student loans are forgiven based on disability or because they participated in the Income Contingent Repayment Plan face a federal-income tax bill because the forgiven debt is considered income by the IRS. President Obama could issue an Executive Order or direct the IRS to draft a regulation that would shield people with forgiven student loans from a federal income tax bill.
2. Garnishment of Social Security Checks. In the infamous Lockwood decision, the U.S. Supreme Court upheld the garnishment of Social Security checks of elderly people who defaulted on their student loans. President Obama could simply tell the Department of Education and the student-loan guarantee agencies to stop garnishing Social Security checks as a means of collecting on defaulted loans.
3. Placing Bankrupt Students in the Income Contingent Repayment Plan. At the urging of the student-loan agencies, some bankruptcy courts have placed insolvent student-loan debtors in the Income Contingent Repayment Plan, which obligates them to pay a portion of their income toward their student loans for 25 years. The consequence of this maneuver is to deny student-loan debtors the bankruptcy relief that they reasonably deserve. President Obama could issue an executive order directing the Department of Education and the student-loan guarantee agencies to allow bankrupt student-loan debtors to discharge their college-loan debt in bankruptcy and not ask bankruptcy courts to put these unfortunate people in 25-year repayment plans.
President Obama could do all these things unilaterally without legislation or Congressional approval, and they would not cost taxpayers a significant amount of money. After all, how much money can the Department of Education collect by garnishing people's Social Security checks?
To a certain extent these actions would be merely symbolic; they wouldn't do much to address the huge problem of mounting student loan debt in this country. Nevertheless, if President Obama would do these three things, he would demonstrate his sincere concern about the student-loan debt crisis in a tangible way. And I think a lot of Americans would appreciate the gesture, including the 37 million people who have outstanding student-loan debt.
References
Giroux, G. (2012, May 18). Obama campaign ad focuses on higher education. Bloomberg's Political Capital Web Site. http://go.bloomberg.com/political-economy/2012-05-18/obama-campaign-ad-focuses-on-higher-education/
President Obama can do three things right now to help student-loan debtors |
1. Tax Consequences of Forgiven Student Loans. Currently, students whose student loans are forgiven based on disability or because they participated in the Income Contingent Repayment Plan face a federal-income tax bill because the forgiven debt is considered income by the IRS. President Obama could issue an Executive Order or direct the IRS to draft a regulation that would shield people with forgiven student loans from a federal income tax bill.
2. Garnishment of Social Security Checks. In the infamous Lockwood decision, the U.S. Supreme Court upheld the garnishment of Social Security checks of elderly people who defaulted on their student loans. President Obama could simply tell the Department of Education and the student-loan guarantee agencies to stop garnishing Social Security checks as a means of collecting on defaulted loans.
3. Placing Bankrupt Students in the Income Contingent Repayment Plan. At the urging of the student-loan agencies, some bankruptcy courts have placed insolvent student-loan debtors in the Income Contingent Repayment Plan, which obligates them to pay a portion of their income toward their student loans for 25 years. The consequence of this maneuver is to deny student-loan debtors the bankruptcy relief that they reasonably deserve. President Obama could issue an executive order directing the Department of Education and the student-loan guarantee agencies to allow bankrupt student-loan debtors to discharge their college-loan debt in bankruptcy and not ask bankruptcy courts to put these unfortunate people in 25-year repayment plans.
President Obama could do all these things unilaterally without legislation or Congressional approval, and they would not cost taxpayers a significant amount of money. After all, how much money can the Department of Education collect by garnishing people's Social Security checks?
To a certain extent these actions would be merely symbolic; they wouldn't do much to address the huge problem of mounting student loan debt in this country. Nevertheless, if President Obama would do these three things, he would demonstrate his sincere concern about the student-loan debt crisis in a tangible way. And I think a lot of Americans would appreciate the gesture, including the 37 million people who have outstanding student-loan debt.
References
Giroux, G. (2012, May 18). Obama campaign ad focuses on higher education. Bloomberg's Political Capital Web Site. http://go.bloomberg.com/political-economy/2012-05-18/obama-campaign-ad-focuses-on-higher-education/
Higher Education Industry to Students: If You Are Crushed by Student Loans, It's Your Own Damn Fault
As Jimmy Buffet
reminded us in Wasting Away in
Margaritaville, some things are our own damn fault. Apparently, this is the position of the
higher education industry regarding the student loan crisis.
Jimmy Buffett |
When the New York Times published a front page
story about students who have been crushed by the burden of their student
loans, two higher education industry spokespeople wrote letters to the Times, basically saying everything is
fine--thank you.
Molly Corbett
Broad, president of the American Council on Education, suggested that some students
need to make better decisions when they take out student loans. “The reality is
that every student and family must carefully weigh what they believe a degree
is worth against the price of a particular institution.” And, Broad acknowledged, “If students and
their families borrow not with their heads but over them, dire consequences can
easily follow.” Yuh think?
And David L.
Warren, president of the National Association of Independent Colleges and
Universities, pointed out that the default rate for borrowers at private
colleges is only 4.6 percent. Both Warren and Broad acknowledged that students
might need better counseling regarding their borrowing decisions, but other than
that, Warren and Broad had no suggestions for solving the student loan crisis.
What I took away
from these letters by the presidents of two high-profile higher-education
industry groups is this: We are doing a fine job, higher education is worth the
cost, and students who are swamped by their college loans made bad decisions. Or,
to paraphrase Jimmy Buffett, if students are overwhelmed by their student
loans, it’s their own damn fault.
But let’s look closely
at what Broad and Warren said. Warren stated that the default rate at private
colleges is only 4.6 percent. Warren was
citing the Department of Education’s figures, which only measures defaulters in
the first two years of the loan repayment period. A study that examined the
loan default rate for college graduates over a ten year period concluded that
the default rate is about 10 percent. I think it is indisputable that the loan
default rate for students who attended private colleges is nearly double the
rate that Warren cited, when defaults are measured over the life of loan
repayment period. And the default rate for students who attended for-profit
institutions is absolutely unacceptable—probably at least 30 percent when
measured over the entire life of the loan repayment period.
And Broad said
that the average student debt load is only $23,000, which Broad seems to think
is not particularly onerous. But even $23,000 in student-loan debt is a
crushing burden for students who don’t have jobs, students who received no
worthwhile skills from their educational experiences, or students who never
completed their degrees.
As far as I
know, the professional organizations for the higher education industry have not
endorsed serious proposals to ease the burden on students who cannot pay back
their loans. At a minimum, the National Association of Independent Colleges and
Universities and the Council on Education should actively promote these
reforms:
·
Legislation
that will give insolvent students reasonable access to the bankruptcy courts.
·
Legal
prohibitions against the garnishment of student-loan debtors’ Social Security
checks.
·
More
accurate reports from the Department of Education regarding student-loan
default rates.
For two top
spokespeople for the higher education industry to simply say a college
education is a good value and students need to make better decisions about
borrowing money is pretty lame. The nation’s colleges and universities need to
accept some responsibility for the student-loan mess, and they need to support
effective solutions.
References
Broad, M. C. (2012, May 190.
Letter to the Editor. New York Times,
p. 18.
Choy, S. B, & Li, X. (2006). Dealing with debt: Bachelor’s degree
recipients 10 years later. Washington,
DC: National Center for Education Statistics. http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2006156
Fossey,
R., & Cloud, R. C. (2011, November 24). From the cone of uncertainty to the
dirty side of the storm: A proposal to provide student-loan debtors who attended
for-profit colleges with reasonable access to bankruptcy court. West’s Education Law Reporter, 272, 1-18.
Martin, A., & Lehren, A. W. (2012, May 12). A generation hobbled by the soaring cost of college. New York Times, p. 1. http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted=print
Martin, A., & Lehren, A. W. (2012, May 12). A generation hobbled by the soaring cost of college. New York Times, p. 1. http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted=print
Warren, D. L. (2012, May 19). Letter
to the Editor. New York Times, p.
A18.
Friday, May 18, 2012
What's a Trillion Dollars Among Friends? Is Student-Loan Debt "Good Debt"?
A couple of days ago, Beckie Supiano wrote an article for Chronicle of Higher Education, entitled “What Does $1-Trillion in Student Debt
Really Mean? Maybe Not That Much,” which suggested that the nation's
massive student-loan debt is no big deal. Some of the people cited in
Supiano’s article apparently believe that student-loan indebtedness is
fundamentally different from the home-mortgage crisis because education, unlike
a mortgaged home, has intrinsic value that does not diminish over time.
For example, Anthony P. Carnevale, director of Georgetown University's
Center on Education and the Workforce, described student-loan debt as
"good debt". In fact, Carnevale maintained, “This is exactly the kind
of debt a society wants.”
Mr. Carnevale’s perspective on student loans would be correct if all
students received good value when they borrowed money to obtain a college
education. But, as everyone knows, millions of people have borrowed money to
pursue post-secondary education and did not see their lives improve in any
meaningful way. A person who borrows $100,000 to obtain a degree in
religious studies, winds up working as a waitress, and defaults on her student
loans does not have the kind of debt society wants. That kind of debt is not “good
debt”.
Furthermore, contrary to some of the views expressed in the Supiano
article, the student-loan crisis is very similar to the home-mortgage crisis.
In fact, student loans have probably caused more human suffering than the
home-mortgage meltdown. People who own homes
worth less than their mortgages are certainly under stress. But at least these
people have roofs over their heads, and they own tangible assets. Furthermore, home-mortgage
holders who are financially unable to pay their monthly mortgage payments can
discharge their mortgages in bankruptcy.
In contrast, people who took out student loans to obtain a college
education did not obtain anything tangible except their diplomas, and many did not receive
the skills or training from their experience that would enable them to obtain good-paying
jobs or otherwise improve their lives. Many people who borrowed substantial amounts
of money to obtain degrees in such fields as art history, religious studies, sociology
and anthropology are in real financial trouble because they can’t find employment
that compensates them enough to pay off their student loans.
Furthermore, unlike homeowners who have unmanageable mortgages, most
overburdened student-loan debtors cannot discharge their loans in bankruptcy. Although they can obtain deferments on their
loan payments if they can show economic hardship, interest on their loans will
continue to accrue in most instances, increasing the size of their debt
In short, to suggest that the nation’s $1 trillion in accumulated
student-loan debt is not a serious problem shows a profound lack of
understanding about the tremendous suffering that millions of student-loan
debtors are experiencing. There are lots of things we can do to get the student-loan
crisis under control, but we should begin by providing meaningful relief to
overburdened student-loan debtors who have no reasonable prospect of ever
paying off their student loans.
References
Supiano, B. (2012, May 16). What Does $1-Trillion in
Student Debt Really Mean? Maybe Not That Much. Chronicle of Higher Education. http://chronicle.com/article/What-Does-1-Trillion-Mean-/131900/?key=TWwidAI8byUVbHBhYDpAbj4AaH0%2BMUp2YydBPX4rblpXGQ%3D%3D.
Subscribe to:
Posts (Atom)