Student Debt and Physical and Financial Well Being Among College Graduates--What Did the Gallup Poll Tell Us?

The media has commented widely on a recent poll conducted by Gallup and Purdue University that compared five elements of personal well-being between college graduates who did not take out student loans and those who did.  Not surprising, people who did not take out student loans to attend college are more likely to be thriving than people who borrowed.

The poll measured the percentage of people who considered themselves to be "thriving," "struggling" or "suffering" in five areas:

1) social ("having supportive relationships and love in your life")

2) sense of purpose ("liking what you do each day and being motivated to achieve your goals")

3) financial ("managing your economic life")

4) community ("liking where you live, feeling safe, and having pride")

5) physical ("having good health and and enough energy to get things done daily")

The study found little difference between people regarding social well-being among people who took out student loans and those who didn't; but in two areas--financial well-being and physical well-being--there were stark differences.

Among people who graduated between 2000 and 2014 and took out no student loans, 38 percent reported to be thriving financially, compared to only 22 percent of the people who borrowed $50,000 or more. That's a a gap of 16 percentage points.

I'm broke, and I don't feel so good.

Among the same comparison group, 33 percent of the people who didn't borrow money to attend college reported that they were thriving in terms of their physical health and energy, while among the group who borrowed $50,000 or more, only 22 percent reported to be thriving. That's a gap of 11 percentage points.

The poll also studied people who graduated from college between 1990 and 1999.The discrepancy in well being was not as stark among people who graduated during the 1990s, but there were still significant differences.

A couple of points: First, this study only reported on people who graduated from college, not people who borrowed money to attend college but who didn't graduate.  How many people do you think are thriving who borrowed $50,000 to attend college but didn't get a degree?

I think the nation would be shocked to know how people are doing who borrowed money to attend for-profit colleges and didn't get degrees. A high percentage of these poor souls are from low-income families or are minorities.  How many are thriving now, do you think, in their physical and financial lives?

Second, as several commentators have pointed out, the Gallup study doesn't establish a relationship between student loans and diminished health and financial stability. It seems likely that people who borrowed a lot of money to attend college came from poorer homes and faced multiple challenges to getting ahead that students from wealthy families simply do not face. 

 Nevertheless, the recent Gallup polls adds to a growing body of research showing that people who borrow money to attend college suffer multiple handicaps.  They are less likely to be able to buy homes, start families, and save for their retirement, for example. And the Gallup study didn't tell us anything we didn't already know when it reported that people who borrowed a lot of money to attend college are not doing as well financially as the people who finished college with no debt.

But the Gallup finding that college graduates who borrowed $50,000 or more to attend college are less less likely to be thriving with regard to their physical health should give us pause.

But again, the really shocking story, I believe, is unfolding among the millions of young people--a high percentage of them being minority students from poor families--who loaded up on debt to attend for-profit colleges and didn't even get a degree or a credential.  If Americans knew that story, I think they would put great pressure on Congress to shut down the seedy for-profit college industry.

But maybe not. Perhaps as a people, Americans are indifferent to the scandal of the for-profit college industry--this seedy neighborhood of the higher education community that sucks up 25 percent of federal student aid money while destroying the lives of millions of young people.

References

Andrew Dugan and Stephanie Kafka. Student Debt Linked to Worse Health and Less Wealth. Gallup Well-Being, August 7, 2014.  Accessible at http://www.gallup.com/poll/174317/student-debt-linked-worse-health-less-wealth.aspx

Kelly Field. Is Student Debt Harmful to Your Health? A New Study Raises the Possibility. Chronicle of Higher Education, August 7, 2014.

Why Not Help Africa? American Universities Should Make a Civic Commitment to Strengthening Higher Education in Sub-Saharan Africa

Not long ago, the New York Times broke the scandal about New York University's new Abu Dhabi campus, which had been launched with much fanfare by NYU President John Sexton. According to the Times, construction workers for the Abu Dhabi campus, most of whom were migrants, were required to pay high fees just to get their jobs and forced to endure substandard living conditions.

NYU expressed regret for how the workers had been treated but suggested that it had no control over the contractor who hired the workers.  Later it was discovered that the owner of the construction firm that built NYU's Abu Dhabi campus sits on NYU's board of trustees!

John Sexton: Ain't life grand?

This unseemly incident illustrates how too many American universities involve themselves internationally.  For the most part, American higher education institutions confine their foreign initiatives to two activities: establishing overseas branches at exotic locations like Abu Dhabi or Shanghai or sponsoring Study Abroad experiences for American students, which are often little more than European travel adventures for both students and professors to places like Madrid and Rome.  I don't know how many students take out federal student loans to pay for their Study Abroad semesters, but I'll bet a lot of American students are funding their trips to the Great Wall with money they borrowed from Uncle Sam.

It is true of course that many American scholars make international contributions through such initiatives as the U.S. State Department's Fulbright Scholars program. But how many American professors have delivered papers at conferences in places like New Zealand, Hong Kong or Britain just to take brief foreign vacations at their universities' expense?

American university leaders like to boast that our nation's universities are the envy of the world, but if that is true, doesn't that impose a civic obligation on our universities to help make the world a better place?  And if that is true, why haven't American colleges and universities made more of a contribution to strengthening higher education and building the economies in the world's developing countries--particularly sub-Saharan Africa?

Sub-Saharan Africa

Right now sub-Saharan Africa is destabilizing. Boko Haram has captured school girls in Nigeria and burned children alive in a boarding-school dormitory. Kenya has suffered several recent terrorist attacks by Islamic extremists including an attack on a shopping mall in Nairobi. Uganda and Tanzania have been relatively free of terrorism in recent years, but a Catholic church was bombed in the Tanzanian town of Arusha in 2013 and people I talked with in Uganda think it is only a matter of time before Uganda experiences the same kind of terrorism that Kenya has begun to suffer.

East African universities are making a heroic effort to expand higher education opportunities for East Africa's young people. In particular, East African universities affiliated with religious denominations are growing and offering new programs designed to lead to good jobs for their graduates and to building stronger national economies.

But they are severely under resourced. They lack experienced faculty members, technology infrastructures, and adequate physical facilities. Often they lack higher-education management expertise.

Meanwhile, American universities have excess capacity. We have too many law programs, too many MBA programs, and too many colleges of education for the current demand. Why don't American universities offer some of their programs and some of their skills and expertise to aid African higher education?

If American universities would make a selfless contribution to strengthening higher education in sub-Saharan Africa, they would help strengthen the economies of the countries in that region and would help raise education levels of the young people of sub-Saharan Africa.  They would be helping to bring prosperity to a region wracked by poverty and crippled by centuries of colonial exploitation. They would be helping to foster the values on which western higher education is founded--values dedicated to the search for truth and justice and equality among all the peoples of mankind.

And by strengthening higher education in Africa, American universities would help stabilize a region that is rapidly destabilizing.  They would be directly refuting the philosophy of nihilistic terrorism that has begun to infect sub-Saharan Africa.

But perhaps helping Africa is too difficult for American universities.  Far easier to engage in self-indulgent Study Abroad programs and egotistical campuses in places like Abu Dhabi.  And far more comfortable. And far safer.

References

Adamu Adamu, Michelle Faul. 29 boarding school students burned alive, shot dead by Islamists militants in Nigeria. NBCNews.com. July 6, 2013.

Jon Lee Anderson. Letter from Timbuktu: State of Terror. New Yorker, July 1, 2013, pp. 37-47.

Clinton Lauds N.Y.U. Graduates, and Inquiry, in Speech. New York Times, May 25, 2014.

Ariel Kaminer. N.Y.U. Apologizes to Any Workers Mistreated on Its Abu Dhabi Campus. New York Times, May 20, 2014, p A16.

Ariel Kaminer. N.Y.U. Impeding Compensation Inquiry, Senator Says. New York Times, July 10,2013. Accessible at: http://www.nytimes.com/2013/07/11/nyregion/nyu-accused-of-impeding-compensation-inquiry.html?_r=0

Tamar Lewin. Universities Rush to Set Up Outposts Abroad, New York Times, February 10, 2008. Accessible at: http://www.nytimes.com/2008/02/10/education/10global.html?pagewanted=all&_r=0

Andrew Ross Sorkin. N.Y.U. Crisis in Abu Dhabi Stretches to Wall Street. New York Times, May 26, 2014.

Tosin Sulaiman. Insight--Africa makes the grade for richest U.S. university investors. Reuters, July 7, 2013. Accessible at: http://www.reuters.com/article/2013/07/08/africa-endowments-idUSL5N0FB2IZ20130708

Like the Crocodile, American Higher Education is Eating Its Young: Reflections While In Africa

I just returned from Uganda, where I visited several Ugandan universities and toured a game preserve on the upper Nile River. As I viewed the wildlife of Africa--the elephants, the baboons, the giraffes--I was deeply impressed by how fiercely most African species protect their young.

Cape buffalo: Don't mess with my family

I was particularly struck by the cape buffaloes, which are quite effective in protecting their calves from predators. When they sense trouble, the adults instinctively form a circle around their young ones; and acting together, they can even fend off lions.According to my guide, lions do not even try to attack a herd of cape buffalo unless they are in a large group because they know the buffaloes will rough them up.

At least one African species, however, does not protect its young--the crocodile. A guide told me crocodiles will protect their eggs, but after baby crocs are hatched, their mothers show no interest in them. In fact, crocodiles are cannibals; the bigger crocodiles will sometimes eat the small ones.

As I received this information, I could not help but draw a comparison between the crocodiles and American higher education. At one time, we Americans believed our colleges would nurture the young, transmit and preserve our cultural heritage, and prepare our young people for adult life and the world of work. In other words, Americans once considered their colleges to be something like cape buffaloes, which would do all they could to make sure their young grew up to be healthy adults.

I'm not sure Americans believe that anymore. In fact, American higher education today looks much more like a crocodile than a cape buffalo. Every year, the cost of higher education goes up a bit more, requiring students to borrow more and more money in order to attend college. Our college presidents and administrators have become overpaid, arrogant bureaucrats more intent on wooing wealthy donors and constructing impressive buildings than on serving their students.

Crocodile: Come a little closer and I promise you'll have a good educational experience

In particular, the for-profit college industry has exploited low-income and minority students by using high-pressure recruiting tactics to enroll them in expensive programs that frequently do not lead to well-paying jobs. Students who attend for-profit institutions have the highest default rates on student loans, loans which they cannot discharge in bankruptcy.

In short, with each passing year, American higher education--and the for-profit college industry in particular--becomes more and more like the crocodiles, which eat their young, than the cape buffaloes, which nurture and protect them.

And everyone knows this. Indeed, not long ago, President Obama said the for-profit colleges were "making out like a bandit," and his administration has admirably tried to bring them under tighter regulatory control.

But you can't regulate crocodiles; you have to stay away from them. As long as we permit the for-profit college industry to feast off of federal student-aid money, we will have corruption and exploitation. The sooner we face this cold fact, the sooner we will realize that this industry must be shut down.

Of course, as I have just said, the public universities and the non-profit colleges have serious problems as well; but compared to the for-profit colleges, the publics and non-profits are more like alligators than crocodiles. And according to the Ugandans, in comparison to a crocodile, an alligator is merely a Presbyterian.

Not With a Bang But With a Whimper: For-Profit Corinthian Colleges May Close Some Campuses

Yesterday's New York Times carried a story in its Business Section about Corinthian Colleges, a for-profit company that operates under the names of Heald, Everest and WyoTech.  Corinthian has 72,000 students on more than 100 campuses.

Recently, Corinthian announced that it did have enough operating cash to stay in business after the end of this month, and it persuaded the federal government to release some federal student aid money in spite of the fact that it admitted fraud in the reporting of student grades and job placements.  Corinthian has also been sued by the California Attorney General based on allegations that it used high-pressure tactics to recruit vulnerable students--including single mothers.

Like most for-profit colleges, Corinthian relies on the federal student aid program to stay in business. It gets about 90 percent of its revenue from the federal government--about $1.4 billion a year.  DOE's emergency cash infusion (about $16 million, according to the New York Times) may be enough to stave off closing for awhile at least. But that might not be a good thing for students.

As the Times article stated:

If, as critics contend, many Corinthian students are going deeper into debt to gain useless educations, some of those students might have been better off is the Education Department had stuck to its guns and forced Corinthian to close. Federal student loan rules do not require students to repay loans that were canceled while they were enrolled, leaving them unable to graduate.

In most instances, we should not be happy to see a college close, but the for-profit industry is a special case. As Senator Tom Harkin's Committee outlined in its report on for-profit colleges, this sector of higher education only educates about 11 percent of postsecondary students but collects about 25 percent of federal student aid money.  The for-profits have the highest student-loan default rate in the higher education industry; according to DOE, one in five for-profit college students default within three years of beginning repayment. 

And there is ample evidence that for-profit colleges have exploited low-income individuals, encouraging them to take out loans to pay for programs that don't lead to well-paying jobs.  Even if they believe they have been defrauded, these students often have no recourse to the courts, because many of the for-profits require students to sign agreements to arbitrate disputes rather than sue.

Indeed, the Ninth Circuit ruled last year that Corinthian students were compelled to arbitrate their misrepresentation claims against Corinthian--claims that were brought under California's unfair competition law, false advertising law, and California's Consumer Legal Remedies Act. 

To its credit, the Obama administration has been trying to impose regulations on the for-profits, but it suffered a setback in the courts when the for-profits were successful in getting some of the Department of Education's regulations thrown out.  Recently, DOE issued a second set of proposed regulations, but these new regulations will probably just lead to more litigation.

So we should not be sorry to see Corinthian Colleges close--if that event comes to pass. In fact, we should hope this whole unseemly industry collapses.  So far,  the federal government has not been successful in effectively regulating the for-profit college industry.  But perhaps students will gradually wake up to the fact that they would probably be better off enrolling in low-cost community colleges, where they might not need to take out student loans, than to matriculate at high-cost for-profit institutions that have a very poor track record regarding job placement, degree completion, and student-loan defaults.


References

Ferguson v. Corinthian Colleges, 733 F.3d 928 (9th Cir. 2013).

Floyd Norris. A For-Profit College Falters as Federal Cash Wanes. New York Times, June 27, 2014.

U.S. Senate Committee on Health, Education, Labor and Pensions. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012.

The Student Debt Crisis? What Student Debt Crisis? The Brookings Institution Issues A Report Stating That The Problem of Student Debt Has Been Exaggerated

The Brookings Institutopn issued a report a few days ago suggesting that worries about a looming student-loan crisis may not be justified.  The report, entitled "Is a Student Loan Crisis on the Horizon?,"  makes these major points:

• Roughly a quarter of the increase in overall student debt can be attributed to the fact that more people are obtaining graduate degrees.
• Increases in average lifetime earnings have more than kept up with increasing student-debt loads.
• Average monthly student-loan payments have stayed the same or gone down a bit, due in part to longer loan-repayment periods.

In short, the Brookings Institution concludes: "[T]ypical borrowers are no worse off now than they were a generation ago."

The Brookings Report was widely reported in the media, including newspaper pieces in the New York Times and Slate.  The Times quoted one of the Brookings authors as saying, "The evidence does not support the notion that student loan debt is dragging down the economy." The Times article also pointed out that more than half of student-loan debtors owe less than $10,000; and more than three quarters of borrowers owe less than $20,000.

Without quarreling with any of the Brookings report's findings, I will just point out a few indicators that show a much less rosy picture:

First, as several newspaper articles have recently pointed, about one in five college graduates under the age of 35 now live with their parents--a percentage that has grown in recent years. Undoubtedly, student-loan debt is partially responsible for the growing number of college-educated young people who still live with Mom and Dad.

Second, the student-loan default rate is going up, more than doubling over the course of just a few years.  According to the Department of Education's most recent report (issued in October 2013), about 15 percent of student-loan borrowers default within three years of beginning the repayment phase of their loans. For students who attended for-profit institutions, the rate is about 21 percent.

And, as I have pointed out, for-profit colleges have been successful in hiding their default rates by encouraging their former students to sign up for economic hardship deferments that keep borrowers from being counted as defaulters even though they are not making their student-loan payments.

In fact, according to a recent report by the Consumer Financial Protection Bureau, we now have about 7 million people who have defaulted on their loans and another 15 million borrowers in the repayment phase who have obtained some sort of deferment that allow them not to make payments.

It is true, that millions of people owe only modest amounts on their student loans, and millions of college-loan borrowers are managing to make their monthly loan payments without difficulty.

But to say that monthly payments have not gone up overall because more people are taking 20 or 25 years to pay off their loans instead of 10 years is somewhat disingenuous.  People who are forced into long-term repayment plans because they can't afford to pay off their loans over 10 years will be paying a lot more in interest on their loans and many of them will not be making payments large enough to cover accumulated interest. 

Furthermore, even if most people are not burdened by their college loans, those 7 million defaulters have suffered a financial catastrophe.  Their credit ratings have been ruined, they are subject to wage garnishments, and they are saddled with debt that most of them cannot discharge in bankruptcy.  For these people--the student loan program has been a disaster.

In short, I think the Brookings Institution is wrong to suggest that a student loan crisis is not on the horizon.  On the contrary, the crisis is already here.

References

Beth Akers & Matthew M. Chingos. Is a Student Loan Crisis on the Horizon? Brookings Institution, June 2014. http://www.brookings.edu/~/media/research/files/reports/2014/06/24%20student%20loan%20crisis%20akers%20chingos/is%20a%20student%20loan%20crisis%20on%20the%20horizon.pdf

David Leonhardt. The Reality of Student Debt is Different From the Cliches. New York Times, June 24, 2014. Available at: http://www.nytimes.com/2014/06/24/upshot/the-reality-of-student-debt-is-different-from-the-cliches.html?_r=0

Jordan Weissmann. Are We Overreacting to Student Debt? Slate, June 24, 2014. Available at: http://www.slate.com/articles/business/moneybox/2014/06/brookings_institution_student_debt_crisis_have_we_all_overreacted.html

Nonsense from Adam Davidson in the New York Times Magazine About the Wisdom of Young Adults Living With Their Parents

Adam Davidson wrote an essay in the Magazine section of the New York Times about young adults who still live with their parents. The percentage of young people who live with Mom an and Dad has been going up--the figure is now 20 percent.  And--according to Davidson-- about 60 percent receive some financial assistance from their parents, much higher than in the past.

Davidson cites Jeffrey Jensen Arnett, a psychologist at Clark University, who coined the phrase "emerging adulthood." According to Arnett, the trend of young people moving back home with their parents is a "rational response to a radically different, confusing postindustrial economy."

For people who graduated from college with a high level of debt and no clear notion of their ultimate vocational goal, it makes sense to move back home with Mom and Dad until they figure things out; at least that's Arnett's reasoning. Davidson cites Arnett saying that "it's the people most actively involved in the struggle, the ones who at times seem totally lost, who are most likely to find their way."

Arnett also cites statistics showing that young people are remarkably optimistic.  According to a poll he conducted, 77 percent of young people still believe they will be better off than their parents!  Thus, in spite of a poor economy, a shortage of good jobs, and (for many) crushing student-loan debt, a lot of young people think things will eventually work out.

Personally, I think this line of reasoning is a lot of horse patootie (a phrase I borrowed from blogger Kathy Schiffer). Adam Davidson and Jeffrey Jensen Arnett can afford to be sanguine about the nation's economic malaise because they have good jobs.  Davidson is writing for the Times and Arnett is a professor and probably tenured.

But young people with college degrees who are forced to live with their parents due to poor job prospects and high levels of student-loan debt are in a scary position. They can't marry, have children, buy a home, or start their careers; in a very real sense they are merely trying to stay afloat financially--they are in survival mode.

I would have liked Davidson's article a lot more if it had displayed a spark of anger about a national economy that is eating the nation's young and about a rapacious higher-education industry that is impoverishing millions of young people with student-loan debt without giving them the skills they need to get well-paying jobs.

And I would have liked the article a lot more if Davidson had had some suggestions for reforming the nation's financial policies and the federal student loan program so that fewer people in their 20s have to live with their parents.  In short--the Davidson article is a puff piece published by a newspaper that pretends to care about people's suffering but is firmly dedicated to the economic status quo. After all, some body's got to buy those expensive watches that the Times Magazine advertises week after week.

References

Adam Davidson. "Hi, Mom. I'm Home!" New York Times Magazine, June 21, 2014, Magazine section, p. 22.

Senators Lamar Alexander and Michel Bennet Propose a Simpler FAFSA form: What a Good Idea!

"Everything should be made as simple as possible," Albert Einstein observed, "but not simpler."  And indeed, simplicity, is a great virtue.  How many of us have struggled with a problem we thought was complicated, only to have an "ah ha" moment when we realized our problem was not as complicated as we first believed.

"Everything should be made as simple as possible, but not simpler."

Senator Lamar and Senator Bennet Have A Good Idea for Streamlining Federal Student Aid Applications

Senator Lamar Alexander of Tennessee and Senator Michael Bennet of Colorado have struck a blow for simplicity in the federal student aid program, a program that is entirely too complicated.   As they explained in an op ed essay in the New York Times earlier this week, the two senators have introduced a bill to reduce the complexity of the standardized federal student aid form, which every college student must fill out to qualify for federal student aid.

Currently, this form, commonly called the FAFSA form, has 108  questions and is 10 pages long. With its attached instructions, the entire form is 82 pages long!

Senators Lamar and Bennet propose to throw this form out, which is so complicated and time-consuming that many students simply forgo applying for federal student aid. 

They want to substitute a form that only has two questions:  What is your family size? What was your household income two years ago?

Senators Lamar and Bennet's proposed legislation would also reduce the number of federal student loan programs to three: one program for undergraduates, another for graduate students, and a third for parents who borrow money to pay for their children's college education .  And, perhaps most importantly, they propose just two repayment options: the standard 10-year repayment plan and an income-based repayment plan.  

Lamar and Bennet's op ed essay did not provide any details about what their income-based repayment plan would look like.  Would it be a variation of President Obama's Pay As You Earn plan, requiring borrowers to pay 10 percent of their discretionary income over 20 years or would it would be a less generous variation?  But the simplicity of having a single income-based repayment plan will reduce the confusion many college-loan borrowers experience when they try to convert their 10-year repayment plans to long-term income-basde repayment plans.

Senators Lamar and Bennet acknowledged the input they got for their reform proposals from Susan Dynarski and Judith Scott-Clayton. Ms. Dynarski is co-author of a provocative Brookings Institution study that recommends payroll deductions as the most efficient way for students to make their loan payments if they are enrolled in income-based repayment plans. (I discussed this proposal in my last blog posting.)

Efficiency-Driven Reforms Are Good But Radical Reforms of the Federal Student Loan Program Are Necessary
Senator Lamar and Senator Bennet have made sensible proposals for improving the way the Federal Student Loan Program Operates. And Susan Dynarski and the Brookings Institution have also made reasonable proposals for collecting student-loan payments from borrowers who participate in income-based repayment programs.  

Without a doubt, these proposals will help make the federal student aid program operate more efficiently. But they won't help bring the federal student loan program under control.  These proposals do nothing to stop the runaway cost of higher education. They do nothing to address the abuses in the for-profit college industry, and they do nothing the ease the strain on millions of student-loan debtors who are already in default. 

We won't be getting serious about addressing the student loan crisis until we amend the bankruptcy laws to allow worthy college-loan debtors to obtain bankruptcy relief, publicize the real student-loan default rate, and rein in the for-profit colleges.  Unless we do these things, other reform proposals will do nothing more than put a band-aid on a gaping wound. 

References

Lamar Alexaner & Michael Bennet. An Answer on a Postcard. New York Times, June 19, 2014, p.  A25.