The Coming Student-Loan Crash

Malcolm Harris has a fine article about the impending student loan debt crisis in America:

The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s single largest source of debt, edging ever closer to $1 trillion. Yet for all the moralizing about American consumer debt by both parties, no one dares call higher education a bad investment. The nearly axiomatic good of a university degree in American society has allowed a higher education bubble to expand to the point of bursting.

Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy,  then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

***

[T]he rapid growth in tuition is mystifying in value terms; no one could argue convincingly the quality of instruction or the market value of a degree has increased ten-fold in the past four decades (though this hasn’t stopped some from trying). So why would universities raise tuition so high so quickly? “Because they can” answers this question for home-sellers out to get the biggest return on their investments, or for-profits out to grab as much Pell Grant money as possible, but it seems an awfully cynical answer when it comes to nonprofit education.

First, where the money hasn’t gone: instruction. As Marc Bousquet, a leading researcher into the changing structures of higher education, wrote in How The University Works (2008):

If you’re enrolled in four college classes right now, you have a pretty good chance that one of the four will be taught by someone who has earned a doctorate and whose teaching, scholarship, and service to the profession has undergone the intensive peer scrutiny associated with the tenure system. In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.

This is not an improvement; fewer than forty years ago, when the explosive growth in tuition began, these proportions were reversed. Highly represented among the new precarious teachers are graduate students; with so much available debt, universities can force graduate student workers to scrape by on sub-minimum-wage, making them a great source of cheap instructional labor. Fewer tenure-track jobs mean that recent PhDs, overwhelmed with debt,  have no choice but to accept insecure adjunct positions with wages kept down by the new crop of graduate student-workers. Rather than producing a better-trained, more professional teaching corps, increased tuition and debt have enabled the opposite.

***

Homeowners who found themselves with negative equity (owing more on their houses than the houses were worth) could always walk away. Students aren’t as lucky: graduates can’t ditch their degrees, even if they borrowed more money than their accredited labor power can command on the market. Americans overwhelmed with normal consumer debt (like credit card debt) have the option of bankruptcy, and although it’s an arduous and credit-score-killing process, not having ready access to thousands in pre-approved cash is not always such a bad thing.  But students don’t have that option either. Before 2005, students could use bankruptcy to escape education loans that weren’t provided directly by the federal government, but the facetiously named “Bankruptcy Abuse Prevention and Consumer Protection Act” extended non-dischargeability to all education loans, even credit cards used to pay school bills.

Today, student debt is an exceptionally punishing kind to have. Not only is it inescapable through bankruptcy, but student loans have no expiration date and collectors can garnish wages, social security payments, and even unemployment benefits. When a borrower defaults and the guaranty agency collects from the federal government, the agency gets a cut of whatever it’s able to recover from then on (even though they have already been compensated for the losses), giving agencies a financial incentive to dog former students to the grave.

Comments

[Andrew]

Curtis, you're way behind the times here: as the article makes clear, the cost difference between private and public institutions has been shrinking for years. (http://voices.washingtonpost.com/answer-sheet/college-costs/comparing-costs-of-public-priv.html). You'll notice that the first statistic quoted by the author was for all university seniors, not just those who attended private universities. Harris' arguments are in no way limited solely to private universities -- in fact, they're the least of the problem, since they've always been quite expensive and selective and have never borne the brunt of educating the broad mass of students.

Further, your comment assumes away the quality and reputation differentials between schools. In your view, apparently, the market for post-secondary education works just like the market for car tires or iPhone apps. You could also, for instance, argue that owning a car is optional for residents of Orlando, Florida (just to pick a random city). Consumer free choice! Yet, oddly enough, anyone who can possibly get their hands on a car in Orlando does so, because other options for getting around that pedestrian-unfriendly place in 100-degree heat and 90% humidity suck. Similarly, the U.S. economy is now set up to practically force anyone who wants any genuine chance of advancement to get at least an undergraduate degree, but has done nothing to curb skyrocketing tuition fees, even at public universities.

And differences between those universities play a key role: this is not a market of fungible products. You don't frequently hear Americans saying "Sure, I got into Cornell, but I decided the accounting program here at Matawan Community College was the right choice for me." Status and reputation are important, which is why college rankings so obsessively monitored in the U.S.

As for doubting the assessment provided in the quote, didn't it strike you that the quote is taking from an entire book, and one published by a prominent university press? Books are full of proof! Presumably, the quote is a summation of one of the book's key findings. If Bousquet didn't know what he was talking about, someone would have pointed that out. And Bousquet definitely does know what he's talking about. If you have the slightest doubt, go to any major state university's introductory classes, and see how many sections are taught by TAs (teaching assistants). Bousquet's point is simple: ordinarily, you'd expect people to complain loudly when a service increases almost tenfold in price while declining in quality. Yet another sign that post-secondary education doesn't work like regular markets.

Besides, the point the author and I are making is not about public versus private universities. It's about the entire system that chooses to finance higher education by front-loaded debt put on students' shoulders. There are other models available, including ones that involve 100% state financing, mixed models, and ones that involve student participation in the cost of higher education -- but only later, after (1) it's actually been proven that the college education they got has helped them; and (2) they have a salary which permits them to contribute without pain.

Given the crisis in American higher education -- skyrocketing tuition, exploited graduate students, massive budget cuts, record unemployment for new graduates -- it's high time to ask whether other models might work better than the one that's currently falling apart before our very eyes in the U.S., no?

[Curtis]

Andrew, with all due respect, the longer you live in Germany, the more of a leftist socialist crack-pot you seem to be becoming, as is evident by your latest string of non-sensical, ideologically skewed blog entries. Let's now dispel a myth circulating in Europe, that as a graduate of the American educational system you should be itching to set straight, shall we?

First of all, contrary to the popular belief happily disseminated by the Euro press, Americans are not forced to attend $40,000 a year elite universities, thereby racking up hundred thousand dollar loans in the process, and shame on you Andrew for not emphasizing this reality.

The U.S. educational landscape does NOT comprise solely of Harvard and Yale, or their like; there are over 4,800 universities and colleges, approximately 25% of which are public, state funded facilities. On average, it costs approximately $7,600 per year to attend a public school ($2,200 for community colleges) and approximately $26,200 for a private school. In addition to this, students qualify for a long list of state and federal aid and grants, according to their parent's income.

Secondly, unlike most Europeans, Americans have a vast array of choices when it comes to tertiary education. For budget minded Americans, community colleges or publicly funded state schools are usually good options. The federal government offers a vast array of grants and scholarships to help defray the costs. In my home state of NY for example, we have the EOP program that provides 100% free tuition for low-income students at NY State universities. Each state likewise has their own variation of such programs for their low-income citizens.

For students who prefer to attend private universities, they still qualify for state and federal grants but will have to either privately fund the remaining cost of tuition or take out an educational loan from the government. These loans are guaranteed by the federal government and by law carry low interest rates. No one is forced or required to attend private institutions. It is a personal choice.

Here in Europe, if I get sick I can likewise avail myself of the adequately funded public hospital system that accepts the national medical insurance, or I can decide to be treated at a more upscale private hospital. At a public hospital I would probably have to share a room with 3 to 5 other patients and be attended by an overworked staff not necessarily concerned with customer service. At a private hospital however, I'd probably have my own room as well as a more attentive staff. In order to afford their expensive fees however, I'd either have to have private insurance or arrange a payment plan with the private hospital. Bottom line is, no one's forcing me to go private and there are very good public facilities willing and capable of accommodating my needs.

Quote:
If you’re enrolled in four college classes right now, you have a pretty good chance that one of the four will be taught by someone who has earned a doctorate and whose teaching, scholarship, and service to the profession has undergone the intensive peer scrutiny associated with the tenure system. In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.

Really now, are these the type of statistics now allowed when arguing a point?

"You have a pretty good chance..."
"You are likely to be taught..."

Andrew, would you accept such hearsay arguments from your students? C'mon, whatever happened to facts and figures? These are nothing but mere opinions designed to appeal to the like-minded!