The Fiscal Crisis Goes to College

I am now almost past one of the greatest financial challenges in American middle class life: paying for your kids to go to college. Good thing. For what it costs to see your kid walk across the stage at a private college graduation, you could just about buy a house in South Dakota every year for four years. Rent 'em out, and maybe your kid won't have to work. Public education is cheaper, but rising fast.

The President and his presumptive opponent are making an issue of student loans as they campaign. What they propose, the Washington Post opposes.

IN JULY, THE interest rate on certain federal student loans will double, to 6.8 percent. Who could want that? Not President Obama or Mitt Romney, both of whom railed against the scheduled increase last week. And not Senate Democrats or House Republicans, who have competing plans for preventing the hike…

This isn't the first election in which this superficially appealing line has appeared; the current 3.4 percent rate began as a campaign gimmick that Democrats cooked up to help them retake Congress in 2006. It has all of the drawbacks it did then, and more: It's expensive, it's poorly targeted, and it diverts attention and money from bigger problems facing federal support for higher education.

According to the New America Foundation's Jason Delisle, a former GOP Senate Budget Committee staffer, Democratic lawmakers were shocked at the cost of their campaign promise to halve student-loan rates after they assumed control of Congress in 2007. So, among other things, they decreed that the rate would revert back to 6.8 percent after five years, which made costs look lower over a decade. At least Democrats could say they kept their promise — for a time, anyway.

Well, that is the way Congress budgets these days: they "pay" for policies by promising to make cuts they aren't going to make. Meanwhile, Congress ignores the real problem facing College students and the rest of us.

The Maine Sun Journal has this:

Earlier this year, President Barack Obama signed a bill ending the federal government's 45-year relationship with private lenders. Now it will make loans directly to students. That, however, will do little to reduce what many see as a looming student loan default crisis that could cost taxpayers billions.

New data from the U.S. Department of Education show that 46.3 percent of all loans given to students at two- and four-year for-profit colleges eventually go into default.

That is the way we budget these days. We make the loan and we take the loan, without anyone bothering to calculate whether or who can pay for it.

The high student loan default rate is the result of two things. One is the souring economy. The other is the skyrocketing costs of college. There are a lot of reasons for that, but chief among them is the good work that Congress has done to hold down the costs of a college education. From the Boston Globe:

To ensure that anyone who wants to go to college will be able to foot the bill, Washington has showered hundreds of billions of dollars into student aid of all kinds — grants and loans, subsidized work-study jobs, tax credits, and deductions. Today, that shower has become a monsoon. As Neal McCluskey points out in a Cato Institute white paper, government outlays intended to hold down the price of a college degree have ballooned, in inflation-adjusted dollars, from $29.6 billion in 1985 to $139.7 billion in 2010, an increase of 372 percent since Ronald Reagan's day.

Most of that prodigious growth is very recent. The College Board, which tracks each type of financial assistance in a comprehensive annual report, shows total federal aid soaring by more than $100 billion in the space of a single decade — from $64 billion in 2000 to $169 billion in 2010. (The College Board's data, unlike Cato's, includes higher-education tax credits and deductions.)

So the cost of college has soared as federal outlays to higher education have soared. Is it too much to suggest that the latter might be driving the former? Instead of trying to figure out how to balance their books, college administrations have been figuring out ways to absorb more of that federal largess. I know! Let's raise tuition again! No one is thinking about how to make the system sustainable. Everyone is bending all his or her will toward keeping the good times rolling.

College presidents aren't stupid and neither am I. I know full well that my own livelihood depends on this industry and I know how much the industry has come to depend on federal money. I just don't think that flooring the pedal as we race toward the precipice is necessarily the best strategy for securing my job or the future of higher education.

The problem described above is one example of a dysfunction that is evident at every level of government in the United States and, I might add, Europe: it is a refusal to think rationally about the consequences of our policies or make rational budgeting decisions with an eye to the future. The editors of the Washington Post put it this way:

The president is right that college access is a critical priority. But the country can't afford every appealing initiative.

That would be the problem. For decades we have been consistently favoring what is appealing over what is real.

Comments

[Donald Pay]

Please define what you mean by "high student default rate?"

The data I've seen indicates that default rates at private non-profit colleges is around 8 percent, and the default rate at public institutions is under that. The big problem is the default rate at the private for-profit institutions, which has a default rate around 40-50%. The problem here seems to center on the Republican supported for-profit colleges and institutes. Are you ready to admit privatization is not the answer to education?

[Stan Gibilisco]

"Rent 'em out, and maybe your kid won't have to work."

Four sets of tenants like the ones I've had for the past eight months? Try that experiment, and by the time your kid is ready for college you won't have a pot to pee in. You won't even be able to pee at all.

Two things no one should ever do: Co-author a book and rent out a property. Trust me on these ones. Please.

"I just don't think that flooring the pedal as we race toward the precipice is necessarily the best strategy for securing my job or the future of higher education."

It is if you like to see fur fly and blood flow! Forward! Let the New Revolution begin, comrades!

[Ken Blanchard]

Donald: fair point. Both public and private colleges can be very fine and very expensive. However, if for-profit universities a higher education debt-bomb by devising ways to soak up billions in government largess, this is problem created by the expansion of federal loans. Our concern is what to do about it. If the incredible increase in the price of college has a lot to do with the dramatic increase in federal funds, the same is true.

[Donald Pay]

This article points out more likely causes for increased costs to students:

http://blogs.reuters.com/felix-salmon/2011/11/21/why-tuition-costs-are-rising/

When I attended UW-Madison in the 70s about 50 percent of college costs were picked up by state government. Today the state's share of student costs has dropped to about 25 percent, while students and parents are expected to shoulder more costs. The increase in federal student loans, as well as in private scholarships, simply follows the drop in state resources.

Each college is different. My daughter attended Carleton College with its huge tuition bill. Without considerable grants/scholarship money and a few loans she couldn't have attended. Costs there were high because they wanted class sizes low for more personal student-prof interactions. They also wanted to have a broad-based liberal arts program, so departments with fewer majors weren't chopped for cost-cutting.

[Sadeep]

Technically, repair is the wrong word. You're coerictrng your credit report. You shouldn't need any kind of format letter to dispute a charge. If you have the information needed, just notify the credit bureaus that Company X is listed on my report showing I owe $ but I have paid off of the company as of XYZ date or the amount currently showing is over # of months old and is incorrectly refelcting my current debt. If you have any back up to prove your statement, then including a copy of it is to your advantage. The bureaus just want you to tell them who you're having issue with and why. They don't need you to list everyone unless you're having an issue with everyone.You can dispute any and all itemson your report whether they be open, closed, charged off, sold, etc. Keep in mind that the amounts reflected on your reports may be 2-3 months behind the current amounts. You can see the last time the account has reported information on your credit report. If you have a car loan that shows you owe $5000 and the company hasn't updated your loan amount since December 2005, you can clearly dispute the amount reflected on your account. The company has 30 days to report or the bureau will drop the item from the report.Problems with answers above is that threatening the companies to either change or remove won't make the companies do anything. The bureaus contact the companies as well. Again, if you have backup, the better off you are. The company won't care how loud you yell or what paragraph of the Fair Credit Reporting Act you quote or what ever you're threatening to do because 99% of threats are idle threats that end up with no action from the person making the threats. I had issues as such in the past and I got resolutions becasue I followed up on my threats. One company rep laughed at me over the phone as I threatened to contact the state attorney general. Told me to go right ahead, do whatever I want. They changed thier tune when I faxed their office complaint paperwork headed for the state's attorney general complete with names, amounts call dates and times, the rep's name and his actions, and the dispute I had etc etc. Faxing over the stamped and addressed envelope didn't hurt either. I got an apologetic call from the rep and got what needed to be corrected done immediately.Also, yes, an account in dispute will have an effect on your score. There are people out there that dispute items and then fill out applications trying to time the removed debt with getting a car loan or mortgage. In the electronic age, it is harder and harder to apply for a loan and hope that the account you disputed hasn't been put back on your report. It's not right, but it happens.