Putting the Community Back in College

public croppedCommunity colleges have been much in the news since President Obama proposed free tuition for millions of students. This plan isn’t cheap and states will have to change their spending habits to reap the benefits of expanded community college for all.  They’ll need to invest considerable sums to both match the President’s proposal, and reverse historic declines in state funding so that they have the capacity to serve millions of new students.

But why should states invest in community colleges instead of relying on for-profit schools to fill the gaps, as they have done for the past decade?

Community colleges train students for much lower tuition than for-profit schools.  Students can get a comparable (or better) education for a fraction of the cost, leading to much lower rates of student debt.  This justifies some measure of state investment, if only to keep the scourges of high debt burden and default from ruining the lives of local students.

Community colleges also offer community benefits that for-profit schools do not. 

These institutions are not just “tickets to the middle class” Continue reading

Of Student Debt and Stagnant Wages

Student debt is bearing the blame for continued weakness in the housing market.  According to the Washington Post, “regulators and industry experts warn that young adults can no longer save for down payments or qualify for the mortgages they need to buy their first homes.”

But Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, points out that debt burden alone does not tell the whole tale for first-time homebuyers:

“Real wages when adjusted for inflation have actually been flat for new college graduates for about the past ten years. So young people have more debt but are earning the same or less income.”

The prepay prevention plan

Every student loan has a prepay option, but servicers make them almost impossible to use.  Ever wonder why they make it so hard?  Rohit Chopra and his team at the CFPB asked private loan servicers and came to some conclusions:

“Creating obstacles for borrowers to direct payments to a specific loan can increase future servicing revenue.  Incentive misalignment was one cause of significant harm to consumers in the mortgage servicing industry. This may also be a contributing factor to the frustration experienced by many private student loan borrowers who submit complaints to the CFPB about payment allocation issues.”

In other words, the harder it is to prepay, the more money the servicer makes.

Climbing the Tuition Wall

Are climbing walls driving the increase in tuition?

The Wall Street Journal has argued since since the late 1990s (sorry, the WSJ hides its light under a pay wall) that universities are able to raise tuition because the government gives students loans to pay that tuition. Universities, in an attempt to lure students, build “Club-med style amenities,” like climbing walls. But are these the drivers of the massive increases in tuition that students and their families are now expected to bear?

Not necessarily. The New York Fed points out that, since the 1980s, state subsidy for higher education has steadily decreased. Between 2000 and 2010, state funding decreased by 21%.  The economics of this are relatively simple, even for a lawyer like me:  In the face of declining state subsidy, public colleges raise tuition to cover costs.

For more information, check out these reports by the Center on Budget and Policy Priorities and the American Institute for Research.  And the situation may not improve anytime soon.  The American Institute for Research reports that the amount that tuition has been raised is not enough to make up for the gap in state funding.

Defaults rise, by any measure

The Department of Education has released the most recent numbers for federal student loan default:  “The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010.”

The Department is in the midst of changing the time frame in which it measures default, from a two- to a three-year window.  Under the new measure, 14.7% of the students whose loans entered repayment between October of 2009 and September of 2010 defaulted before the end of September of 2012.  This means that around 600,000 student loan borrowers (out of a cohort of 4 million) defaulted.  The consequences of default are severe and can be disastrous for students and their families.

The Huffington Post points out that these default numbers are only one component of an increasingly troubling picture, noting that “about $52 billion in student loans that had been current became delinquent in the first half of the year, the highest first-half total recorded since 2003.”

Are you sure you want to put that question to a jury?

Did Globe University fire Dean Heidi Weber for poor performance or because she blew the whistle on its deceptive marketing practices?  Heidi Weber sued Globe, a for-profit institution (profiled here by Minnesota Public Radio) in 2011, claiming that Globe fired her in retaliation for raising questions about compliance with accreditation standards in its medical assistant program.  She alleged that they paid commissions to recruiters, inflated job statistics and failed to provide training opportunities promised to students.

This week, a Minnesota jury awarded the former dean of the medical assistant program almost $400,000 for lost wages and emotional distress.  Globe alleges that they fired her for performance, but jurors seemed swayed by evidence of malfeasance, such as the school’s failure to disclose that credits were not as transferable as they had represented and to tell students that promised externships were not available.  They also seemed disturbed by the fact that the school had knowingly enrolled students with felony records, even though those students would not be able to get jobs in a field that requires background checks.  Like the verdict last month against Vaderott, this verdict seems to tap into  deep public disgust with the for-profit industry, fueled at least in part by high default rates on student loans at these schools.

 

 

 

 

 

 

 

 

How are you paying for school?

The National Center for Education Statistics released the results of its 2011-2012 National Postsecondary Student Aid Study, a survey that measures how students and their families are paying for higher education.  The AP’s summary of the study (find it here in the Washington Post) emphasizes that increased federal grants are not enough to offset the double whammy of declining state and school aid and rising tuition.

 

 

 

 

 

 

By the numbers: Almost $1.2 trillion and counting

In late July, the CFPB released new data indicating that total student debt has increased by 20% since the end of 2011.  As of May, 2013, the Bureau estimates that the combined total of federal and private loans approached $1.2 trillion.  For those keeping track at home, that’s $101 trillion in federal loans and $165 billion in private loans.