The Cost of Opportunity

commoditiesWe’ve all heard it so many times that we don’t even notice it anymore:  Education is a commodity.  College is an investment in your own human capital. Students are consumers, savvy individuals who bear the risks and rewards of their own investments.  Student loans are the cost of opportunity.

But this familiar “Education is a Commodity” refrain is not a benign turn of phrase.    Using the language of the market to describe higher education is driving the disastrous rise in student debt.

Why?  Because we can draw a direct line between Continue reading

Food for Thought: Perpetual Bonds for Funding Higher Ed

Could perpetual bonds be an effective funding mechanism for higher ed?  Our former colleague Danny Bradlow has published a thought provoking piece explaining how it would work in South Africa.

epa04988705 Some of the thousands of students from Wits University demonstrate during another day of protest against fee increases at their university, Johannesburg, South Africa, 22 October 2015. The Wits students have been demonstrating for days against a proposed fee increase and has spread to other major universities in the country. South African students continued with their campaign across the country enforing multiple university shut downs and rolling protests against the rise in tuition fees. South African president Jacob Zuma is set to discuss the fees issue with student leaders in the capital Pretoria. EPA/KIM LUDBROOK

Students from Wits University demonstrate against fee increases at their university, Johannesburg, South Africa, 22 October 2015.  EPA/KIM LUDBROOK

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

The Color of Student Debt

“Racial disparities in student debt are closely related to the stark racial disparities in wealth characterizing American society.”

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Race-based differences in student loans are little understood and often ignored in debates about higher education financing.  New research might help us to change that.  Back in 2010, the College Board noted that 27 percent of black bachelor’s degree recipients had student-loan debt of $30,500 or more, compared with just 16 percent of white bachelor’s degree students.  Of those who borrow, black students have an average of over $4,000 more debt than white students.

In “The Color of Student Debt,” researchers lay out evidence that two factors account for “over half of the black-white disparity in student loan debt.”

First, African-American families are much less likely to have wealth (as opposed to income) available to help family members attend college.  How much less likely?  Black families have, on average, six times less wealth Continue reading

Everything you always wanted to know about Sallie Mae…

From the advocates at the National Consumer Law Center comes an eye-opening report on Sallie Mae. My first thought was that the “Sallie Mae Saga” should be required reading for everyone who cares about “the dangers of relying on a for-profit publicly traded company to protect borrowers and taxpayers.”  My second thought was that it should be required reading for everyone.

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.

Student Debt at the Intersection of Race, Class and Gender?

The vast majority of reports on student loan borrower and defaulter characteristics tend to focus on one trait– socioeconomic status, race, gender– at a time. While some authors flat-out state that they don’t intend to consider how characteristics relate to one another, for instance, socioeconomic status and race in calculating risk of student loan debt, the majority seem to simply fail to consider exactly how multiple factors might affect a student’s access to resources.

Much of the literature on student loan debt and default rates disaggregates data by single characteristics.  Nicholas Hillman’s College on Credit and the Urban Institute’s Forever In Your Debt take this approach.  Other reports and articles–like Mark Kantrowitz’s Calculating the Contribution of Demographic Differences to Default Rates, the AAUW’s Graduating to a Pay Gap, and Gross, et al.’s  What Matters in Student Loan Default?–mention intersections, but only in passing, and without sustained analysis.

Teasing out single factors is useful, but only up to a point.  If feminist theory has taught us anything over the past decades, it is that we cannot consider race, class, gender or other characteristics in isolation.  To do so is to fail to understand that people do not inhabit one identity at a time, and that the experience of multiple discrimination is the norm, not the exception.  For example, if having a child is is a “risk factor” for drop out and default, why do we not have better analysis of which students are the most likely to be the sole support for dependents?  How can we know the best way to ensure that these students benefit from higher education if we do not know who they are?

Does student debt reduce lifetime wealth?

Last week an economist asked me for my most impressive fact about student debt (yep, people in DC really do ask that sort of thing over dinner.  Maybe that’s why they don’t let us outside of the Beltway.)

Student debt swims in facts and figures, but the one that I tend to pull out a parties filled with young urban professionals is that a dual income young couple with bachelor’s degrees and an average amount of debt ($53,000) will lose over $200,000 of lifetime wealth compared to a comparable couple without debt (read the study, by Demos, here.)  A huge chunk of this loss is in retirement savings, despite the higher incomes that go with higher education.  This fact tends to bring the conversation about “why is student debt bad” home in ways that talking about the possibility of default might not.  Then people are usually better primed for the most important part of the story:  that 200K is the best case scenario.  Low-income students, students of color and students of for-profit schools — especially those who default– will see even larger lifetime losses.