Let’s Talk About Student Loans Some More
“The question isn’t the debt per se. It’s what the students are getting in return,” says Richard Arum, a New York University sociologist who specializes in education. Many students are incurring heavy debts for an education (ethnomusicology, theater arts) that just isn’t worth it from a strictly financial viewpoint. (Money isn’t everything, but try telling that to the collection agency.) Education benefits society by creating a workforce that creates wealth, pays taxes, and stays off welfare. But state governments—whose schools educate 7 in 10 students—have raised tuition abruptly because of their own financial problems. So far the federal government has offset the state cutbacks by boosting financial aid, but Education Under Secretary Martha Kanter testified to Congress earlier this year that “this path is not fiscally sustainable.”
Whenever someone writes a new, big feature on student loan debt, I’m all over it. The cost of going to college is getting out of control, and having an on-going discussion about how to fix it is a good thing. Although I don’t have the $100,000+ burden of student loan debt that other students are lugging around, I will probably be paying off my loans—mostly from grad school—until I am in my 40s. So let’s talk about Bloomberg Businessweek’s big feature on student loan debt for a minute, and see if we can gain anything from it.
The setup is what you’d usually expect: People who have college educations consistently earn more than people who don’t, and that’s why we’re willing to pay to get one. But getting a degree now comes with a huge price tag [insert stories of students with various degrees who have graduated, or are ready to graduate with massive debt they're not sure how they're going to pay off]. Next comes a short explanation about why costs have been rising so quickly, which is basically: state and local support has fallen dramatically because local governments have had budget problems, and if you combine that with colleges’ persistent need to expand and adopt new technologies to remain competitive, all those costs are being passed onto students and families (here’s a map from Marketplace showing how much funding each state typically gives to students).
Okay, so now the discussion of possible solutions, and they’ve all been addressed before:
• People have not been able discharge their student loans in bankruptcy filings since restrictions placed by Congress beginning in 1976, unless a judge rules that you are completely hopeless, which is very hard to convince a judge to rule, because you basically have to convince the court that things are never ever going to improve for you (see: this story from the Times this weekend about how difficult it has been for this unemployed man who went blind to convince a court about his hopelessness). Singling out student loan debt as something creditors should pursue someone for until they die doesn’t make a lot of sense, and the restrictions should be removed.
• Making repayment plans more feasible. There have been enough stories about people who have pursued expensive degrees and then taken middle-income jobs (i.e. people who get law degrees and decide they want to work for non-profits instead of corporations), who are then asked to make massive monthly payments that eat up their entire paycheck, or more. Income-based repayment, followed by loan forgiveness after 25 years, an idea the current administration has pushed, is one solution we can pursue. People need to see a light at the end of the tunnel.
• Keeping the cost of college affordable so that students don’t have to take out loans in the first place, is another obvious solution, and this is something colleges can take the lead on, rather than having us rely on Congress to legislate. This means postponing expansion plans, or seeking cost-saving initiatives. When I was an undergrad, some of my literature classes took place in temporary classrooms in what were essentially large trailers. Nobody cared—we didn’t need high-tech classrooms to talk about books. One cost-saving measure mentioned is more online courses: Take out the campus altogether, and you’ll certainly save a bunch of money. But I believe that an important part of the college experience is being able to be on campus and interact directly with professors and fellow students. As Ann Friedman mentioned in an article for CJR today, “every profession is about connections.” I got a lot of job leads from people I met in school.
Bankruptcy law revisions, IBR repayment plans, smart cost-cutting measures—should be easy, right? Except it’s not. Not when there’s money to be made. And colleges and lenders make a lot of money off of students.
Can we also add more regulation of private loans? Those are the real evil ones. Dealing with my federal loans in terms of income based repayment had been crazy easy in comparison with dealing with my private loans?
Citibank called in my private loans a year before I finished my Ph.D.* They were uncompromising in terms of lowering my monthly payment and called at all hours of the day. I did get them to back off because my aunt is a lawyer who used to go after collection agencies and she managed to scare them into extending my grace period and fixing my credit score which took a hit during the 7 months I was dealing with this.
Now I am gainfully employed and able to pay back my loans on time while still maintaining a decent standard of living. But lowering that monthly would make it possible for me to do oh so many economy boosting things like put a down payment on a house.
*Yes I should have looked closer at the fine print, but at the time I didn’t know that there was real difference between the types of loans I was taking out, particularly since they were all distributed at the same time. That, and I was in my early 20s and impatient to change my life, blah blah blah.
@LDW@twitter that should read by the same bank instead of at the same time.
@LDW@twitter It never occurred to you during the course of your PhD to review your loan situation prior to entering repayment?
@sventurata Getting a Phd is a fairly arduous process all by itself. And while they’re in deferral they are basically out of sight out of mind. Reviewing the repayment options in advance might have prepped me for the crazy to come, but it wouldn’t have changed things much. I still would have been a poor graduate student in an expensive city dreading the moment where I couldn’t come up with an extra $500 a month.
I should also add that part of the reason they ended backing off is that their loan conditions are laid out in such an obscure way as to leave them open to the same kind of investigations that led to the credit card companies having to change their policies.
http://www.nytimes.com/2009/05/13/us/politics/13cong.html
The crucial info that about deferment limits is buried in pages of fine print. Having a lawyer point this out made them nervous.
People should keep the amounts of their loans as low as possible by not borrowing for room and board. In a state school, room and board more than doubles what you’ll pay. It’s crazy to go into debt for room and board IMO. Pay for it some other way (part-time job and/or live off-campus and pay as you go) or go to a school close to home and live and eat there.
@Trilby There are some degree paths that you pretty much cannot work during…careers in a lot of health professions have course loads that are so busy and difficult that it’s hard to work more than a few hours a week. I can understand taking out money for room and board in that case.
I’m currently making preparations to go back to school for pharmacy and spending the next year working full-time and saving as much as I possibly can so I have savings to cover at least part of my cost of living, but I’m going to have to take out loans for at least rent…because I’m going to run out of money in the four years that I’m not working.
It makes me sad to imagine the future if things continue as they are. Because, for example, if people will now only major in subjects that will guarantee the fat paychecks that will allow them to pay off their loans, then what will happen to the humanities education? What will happen to the History, English, and Classics professors? What will happen to our already impoverished political discourse if people have no sense of how to make sense of the past, of how to really read, of how to respect other cultures? Do we really want to live in a world where people only go to college to learn how to make as much money as quickly as possible?
@madrassoup Such, such good points. I went to a liberal arts college for my B.A., then earned an MBA for my graduate degree. The mix of MBA students in my cohort was like 60% former business majors, 40% majors in something else. I was on more than one occasion shocked by the gaps in knowledge of many students who went from a business undergrad degree to an MBA program. Sure, they knew the 4 p’s of marketing, but most had no knowledge of basic psychology or sociology–as if trying to understand why people act how they do was irrelevant when you’re trying to, e.g., sell things or manage people. None had even read Adam Smith–which I would have guessed would have made it into the curriculum somewhere–much less Karl Marx. It just made my head hurt, and my heart.
@madrassoup But there are too many History, English and Classics professors as-is. Like, way too many. Why do you think adjunct professors are a thing now? It’s not because there’s a shortage of people with PhDs in Classics.
@raptor41d MBAs are actually not super valuable. Better example would be engineering and technical writing programs, maybe some med tech stuff. But MBAs are liberal arts degrees for people who like the idea of money instead of the idea of intellectualism.
@deepomega That’s a fair point and a good article. Law schools have gotten a real bad reputation as an investment in the last several years as the employment market has dried up for lawyers. MBA programs have somehow escaped that, but spending lots of money on a crappy MBA program is just as dumb as spending lots of money on a bad law program. So (assuming you have experience in one of these areas), have you seen people with better rounded educations in graduate engineering programs?
@raptor41d One of my undergrad degrees was Computer Science, and almost none of my classmates went on to grad school – they just got jobs, since there is STILL a ridiculous shortage of qualified engineering types in the US. All of them got offers for either a fun job at a startup or a high-paying job at a defense contractor, and my (anecdotal) experience is that grad school is mostly popular with people who don’t have a job lined up, or romanticize academia.
That said, while our CS and CE program was actually super great and forced them into non-tech-y courses, there’s a pretty major problem within the field of not teaching ‘em how to write or communicate properly. There’s some overlap into the philosophy side of liberal arts, but not much into lit.
@deepomega Well, both things can be true, right? Part of why there are so many adjunct positions rather than tenure-track ones is because universities don’t want to invest in long-term career paths for specialists in disciplines that don’t have as much of a place in this new economic/intellectual landscape. Also because they are cheap. On a related note, I think the real problem is not the number of PhD’s being produced in those fields, but the narrow career paths envisioned for and by those PhDs. The professoriate isn’t the only place for people with those degrees, but somehow schools, students, and the job market seem to think so.
@deepomega That’s good. It’s the undergraduate programs that don’t encourage–or “force” :-)–students to reach outside their area of study that are really worrisome, at least to me. Though, yeah, better communication skills among our science/engineering types would be extraordinarily helpful for both them and those of us who try to communicate with them. And, vice versa, a better understanding of STEM fields among outsiders is likewise something we desperately need.
@madrassoup I’ll agree about the professoriate – PhDs should be thinking about a way wider range of career options. But, I still stand by my claim about there being too many. Do you think universities could get away with paying so cheaply if it weren’t impossible to find work in academia? Here’s a good thing about it. Moneyquote:
The US is one of the largest producers of PhDs, second only to China. In life sciences and physical sciences alone, our universities bestowed nearly 20,000 doctorate degrees in 2009. Most PhD students are striving toward a tenured professorship, but academia just can’t take all these graduates. In 1973, 55 percent of PhD recipients had tenure-track positions within six years of earning their PhDs. In 2006, merely 15 percent of recent graduates found themselves in this position.
The entire American model of graduate education was built around pumping out more professors – and now there are too many. But PhDs were always directed towards people who actively didn’t want jobs outside of universities. Now those chickens are coming home to roost.
Bankruptcy in the US is EXTREMELY generous to the person declaring bankruptcy. It’s one of the reasons we have such a culture of small business ownership – personal risk is pretty low. Since most of the effects end after 7 years, I can’t really imagine a single 22 year old NOT declaring bankruptcy immediately upon graduation.
@deepomega Right—The reason why the restrictions were put there in the first place because a lot of law and medical school graduates were doing exactly this. But, there should be some balance, right? The restrictions should be eased so it becomes a possibility for people like the man who became blind and unemployed in the Times story, but not completely eliminated so that everyone does it.
@Mike Dang I think “unavailability of bankruptcy” is a pretty goofy way to frame the problem, basically. I’d rather we talk about why people are taking on 40,000 loans to get careers that pay them 30,000 dollars a year, and what we can do to a) make education cheaper (and I mean ACTUALLY cheaper, not just “subsidized by other people”) and b) what we can do to make sure we’re not burdening people with loan debt way out of scale to what money they’ll eventually make. Like, if we start accepting that a liberal arts degree from a Brand-Name-University is a luxury, and that if you just want a good education you don’t HAVE to go to an Ivy, that’d help start pushing the culture away from high-priced debt. (Maybe!)
@deepomega so what do you propose we do for the people who are already in debt, and out of college?
Cap what the government will lend, and universities will be forced to cut their tuition. I think a solution based on that idea, coupled with much more generous grants for low- and moderate-income students, and an option for bankruptcy at least on private loans after a certain number of years (including for outstanding loans), would help a lot of people and have a moderate chance of getting made into law.
In an ideal world this plan would be coupled with some big new funding for universities, which would be enormously beneficial to our economy but is unlikely to happen. Instead, maybe include a provision so that state universities in states where funding is below a certain ratio aren’t eligible for federal loans at all. So that states are incentivized to actually pay for the operation of their universities, rather than foisting that cost entirely onto the students via the federal government.
Great article, but I have to take issue with this sentence: And colleges and lenders make a lot of money off of students.
No. Non-profit colleges and universities- so basically all credible colleges and universities- lose money on students. Even students who pay the sticker cost. That’s why they’re called non-profits.
Even if you take away the frills (and I agree the frills should be taken away), it costs huge sums of money to pay faculty and staff and maintain buildings and grounds.
I work in higher ed, tangentially in affordability issues, and please continue to read and post about everything Richard Arum writes about. And for good measure, the work of Arum’s co-author on the fabulous Academically Adrift (http://www.insidehighered.com/news/2011/01/18/study_finds_large_numbers_of_college_students_don_t_learn_much) co-author Josipa Roksa. They both write about issues affecting postsecondary students in a refreshingly clear-headed way. I’ve seen them speak in person and they really really get it. Arum said at a panel once that it would take a ‘Sputnik moment’ for the system to change, and I fear he is right.
@highjump Oh, I read that book and boy oh boy was it a downer. It also didn’t have many nice things to say about business majors.
Maybe I’m nuts, but perhaps core curriculum requirements should be expanded so people have broader knowledge.
@P.J. Morse@twitter Perverse incentives man. Almost all undergraduate majors in business are really poorly designed, and they are cash cows for universities.
Why would an institution want to add MORE time to degree considering all the pressure to graduate students? Perverse incentives strike again!
Hey Mike, If you’re paying off your sub $100,000 student loans until you’re in your 40′s, does that mean you are making a bet on inflation and opting for a longer repayment period? Are you hoping the $175/month payment will be the same as your morning cup of coffee in 15-20 years? Maybe you are older than I’m assuming, but even so, what do you think about this approach? Anyone out there want to do the math and report back?? Please??
@DON Sorry — at realistic rates of inflation, in 20 years $175 will be the equivalent of about $98 today.
@stuffisthings
Haha but just wait until your Kenyan president starts printing money for all his “social programs!”
More seriously, I redid your math. You’re assuming a 3% inflation rate. That might be unrealistically low. As someone with enough student debt to buy a house, I hope so! (E.g., a 7% rate reduces the payments to $45 in current dollars: 175 / 1.07^20 = 45.)
@josiahg Right, the coffee is an exaggeration, but in terms of a percentage of my income, the question remains. If I assume I will be making more money in 20 years than I am now and my loan payments will be of less significance because of inflation, I wonder if I’d end up paying an overall lower percentage of my income if I did a 30yr repayment plan rather than a 10yr.
Believe me schools, particularly state schools have been cutting like crazy. The fact that about half of all classes are taught by adjuncts (who are usually very underpaid) rather than TT faculty reflects this. Also, state schools are heavily dependent on state funding. In the UC system the state covered 78% of a student’s costs, now it only covers 39%*.
It’s something of a myth that online classes will automatically be cheaper than traditional face-to-face classes. The cost savings often comes from replacing a decent FtF class with a crappy online version. After all, an online class still requires considerable infrastructure in the way of maintaining the computer systems (not trivial), developing curricula and staffing. A good online class will cost $$.
*http://budget.universityofcalifornia.edu/?page_id=1120
I think we either need to decide that we don’t need every kid to graduate from university and encourage them to take different paths if they are inclined that way, or we need to accept that higher education costs need to be subsidized HEAVILY by the (federal) government.
There should be no private loans. I can’t believe there are lenders willing to give teenagers several thousand dollars, but that’s capitalism!
Student loans should be seriously, heavily capped. If you are not eligible for grant money and your parents can’t pay, then you need to go to a cheaper school.
Personal finances training and serious career counselling should be taking place in high schools. 18 years old might have meant “adult” back in the day but with people in their mid-20s still living with their parents, that has obviously changed. I don’t remember anyone saying anything except “go to college or you don’t have a future,” never “live within your means while you’re there or you will be paying for it for the rest of your life”
Schools need to stop taking students regardless of market demand for their skills. I think it’s morally reprehensible to do this, and I think schools deliberately misrepresent career opportunities on a regular basis.
I speak with experience, because I never thought about the consequences of my borrowing and went to grad school twice, once because I just loved the subject and the other time to get trained in something that would actually result in a job. I’m very lucky I have one, but I had to leave the country for it. Lots of people told me there would be tons of jobs in my field and they were all lying, for various reasons. Thanks to the strong Canadian dollar my US student loan payments are manageable… for now. But I didn’t think when I was 20 that I would care so much about retirement at 31. Maybe I can have a savings account by 45?
I was dumb, sure, and I’ll keep paying for it. Anyway, it’s too late for people like me. There will be no mass loan forgiveness. I can only hope the kids still deciding what to do with their future heed our warning cries!
@lazyjane Agreed… and good luck.
Everyone else: as flattering as it may seem to be wooed by professors and encouraged to undertake graduate work – really take a hard look at the growth rate in your field (firstly) and programme. I see a lot of “but I’m so speshul! my prof sez im rly smrt1! omg i HAVE to go to grad school for 10 years to reach my potential” comments that worry me.
If you are really that intelligent, you owe it to yourself to do the research on the employment market, your education, and projected debt load/repayment plan. Blindly leaping into the chasm of postgraduate studies will NOT do you any favours in this overglutted market.
I read an interesting editorial about how federal loans gave schools incentives to spend money on frills, (new buildings etc.) because they knew they would be getting that money. But also something that isn’t discussed as much in terms of frills is the changing expectation of student support. At my university, the number of professors has grown slightly while the number of administrators has grown exponentially – what are all these administrators doing? In most cases it seems to be student life support – mental health services, housing and dining oversight… The type of student support a university needs to have to be desirable to students and parents has probably changed drastically in recent years. The economic value of these types of support is hard to quantify, I personally would say there’s a lot of redundancy, but I’ve also never used my schools counseling services..
An interesting fact about the cost of higher ed that should be pointed out is that it is very hard to drive productivity growth in this sector, relative to the rest of the economy, which has become 2-3 times more productive since the 1970s. Naturally, wages have increased accordingly (though not as much as we would like for the 99%), meaning that we have to pay professors more and more for the same level of “output” or resort to cheaper alternatives — and funnily/sadly enough, many adjuncts now have the same nominal salaries as professors of the mid-1970s. This isn’t the entire explanation — the dramatic expansion of administration costs and “frills” is just crazy, and slashing state funding year after year has put more and more of the cost burden back onto students (who do not now pay the full cost of their education, and never have). But it’s important to recognize that we can’t dramatically shift the cost curve without also dramatically shifting our conception of what a higher education is, in terms of face time with professors, research, etc.
@stuffisthings So it’s been a long time but in the 90s I wrote about some of these issues affecting my own college for the college newspaper. The reason administrators gave on background for all the new computing centers and rock climbing walls and new apartment-style dorms etc. was more complicated than “attracting students.” It had something to do with the relationship of the value of the physical plant, the college’s debt and its endowment.
Our editorial point of view at the student newspaper was that since these improvements couldn’t keep happening forever it was a short-term and expensive way to rearrange the company finances.
Also: In the mid-90s there began a giant thing that the old now nonexistent magazine University Business (a spinoff of Lingua Franca) documented heavily: Administrative bloat. At the university where my mom teaches, an entire department larger and more expensive than any academic department called Freshman Services was created, for instance. Multiply that by like 20 similar programs over the last few years. These seem to me more like luxuries with no practical payoff beyond marketing.
But mostly I feel very unqualified to advance either of these things very far–anybody have anything to say about them?
Also worth looking into is Public Service Loan Forgiveness: http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
Consolidate your loans, go on IBR or ICR, and hope this program still exists in 10 years. As long as you make regular payments, the remainder of your loans should be forgiven at that time.
The definition of public service is very broad, and includes most academic and government jobs.