Tuesday, August 23, 2011


One Chart to Rule Them All


If you haven’t seen this chart yet, go look. It shows the cumulative growth of student loan debt in the US since 1999, as compared to cumulative growth of household debt outside of student loans in the same time period. In brief, the student loan amount increased by 511 percent since 1999; overall household debt outside of student loans increased roughly 150 percent.

Keep in mind, too, that the period of the graph includes the 2000-8 housing bubble. So it’s not like we’re comparing a growing sector to a frugal population. And as the accompanying article points out, it’s not as if the number of college students grew by 511 percent.

This weekend Marketplace Money carried a report of a woman who lost out on a job opportunity because of her credit report. She had taken out loans to go back to grad school to get a Master’s degree in her field to become more employable. She lost her job in the recession, and fell behind on her loan payments because she was unemployed. Now she can’t find work because employers don’t like her credit rating, which is a result of the combination of student loans and unemployment. That’s what she gets for going back to school, apparently.

This is insane. Yet the dialogue within higher ed doesn’t take this seriously at all.

Yes, it’s true that public subsidies to public colleges and universities aren’t what they once were, especially since 2008. Even just restoring levels to what we had in, say, 2007 would help get tuition increases under control which, presumably, would help level off the student loan growth. But that’s not the entire answer; a quick look at the graph, for example, shows a huge spike starting in 2005. If the Great Recession were the primary driver, that wouldn’t be true.

As several helpful folks pointed out on Twitter, some of the increase can probably be explained by the explosive growth of for-profits during most of the decade, since for-profits as a group generate higher per-student debt. The last statistic I saw indicated that for-profits account for about a quarter of current student loans. So even discounting the ramp-up period, if we take 25 percent as the for-profits’ share of the cumulative total -- which is ‘rounding up’ in the extreme -- that would take the growth down into the 380 percent range. Lower, yes, but still catastrophic. It’s probably accurate to accuse the for-profits of making a terrible situation even worse, but they are not the primary drivers. Factor them out, and the picture is still terrible.

From a strictly selfish perspective, I like to think that developments like these augur well for community colleges, since students can pick up transferable credits here on the cheap and keep their overall debt burdens down. And there’s probably some truth to that; locally, at least, we noticed an uptick in middle-class, traditional-aged students when the Great Recession hit; presumably their newly-shaky family finances made starting at a community college a more appealing option. For some students, this can be a good strategy.

But community colleges are hardly immune to large percentage increases in tuition; they’re just starting from a much lower base. Unless the slope of the curve flattens, eventually some of the same issues will hit here, too. And the perversity of politics is such that anger at elite institutions is often taken out on the ones that serve the many. Harvard is comically expensive, so we’ll cut aid to state and community colleges. Um...

The more fundamental issue is the cost of delivery. Here I’m referring not to the cost to the student, but to the institution. As long as the cost of delivery keeps increasing rapidly, that cost will get passed on, whether to the student, the taxpayer, or someone else. There’s a perfectly valid argument to be had about the proportions of the increase that should be passed on to this stakeholder as opposed to that one, but the underlying issue is the cost spiral. Sharing pain is a hard sell when the pain keeps increasing.

This is where I’m pessimistic. After slightly over a decade in higher ed administration, I’m increasingly convinced that change will have to come from outside. The forces of inertia from within are as powerful as they are shortsighted. They insist on continuing to frame a structural problem in personal terms.

To take one example, Benjamin Ginsberg seems to think that “deanlets” are the problem, which might make sense if their numbers weren’t actually decreasing. Staff is increasing, but management is shrinking. And the staff increases are mostly concentrated in a few discrete areas: IT, financial aid, and students with disabilities. Prof. Ginsberg is invited to specify which of those he considers unimportant.

Among the blogs, you’d get the impression that the biggest problem facing higher ed was its overreliance on adjuncts. Put differently, you’d get the impression that colleges are too frugal. The preferred alternative usually offered is a dramatic and sustained increase in labor costs. From whence the money to pay these increased costs would come is usually left to the imagination.

My best guess is a sector-by-sector crackup. The colleges on the top -- elite, expensive, brand-name -- and on the bottom -- community colleges -- are in the best long-term shape. But those privates in the middle -- expensive but not exclusive, tuition-driven, living and dying by the “discount rate” -- are in very deep trouble. Their strategy of going with all student loans, all the time, is hitting its limits. The ones that hope to survive are, paradoxically enough, the best hopes for innovation. Nothing focuses the mind quite like a gun to the head; with institutional survival at stake, some of them may be able to break through internal inertia and actually make some necessary changes. The rest will die.

If the only way to support more of the same is to accelerate the upward slope of the curve, then it’s time to stop trying. As a famous economist once put it, trends that can’t be sustained, won’t be.

"She lost her job in the recession, and fell behind on her loan payments because she was unemployed." This sounds to me like she defaulted on the loan, as opposed to going into forbearance? If that is the case, then her credit report isn't the cruel result of the ogre of student loans combined with the demon of unemployment. It's the result of not understanding how to handle her student loans. I'm not saying that there isn't a problem with the economics of higher ed in saying that. But it's important to be clear about the fact that going into forbearance doesn't affect one's credit negatively as far as I'm aware.

I do wonder whether that "511 percent" translates across the country and not just in New York, and I do wonder about what actual dollar amounts we're talking about. For example: from 1997-2008, my institution's tuition has increased about 20 percent. That sounds like a terrible burden for students, yes? In terms of dollar amount, though, we're only talking $2,100, which over a 10-year period, and given the slashed state budget, doesn't sound so awful. It's also important to note that while we haven't had a 500 percent increase in students, increased student numbers are coming from a pool of students who are much more likely to be in the first generation of their family to attend college, probably in previous generations never would have gone to college, and who are more likely to finance their education partly or entirely through loans. This would, it seems, at least to some extent, account for the percentage gap - but again, this chart doesn't really get into any of that. Again, this is not to say that we don't have a problem with how higher education is financed.

There are problems. But I don't think that it's fair to assert that they aren't getting solved because nobody but you can see how things "really are" or that the "forces of inertia" (i.e., tenured faculty) are the reason we can't fix these problems. It just seems so much more complicated than that, doesn't it?
Drat - just realized I was looking at the wrong chart when I posted our tuition change, and now I can't find the one I need. Just ignore the details of that comment, but the surrounding comment, I think, still stands. (Too early in the morning - my apologies.)
"Among the blogs, you’d get the impression that the biggest problem facing higher ed was its overreliance on adjuncts. Put differently, you’d get the impression that colleges are too frugal. The preferred alternative usually offered is a dramatic and sustained increase in labor costs. From whence the money to pay these increased costs would come is usually left to the imagination. "

Come now, you know this isn't what we're griping about, nor a fair description of the solution. The problem is not an over-reliance on adjuncts so much as the replacement of full-time tenured positions with underpaid adjunct ones. We just want the number of full time with benefits teaching jobs to remain the same, not decrease in favour of part-time, no-benefits jobs. This shouldn't be described as a "dramatic and sustained increase in labor costs" so much as "keeping up with inflation" -- tough, I know, but certainly not as outlandish as you're making us sound.
In DD's defense (hey, look, the plural of anecdote!)...

I've worked at both a CC and R1 and my colleagues' conversations about staffing have often been, "well, at one point we had X tenure-line positions, that's what our staffing should always be."

"One-point" may have been 20 years ago.

Even should we hold our current numbers constant, because of the cost curve of insurance, it does require a sustained increase in labor costs on the order of 10% annually. I'm not sure if this is dramatic or not. I know that our revenues are not increasing at 10% annually and our state appropriation got cut 45% this year, so we're shedding positions and teaching larger sections.

But, why are loan burdens increasing so dramatically? I do like Dr. C's claims about the changing nature of our population, but that is coupled with pretty big increases in tuition and fees here. We've also been changing the mix of our financial aid packages to be more balanced towards loans and away from grants (on a percentage basis).
Health care costs. Health care costs. Health care costs.

I'm not kidding. Fringe rates around here are now over 50%. The vast majority of that goes to pay HMOs to not cover what ails us. So for every faculty line, every staff member, every graduate assistant, we pay half again as much of their salary to the health care industry.

Did I mention health care?
Thanks for the great post, DD, I think you hit the nail on the head.

Student debt is going up 1) because tuition and other costs of education are increasing (textbooks, extra fees, etc) and 2) loans are getting easier and easier to acquire. I'm sure once upon a time small localized community colleges barely even had to deal with financial aid. That's far from the case now. Plus, in a time when employers are massively risk adverse to hiring (and paying) for new staff, schools of all kinds are taking in students everywhere they can. While this might mean the numbers per school aren't increasing dramatically, perhaps across the board things look different.

Oh, and this student's story about schooling and debt renders any prof's advice that "there are always good jobs for good people" obsolete. Advice like that is terrible if not irresponsible in the context of higher ed these days.
Vellum: what I'd like to see is some statistics. Which schools have lost faculty positions, and how many? At my own institution, I can say with certainty that no faculty have been "replaced" with adjuncts. In real terms, the size of the department has increased significantly in the last ten years...just not as significantly as the number of adjuncts. DD's assumption (which seems in the main correct) is that more people are going to college and instructional loads are increasing, and that we can meet that increased burden with either expensive tenured faculty or inexpensive (in the short term) adjuncts. That's not "replacing;" that's just not increasing. If you can point to a department that had 20 full-time faculty a decade ago and only has 10 today, of course--in a discipline that hasn't seen drastic reductions in students taking classes; The Classics department at SUNY Albany, for instance was clearly not the victim of the contingent labor market--that might help ground this discussion in the facts.
DD's analysis is excellent, his vision of the end game seems very plausible. It's important to note at the elite, high priced schools like Harvard and Yale very few students pay list price, because those schools have such large, 11-figure endowments. (BTW, why are those mega-endowments still tax free on their investment income? Why don't we tax the billionaires once in a while?) The next tier down are really the most expensive schools, but they don't deliver Ivy networking. So they are massively overpriced. That they still exist is a triumph of hope over experience.

Why have students voluntarily assumed this extraordinary debt load? It wasn't knowledge they were after, they were buying a credential that they were told made them employable. Now that everyone knows the emptiness of that promise, the demand for degrees is bound to fall.

The universe of higher ed is on the cusp of a paradigm shift, just as the economy is generally. The next step is to shed excess capacity.
Why have students voluntarily assumed this extraordinary debt load? It wasn't knowledge they were after, they were buying a credential that they were told made them employable. Now that everyone knows the emptiness of that promise, the demand for degrees is bound to fall.
Actually it might make the degree even more valuable. The unemployment rate (seasonally adjusted) for July 2011 was:
for those without a high school degree 15.0%.
for those with only a high school degree 9.1 %
for those w/ some college/associate degree: 8.5 %
for those w/ bachelor's degree or higher: 4.7 %
From: http://www.bls.gov/news.release/empsit.t04.htm

As the market becomes competitive having a degree may well be even more important. Likely you will need a degree to move onto professional/graduate programs.

Part of what needs to be talked about in terms of debt loads being taken on for college is due to the stagnation (in fact decrease) of household incomes. The productivity gains and those from free trade have not been evenly distributed. When a select few are enriched greatly, everyone else has to take on debt to pay for things like college. Not to mention lead to the increased tuition costs at public colleges due to tax revenues coming up short. Through in more students going to college (drawing more from the less privileged than before), rising health care costs, etc. you are going to have an explosion in total student loan debt.
I think it difficult to develop any kind of analysis until a lot more data is provided. For example, DD suggests that at most 25% of the debt load might be carried by students enrolled in for-profit institutions. I would like to know how much of that load is derived from students enrolled in professional programs (law school, MBA programs). That’s where I see – anecdotally – a lot of credential inflation. Moreover, increased costs at many institutions of higher education can be traced to accountability requirements (someone needs to process all that paperwork), IT, student support services, and as someone else has noted, health care costs. I’m not attacking all this growth – it would be hard to argue that our university should not provide its staff or students with computers or health insurance – but our tuition has gone up at least five years in a row (while state and federal aid has declined), but employees have not seen a raise in four years. I would also like to see more data about the types of students who take out loans. What can their families provide? Has that changed? Does the loan burden correlate positively with the number of times a student changes his or her major? As more and more students work, do they need cars in order to get around? (My university town has a very undeveloped public transportation system; if one works in another town – as many of our students do – one absolutely needs a car).

In any case, before I consider DD’s or Mr. Dantes’ suggestions that a paradigm shift will be forced on those of us who work in higher ed at gunpoint, I need to see a lot more solid data and a lot better analysis.
Combine stagnant household incomes (or worse losing an income completely), a decrease in the value of houses (which many people used to fund college), and a general increase in the cost of college, and I think you have a 511% increase in student debt.

As for containing costs, I have no clue. I think doing education well is expensive. I do think that there are places that could cut things. Non R1's could cut research budgets. Departments where there is little to no interest from students could go away (and I know this means things like Classics, Art History or Philosophy). There may be ways to make those things relevant again--ethics, anyone? But Ancient Greek? Just saying. Those are tough decisions to make but I suspect every school has some programs that are no longer sustainable.

By the way, I heard that Marketplace story, and as I recall, the woman wasn't having trouble with student loans, but with other bills and debt, which put her in credit trouble. The report overall was discussing the unfairness of using a credit report as a signal of employability. After all, many people looking for jobs now have shaky credit.
Another factor is that students are maxing out on student loans, way above and beyond the actual cost of tuition and books. Students at our two-year institution routinely have $6K in refund checks each semester after tuition, fees, and books are subtracted. Some will never finish a degree but will still have the burden of the loans waiting on them without the benefit of higher earning power than when they started.

Some students may be using the extra money for living expenses, but many are simply taking it because it's offered.
An add-on comment to needlefingers:

I know students who are enrolling at our local CC only to get the "refund" check to make their living expenses. They take the classes, do enough to barely pass a few easy classes, and have no intention of transferring or even finishing a particular associates degree.

They aren't worried about paying the debt off because they are so close to the edge of financial ruin that all they worry about is how to pay for gas next week.
Rising tuition may play a surprisingly large role. I don't think my school is unique in having had 10% annual tuition increases over a good part of the 1999-future period. For 12 years this compounds to a huge increase, (110%)^(12th power) = 1.1^12 = 314 %. That isn't too far off from the 380% increase that DD calculated after subtracting for-profits.

Another possible constraint on the rising tuition will come on the research / graduate education side from funding agencies. I don't know when most agencies will start declaring maximum tuition costs. The US budget crisis and potential subsequent reductions in funding by NIH, NSF, etc. certainly could raise that idea.
@Anonymous at 6:11am -- I went to look at the actual stats, and.. well it's surprising. Seems that in actual number, tenured and tenure-track positions have increased over the past decade. Not near as fast as non-tenure-track, and i'm not sure anybody has complete data on the seas of underpaid adjuncts, but I take your point. I should've looked up the data myself. I did a post on it, if you're interested: http://vaultingvellum.blogspot.com/2011/08/on-tenure-in-america.html
Lost or deleted? Who knows. I'll try again.

IMHO, the reason student loans increased so much was that they were misleadingly described as "financial aid" when they are, in fact, the non-aid part of the financial package. I don't know where it started, but it should stop.

The graph you referred to is quite misleading, because it does not show the actual housing bubble. Housing is grouped in with everything else. Pull out and graph the 3.28 T$ to 9.98 T$ growth in mortgages (data in the text) in comparison to the 0.09 T$ to 0.55 T$ growth in student loans if you want to compare those two, but the biggest bubble was actually in mortgage lines of credit based on nonsensical "value" produced by flipping neighboring houses from one gambler or fraudster to another until one was left holding the bag. And some of that equity was used to pay for college as well as consumer spending, so the student loans might actually understate the role of education in individual credit crises.

BTW, equating Management with Administration is a category error. The complaint is about administration, particularly when it reaches the 2.5 student-admin ratio seen at R1 institutions. Deanlets are not counted as Management at our college, but we have added more of those positions along with non-teaching MS and PhD staff positions than we have new f-t faculty positions at my CC. And they are not in IT. We are outsourcing a lot of that, at a cost that is quite difficulty to discern.
It can't really have success, I feel so.
I don't know why student should pay that amount money. Something should be done to decrease it because it is fair that they don't have to pay that amount.
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