Tuesday, March 01, 2016


Getting the Question Right

Quick quiz: among which group is the student loan default rate the highest?

  1. college dropouts
  2. associate degree graduates
  3. bachelor’s degree graduates
  4. they’re the same

The answer is a.  Even though they have the lowest balances -- having spent the fewest semesters in college -- dropouts have the highest default rates.  

That’s worth emphasizing.  The people with the lowest outstanding balances have the highest default rates.  It’s counterintuitive, but fundamental.  

The issue of defaults is separate from the issue of “loan burdens.”  Above zero, they’re almost inversely related.  When we hear talk of “saddling” students with debt, we need to be very careful to note exactly what we’re talking about.

The key issues here are completion and starting salaries.  Students who complete degrees have higher debt burdens, yes, but they’re much more capable of paying them off, because they make so much more.  

It’s possible to find the occasional loquacious SLAC grad with six figures of debt working at a Starbucks, but those aren’t representative.  They’re outliers.  The real story of student loan struggles is the student who dropped out of community college after a semester owing $1,500.  

Yesterday’s post was a response to a proposal by Neal McCluskey, in the Wall Street Journal, to move student lending to banks and allow them to judge the academic fitness of prospective students.  I took offense at the prospect of replacing universal access to higher education with screening done by the same people who caused the mortgage crisis.  McCluskey responded, in part:

Reed next argues that many debts are hard to repay because “entry-level jobs don’t pay very well,” and he laments that “McCluskey never addresses either the supply of entry-level jobs, or the minimum wage.”  Again, you only get so many words in an op-ed, so you simply can’t tackle everything. But Reed’s argument shines a negative light not on me, but what he apparently thinks college prepares many people for: entry-level jobs often paying, he implies, minimum wage. If that’s the case, what is the point, at least economically, of getting a degree? And if it is the case that you now need a degree to get a minimum-wage, entry-level job, does that not at least suggest – even to a non-heartless person – that we are suffering from massive credential inflation spurred by too many people going to college? And is allowing someone to take on substantial debt not a very dangerous proposition if their likely destination is minimum-wage employment?

No, that’s not it at all.  He’s conflating graduates with defaulters.  The default problem is a dropout problem, not a graduate problem.  The minimum wage is relevant for dropouts, not graduates.  Graduates do quite well on paying back loans.  That’s a key difference between community colleges (as a sector) and for-profit colleges (as a sector).  

If the great fear is saddling people with debts they can’t pay -- an outcome I don’t desire any more than McCluskey does -- then a one-two punch of free (or much less expensive) community college and a higher minimum wage should do the trick quite nicely.  And that combination would retain universal access, which is both an ethical and a political imperative.  

In the meantime, let’s go about solving the right problems.  That begins with noting where the problems are.

You are spot on in your attack on his straw man, because you never said or even implied that all college does is prepare people for minimum wage entry-level jobs, but I can't help but notice that he also seems ignorant of the massive credential deflation that is a high school degree. There is a reason that "some college credit" has value in today's job market.

Like a friend of mine at a nearby university, he conflates "high school graduate" with "high school graduates that are admitted to a flagship university". (He might even conflate it with HS grads that enroll at Georgetown, where he went to college, an even more egregious error.) I'd like to know where he taught HS English if he thinks the bottom third of HS graduates and dropouts with a GED are ready for most of the minimum or near-minimum wage entry-level jobs in this country. The sad fact is that "no college credit" has little value, unless you are already Georgetown material, and the minimum wage is but a fraction of what it was when I got out of HS. It would be much better if the first semester's tuition could be handled by someone with a minimum wage job, but folks like the Cato Institute don't want to fund colleges or pay a living wage. They are about to get Trumped for their efforts.

So I blame the "graduate everyone from HS" push that has gone on for several decades for part of the default problem you focus on, with the rest due to the minimum wage. He should be thankful that colleges still flunk people. That is what makes "some college credit" have more value than none at all.
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