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.