Sunday, August 23, 2015

Meanwhile, a Bubble Quietly Deflates

Did you know that Federal subsidized student loans, measured in dollars lent, have dropped more than forty percent over the last five years?

It suggests a bit of a flaw in the “student loan bubble” discussion, if nothing else.

Robert Kelchen has a good analysis here - check it out.  I’ll shamelessly build on his, since he already did the groundwork.

That decline doesn’t just represent a shift from subsidized to unsubsidized loans, either; the unsubsidized ones dropped by over twenty percent.  And Pell grants dropped by over fourteen percent, so it wasn’t a massive shift from loans to grants.  The only student loans to grow over the last five years have been for graduate school, which actually accounts for a much larger piece of the student loan pie than is generally acknowledged.

My first guess is that it’s a combination of a gradual climb out of the Great Recession and the rapid and severe decline of enrollment at for-profits.

The climb out of the Great Recession could matter in a few ways.  First, it tends to depress enrollments at community colleges, where enrollments are usually countercyclical.  Generally, the weaker the economy, the greater the number of people who enroll at community colleges, and vice versa.  It makes sense if you look at the opportunity cost of enrollment.  If enrolling means working less, that’s one thing.  If there aren’t any jobs to be had, though, and the alternative to enrolling is basically nothing, then enrolling becomes more attractive.  Within higher education, we tend to assume that colleges compete with each other for students, and sometimes that’s true.  But sometimes, especially in the community college sector, we compete with work.

But wait, you say, don’t enrolled students often work thirty or forty hours a week for pay anyway?  Yes, and often to their academic detriment.  But during the worst of the recession, they tended to work fewer hours because there were fewer hours to be had.  At Holyoke, at the low point of the recession, we had the highest percentage of work-study hours actually used in the college’s history.  A couple of years later, the percentage returned to its usual level.  For a while there, work-study was pretty much the only game in town.  It isn’t much, but it’s more than nothing.

I wouldn’t be surprised to see a trend among community colleges now that would show FTE’s dropping faster than headcounts, as more students move from full-time to part-time to accommodate the greater work hours they can get now.  That would decrease their need for student loans, at least in any given year.  (Tip for enterprising grad students looking for research topics: trace the impact of the Affordable Care Act on full-time/part-time enrollment ratios.  Once you didn’t need to be full-time to get health insurance, well…)

The other impact, obviously, is that students whose parents may not have been in a position to help with college a few years ago may be able to get more parental help now.  

For-profit college enrollments have declined drastically over the last five years, sometimes resulting in campus closures, and sometimes as results of campus closures.  For-profits always consumed far more than their proportional share of federal student aid, so as students move either to work or to other sectors of higher education, the draw on the Federal budget is dropping.  

To the extent that the talk of “bubbles’ still may make sense, it’s in graduate schools.  But I’ll leave that to the folks who are closer to it.  (The data in Kelchen’s piece don’t speak to “private” loans, though my anecdotal sense is that they, too, peaked a few years ago.  I’m certainly open to correction on that point if someone has better information.)

Just last week,the Hechinger report purported to blow the lid off of the supposed boondoggle of Pell grants.  Now we know that Pell grant funding is down, both in absolute terms and as a percentage of the cost of attendance.  As boondoggles go, I’m not impressed.  

This may all seem technical and wonky, but people base life decisions and political views on assumptions about student loans that simply aren’t true.  Decisions based on bad information can do real damage.  Let’s tell the real story, and stop blowing bubbles.