New England Board of Higher Education » student loan debt

Bubble Wrap: Higher Education and the Value Gap

John O. Harney — Tue, 20 Nov 2012 12:16:54 +0000

A recent report by the College Board might be an indicator of how fast the sands of higher education are shifting. The prices that most people actually pay for college, which had remained stable for several years, are on the rise again, as tuition and other cost increases outpace financial aid awards.

In its latest annual survey, the College Board reports that after rising swiftly since the 1980s, these "net prices" began to level off in the past decade and actually dropped a little during the recession, before climbing again.

Concern is rising that this year’s increases in what students really pay at four-year colleges could be a sign of things to come—and might intensify what many already feel about the value proposition of an undergraduate degree.

Rising rates of student loan debt (up 15% since 2007) and decreases in reported household incomes (down 11% since 2007) could conspire to cause a drop in college enrollments. Although official numbers have not yet been published, state-by-state enrollments appear to be down.

Some suggest colleges will price themselves out of the market as tuition and fees rise a good deal more than the rate of inflation. The National Association of Independent Colleges and Universities has announced that its members raised fees an average of 3.9% for 2012-13, almost double the 2% increase in the U.S. Consumer Price Index. Public higher education tuition and fees have risen even more—up close to 5%, about 3% after adjusting for inflation on average from last year.

Others are concerned about the rate of return on the college investment. According to The Institute for College Access and Success, two-thirds of the national college class of 2011 finished school with loan debt, and those who borrowed walked off the graduation stage owing on average $26,600—up about 5% from the previous class.

Does a value gap exist? In considering the return on investment of a college education existing data suggest that it does. Companion surveys conducted by The Chronicle of Higher Education and the Pew Research Center in 2011 reported that 80% of the general population thinks that education at many colleges isn’t worth the price.

Reflecting the dilemma many are experiencing, consider the recent New Yorker cartoon depicting a student in his advisor’s office, explaining “I’m looking for a career that won’t be obsolete before my student loan is paid off."

With tuition and fees relentlessly increasing, student loan debt climbing and unemployment receding at a glacial pace, the numbers may not add up for most of this year's college graduates. The number of recent graduates in the job market grew to around 1.5 million in 2011, and the time to complete a degree is also increasing. According to the National Center for Education Statistics (NCES), many college students are not completing college in six years—let alone four. NCES found that nearly two of every three students who started college did not graduate from that same college in four years, and more than 40% did not graduate in six. Accordingly, the U.S. has the highest college dropout rate in the industrialized world.

Moreover, research shows that even a college degree no longer guarantees a good job.

Assessing the cost and the value

So, here is where we stand today. The annual price tag for a college credential has risen dramatically with no sign of slowing down. The cost of college rose 440% between 1982 and 2007, compared to the cost of living rising by 106%, and family income growing 147% during the same period.

Accompanying all of this is a looming student loan bubble with student debt burdens amounting to $110 billion borrowed last year.

And just when the need for career preparation is becoming more obvious, the cost obstacle is growing dramatically. Consider the following:

• Growing numbers of college students are ending up in relatively low-paying jobs traditionally held by persons with modest levels of educational attainment, or, worse, are becoming unemployed.

• A recent study by the Federal Reserve reports that 27% of the 37 million student-loan borrowers in the U.S. are delinquent on their loans.

• America’s student loan burden is poised to hit $1 trillion this year, according to FinAid.org and Fastweb.com (note: in 2000, student debt was $200 billion).

• Student debt is piling up so quickly, it now outpaces credit card debt growth.

With most institutions hiking tuition, traditional universities under attack on many fronts, and state and federal support in flux, some observers question the worth of a degree.

There is a growing recognition that something is not quite right—that the focus on a college degree may in fact be an outmoded concept—not serving the needs of all citizens in a knowledge-based economy. There are many roads to an educated life, and higher education institutions may be the perfect incubators for non-degree credentialing and expanded learning options.

Next: Credentialing

Philip DiSalvio is dean of University College at University of Massachusetts Boston.

DC Shuttle: Congress Begins Examining Obama Ed Proposals

John O. Harney — Mon, 26 Mar 2012 15:41:43 +0000

U.S. Education Secretary Arne Duncan testified in support of the administration's recent proposed higher education reforms at a Tuesday hearing of the House Appropriations Committee's subcommittee with jurisdiction over education. Subcommittee Chair Denny Rehberg (R-MT) and Ranking Member Rosa DeLauro (D-CT) both criticized the administration for proposing level-funding for major formula grants while directing funding increases toward new, untested programs. Under the president's budget proposal, Title I grants to school districts serving low-income populations and formula grants to states through the Individuals with Disabilities Education Act (IDEA) would both receive level-funding, as would the TRIO and GEAR UP college-readiness programs. Congresswoman DeLauro argued that given rising enrollment and state and local budget cuts, "providing level funding to these programs serves as an effective cut in services." New programs funded under the administration proposal would include the president's $8 billion job skill development program through community colleges, the Race to the Top for College Affordability and Completion competitive grant program, and another competitive grant program to encourage professional development and standards for teachers. The Perkins Loan program would also receive a significant expansion. Secretary Duncan defended the Race to the Top model, currently incentivizing sweeping reform in K-12 education, saying that "for an investment of less than 1% of total education spending, we've seen more innovation in the last four years than we have in decades." He said that continuing to increase funding for traditional formula grants would only maintain the status quo, rather than spurring reform.

House Budget Committee Chair Paul Ryan's (R-WI) FY2013 budget proposal would tighten the eligibility requirements for the Pell Grant program, although it does not include specifics beyond "limiting the growth of financial aid and focusing it on low-income students who need it the most." The budget proposal would also change how the budgetary impact of federal lending is measured, with student loans measured against what a private lender would earn at the market rate. All student lending would therefore be tallied as a loss under "fair value" accounting. Congressman Ryan's proposal also cites "evidence that subsidized lending contributes to tuition inflation" as further reason to de-emphasize federal student loans.

Labor Secretary Hilda Solis advocated for her department's job training programs at a hearing of the House Education and Workforce Committee on Wednesday. Republican committee members argued that overlap between similar programs and inefficient administration made the work training programs a waste of federal money. A report released last year by the Government Accountability Office (GAO) found that 44 of the federal government's 47 job training programs overlap in some capacity. President Obama's budget plan for FY2013 called for $8 billion for new programs to partner employers with community colleges in developing job skills, along with funding for programs to retrain displaced and long-term unemployed workers. Committee Chair John Kline (R-MN) supported the president's call to simplify the network of job training programs, but said that the budget proposal's new program requests "would further complicate the tangle of existing programs." Secretary Solis warned lawmakers that programs that appear to overlap at first glance may be targeted at particular populations, and "if we were to look at proposals that would somehow consolidate those programs and cut them back, there would be fallout." John Tierney (D-MA) praised the Labor Department's efforts, many of which line up with the Workforce Investment Act reauthorization bill that he is developing, he said.

House Democrats and Republicans each unveiled their respective bills to reform the federal workforce law on Tuesday. The Republican bill (H.R. 3610), sponsored by House Education and the Workforce Committee's Higher Education and Workforce Training Subcommittee Chair Virginia Foxx (R-NC), would consolidate 30 job-training programs into four in an effort to reduce costs and redundancy. The Democrats' bill (H.R. 4227) includes a provision to encourage partnerships between community colleges and local governments to emphasize skill development in needed areas. It also includes a grant program for colleges which train students for in-demand jobs. Kline warned that a provision to assist state and local governments with funding for job training initiatives might not be feasible, since "the federal government is strapped as well."

Officials at the Consumer Financial Protection Bureau (CFPB) announced Wednesday that U.S. student loan debt topped $1 trillion as of late 2011. This estimate is about 16% higher than one released by the Federal Reserve Bank of New York earlier this year. CFPB officials credited the student loan burden to an increase in people going to college during a down labor market, tuition increases, and financial penalties as economically pressed students fall behind on their payments. The CFPB plans to release a comprehensive study of student debt, based on surveys of private lenders, this summer.

As a member of New England Council, we publish the DC Shuttle each week featuring higher ed news from Washington. This edition is drawn from the Council's Weekly Washington Report Higher Education Update, of March 26, 2012.

Founded in 1925, the New England Council is a nonpartisan alliance of businesses, academic and health institutions, and public and private organizations throughout New England formed to promote economic growth and a high quality of life in the New England region. The Council's mission is to identify and support federal public policies and articulate the voice of its membership regionally and nationally on important issues facing New England. For more information, please visit: www.newenglandcouncil.com.

DC Shuttle: Obama Moves to Ease Student Loan Debt

John O. Harney — Mon, 31 Oct 2011 14:29:38 +0000

On Wednesday, President Obama announced a new proposal to ease the burden of student loan debt. The "Know Before You Owe" initiative will allow students with multiple government-backed loans to consolidate them into one loan under the federal Direct Loan program with an interest rate reduction of 0.25% to 0.5%. The administration estimated that about 5.8 million students could be eligible for loan consolidation. The new initiative would also accelerate the easing of income-based loan repayments. Income-based loans restrict repayment to 15% of a student's disposable income; the new initiative would reduce the repayment to 10% in January 2012, rather than 2014, as currently scheduled. In addition, any students with federal student loans in 2012 and at least one of the previous four years would have any remaining debt forgiven after 20 years instead of 25 years under current law. President Obama said that giving student borrowers more money for home ownership, small business startups, or retirement will "give the economy a boost." Education and student advocates hailed the proposal as a boon to the approximately 36 million Americans currently paying off student loans. However, some experts have pointed out that it may not be enough to make up for the doubling of student loan interest rates, set to take effect in July 2012. Read a blog post on the "Know Before You Owe" initiative from Education Secretary Arne Duncan and Domestic Policy Advisor Melody Barnes at the White House website.

The House Committee on Education and the Workforce's Subcommittee on Higher Education and Workforce Training held a hearing Tuesday on the Education Department's continuing transition from some bank-based loans to administering 100% of government-backed loans through the federal Direct Loan program. Subcommittee Chair Virginia Foxx (R-NC) cited an Oct. 13 security breach on the Direct Loan Servicing Center's borrower website as evidence that the program is not adequately protecting students' financial and personal information. During the seven-minute breach, users were able to see other borrowers' repayment histories and bank routing numbers. A federal student aid official acknowledged the site disruption as well as other customer service concerns in a notice posted the following day. Student-aid administrators who testified at the hearing noted that their workload has increased since the transition to direct lending, because they are "doing most of the work that customer-service representatives used to do at the banks and guarantee agencies." Office of Federal Student Aid chief operating officer James Runcie enumerated several strategies taken to smooth the transition, including the installment of a "chief customer experience officer" to oversee customer advocacy and protections. He also conceded that student loan default rates have risen since the change, which Chair Foxx attributed to a loss of financial education services for student borrowers. Several of the panel's Democrats credited economic and unemployment factors for the default increase, and argued that the transition has been much smoother than program critics had projected.

From the New England Council's Weekly Washington Report Higher Education Update, Oct. 31, 2011. NEBHE is a member of the Council and publishes this column each week.