Tag: student loans

As You’ll See, Student Loans Hurt Us All

Suddenly, student loans are nearing the top of the nation’s public policy debate. Indeed, President Obama is expected to make a big speech about them on Wednesday. Why the sudden ascendance? Probably because the burden of student loans is one of the few things OWSers are clearly angry about, and that has raised questions ranging from whether such loans should be dischargable in bankruptcy, to whether they help fuel the Saturn V rocket of college price inflation. And last Sunday GOP presidential contender Ron Paul jumped into the fray, suggesting we eliminate the federal student loan program entirely.

Paul is right about phasing out federal student loans. Unfortunately, that’s likely the last thing President Obama will propose.

The first reaction to hearing such a proposal is that it’s Grinch-level heartlessness, stealing a better future from low-income kids. That is almost certainly what the president would say, and such a reaction would likely poll well. That’s why he’s expected to propose lowering interest rates, easing repayment, and other borrower-friendly measures. But as I lay out in a Cato Policy Analysis to be released imminently, by most indications federal student aid and other taxpayer-fueled subsidies aren’t good for anyone. (Well, anyone not employed by a college or university, the ultimate receiving end of all the forced largesse). By artificially—and hugely—boosting consumption, they ultimately lead to massive tuition inflation, encourage millions of unprepared people to take on studies they never finish, and pour H2O into already watered-down degrees. In other words, student aid—including federal lending—is likely a net loss to both students and society.

But I’ve already said too much. If you want to get a lot more on this—and more on the many unintended evils of federal college policies—stand by for the release of my study. And if you’re in DC, come to Capitol Hill Thursday for a briefing on the subject with me and Rep. Virginia Foxx (R-NC). It should give OWSers, libertarians, conservatives, liberals, and anyone else lots to think about.

Oh, to Be Politically Favored!

Yesterday, the U.S. Department of Education released the latest student-loan default data, and along with it offered some good ol’ fashioned profit-bashing. Meanwhile, politically favored schools got off with nary a negative word.

The FY 2008 default rates certainly aren’t good. Overall, 7 percent of borrowers whose first payments were due between October 1, 2007, and September 30, 2008, had defaulted by September 30, 2009. And yes, for-profit schools had the highest rate out of non-profit private, public, and for-profit schools, which came in at 4 percent, 6 percent, and 11.6 percent, respectively.

To what did Secretary of Education Arne Duncan attribute these results? The overall default rate, he suggested, was but the sad consequence of ”many students…struggling to pay back their student loans during very difficult economic times.” The for-profit rate, however, had a very different cause: “[F]or-profit schools have profited and prospered thanks to federal dollars” and many have saddled “students with debt they cannot afford in exchange for degrees and certificates they cannot use.”

Already, you can see that for-profits are largely just an easy political target: All defaulting borrowers are portrayed as victims; wasteful, money-hoarding, non-profit institutions get no mention; and for-profits are painted as predators.

Of course, for-profits do have higher default rates, so maybe they really are predators.  But there’s more from yesterday…

At roughly the same time Duncan was dumping on for-profit schools, his boss was feting another subset of higher education: historically black colleges and universities (HBCUs). Indeed, he was kicking off National HBCU Week, and lauding the schools’ work. But guess what? While the Education Department doesn’t release default rates for HBCUs as a group, quickly pulling those schools’ data together and averaging their default rates indicates a rate even higher than for-profit schools:  almost 12 percent. Moreover, for four-year, private, non-profit HBCUs – which like for-profit colleges don’t get big state subsidies to help keep tuition artificially low – the default rate is nearly 13 percent.

So why no criticism by Duncan of HBCUs? Heck, why was his boss celebrating them?

Because they are politically favored, that’s why. Of course, this is in part because of their very important historical mission to furnish higher education to long-oppressed African Americans. It is also, though, because like all “non-profit” colleges and universities, HBCUs act as if their employees have no interest in higher salaries, nicer facilities, easier workloads – all the rewards that the people in not-for-profit schools give themselves instead of paying profits out to shareholders.  But there’s no evidence that people in HBCUs or other non-profit schools are any less self-interested than people working or investing in for-profit institutions. 

Why do I point this out? Not to pick on HBCUs, but to further illustrate the point that the attack on for-profit schools isn’t really about saving taxpayer dollars or protecting students, but going after the easiest target to demagogue – people honest about trying to benefit themselves as much as “the students.” It is also to illustrate, once again, that when we let government fund something, it is political calculus – not educational benefits, economic effectiveness, or what’s best for taxpayers – that ultimately drives the policies. Which is why government needs to get out of the higher ed business that it has made both bloated and, ultimately, a net drain on the economy.

Federal Employees and College Costs

For a long time now I’ve been writing about how student aid fuels explosive college costs, while Chris Edwards and Tad DeHaven have been highlighting the ever-cushier compensation of federal workers. Well, I’m pleased to have finally discovered a direct linkage between these topics: A new U.S. Office of Personnel  Management report on student loan repayment programs for federal workers.

According to the report, in calendar year 2009 “36 Federal agencies provided 8,454 employees with a total of more than $61.8 million in student loan repayment benefits.”

Now, 8,454 employees is a small chunk of the entire, roughly 2-million-person federal workforce. Still, $61.8 million isn’t anything to sniff at, and loan forgiveness is one more perk that needs to be considered when thinking of federal worker compensation. And then there’s the trajectory of forgiveness: According to the report, spending on student-loan forgiveness by federal agencies in 2009 was “more than 19 times” bigger than it was in 2002. Were things to continue at that rate, in 2017 the cost would be almost $1.2 billion, and then you’d almost be talking real money!

The important point from a student-aid perspective is to emphasize something that must never be forgotten: While many analyses of student aid will only count grants – because they don’t ever have to be paid back – as “aid,” the reality is that that hugely under counts the true cost of federal aid to taxpayers. In addition to grants, taxpayers fund all federal student loans (and eat them when they aren’t repaid), help finance work-study, and pay for federal expenses that people taking federal education tax credits don’t pay for. So when you look just at federal grants, the bill for taxpayers in the 2008-09 school year was about $24.8 billion (see table 1). Add in loans, credits, and work-study, however, and the bill suddenly balloons to nearly $116.8 billion.

“But wait,” will say the only-grants-are-aid crowd, “isn’t a lot of that $116.8 billion loan money that will be paid back?” Yup – it’s just that at least $61.8 million of that repayment is coming, once again, from beleaguered federal taxpayers. And that, to be sure, is just the tip of the federal loan-forgiveness iceberg.

Not Just a ‘Special Interest,’ A Super Special Interest

In the gag-inducing tradition of National Education Association propaganda, President Obama’s “Organizing for America” has released the video below taking issue with House Minority Leader John Boehner (R-OH) calling teachers a “special interest.” Watch…and wince.

Now, certainly many teachers want nothing more than to teach and do a good job. Some might even do it as much “for the kids” as their own personal satisfaction.  But teachers, at least as represented by the NEA and the American Federation of Teachers, sure as heck are a special interest. Indeed, they might be called a super-special interest, with unparalled sway over Democrats especially, and an incredible ability to get money out of taxpayers.

But what about teachers’ saintliness?

Certainly many teachers work hard and spend some money out of their own pockets for the kids. But no public-school teacher is so poor that, unlike the no doubt intentionally bedgraggled-looking Jeff in the video, he or she can’t afford anything other than an undershirt to wear. Indeed, as I made clear in my PA Unbearable Burden? Living and Paying Student Loans as a First-Year Teacher, even the lowest-paid public school teachers can afford nice apartments, good food, and much beyond life’s essentials. And the average teacher, on an hourly basis, earns more than the average accountant, nurse, or insurance unerwriter.

Ah, but teachers work “twelve, thirteen hours” a day, right? I mean, isn’t that what destitute Jeff said?

Again, maybe some do, but the vast majority do not. Indeed, according to time-diary research done a few years ago, during the months when teachers are actually working as teachers – so not including lengthy summer and other vacations – the average teacher only does about 7.3 hours of education work inside or outside the school on weekdays, and about two hours on weekends. That’s 18 minutes less per day than the average person in a comparable, full-time professional job. And again, that doesn’t account for teachers’ long, built-in vacations.

So get off it, teacher unionists and apologists. Teacher unions are a gigantic special interest, and all the super-earnest-sounding, unkempt video subjects in the world aren’t going to change that.

Gagging on SAFRA

With national curriculum standards now getting some real attention, I haven’t been able to give the plan to shove bankrupting student aid legislation down our thoats via health-care reconciliation the scourging it deserves. I will soon, but until then this “Water Cooler” piece from the Washington Times should slake your thirst. Here’s a choice quote:

Watching the Democrats create two massive pieces of rotten legislation by themselves is bad enough, but piling them together is like watching someone make an enormous Dagwood sandwich with mysterious fillings and make you eat the mile high concoction in one sitting.

Darn — acckkk! — right!

Duncan Dunked in WSJ

Last week, U.S. Secretary of Education Arne Duncan had an op-ed in the Wall Street Journal declaring that it’s time to end the Federal Family Education Loan program (FFEL) which subsidizes banks and insulates them against almost all lending risk.  Duncan wants to eliminate the “middle man” and have the vast majority of student loans come directly from Uncle Sam, a goal central to the Student Aid and Fiscal Responsibility Act (SAFRA).

Incongruously, after ripping the poor middle people, Duncan explains that they should actually stay firmly attached to federal funds as loan servicers. He then goes on to applaud as an incredible money-saver going to all direct lending.

Fortunately, several astute readers – as well as yours truly – saw right through Duncan’s heap of contradictions and dissembling, and the WSJ has printed numerous letters speaking the truth about student lending and SAFRA.

The Pope Center’s George Leef – who has done great higher-education work with Cato – leads things off with a letter pointing out all the perverse incentives and painful unintended consequences emanating from federal student aid. I bookend that by attacking the most aggravating of all SAFRA-related lies: that the bill would provide $10 billion for deficit reduction. Read any CBO estimate for SAFRA and you’ll see that that is just a bald-faced lie.

Of course, if they didn’t have lies, our student-lending overlords wouldn’t have much to say at all. Which is one of many reasons that the feds should get out of education – including student aid – altogether.

How’d That Get in Here?

Understandably, the public is a little preoccupied right now with efforts in Washington to “reform” health care by making it much, much worse. Fortunately, people are starting to notice that a congressional bum rush is heading right toward them — maybe they’ll be able stop it in time. Unfortunately, that is giving Washington a chance to sneak some other stuff by us.

In particular, I’m thinking of the just-introduced Student Aid and Fiscal Responsibility Act. It’s been largely ignored so far, save a little chatter about the community college stuff it incorporates. In a simpler time, it would have generated a lot more copy. After all, it will:

  • end federally backed student loans that come through private companies, and instead make Uncle Sam the universal lender;
  • greatly increase Pell Grants and peg their growth to the rate of inflation plus 1 point;
  • balloon the federal Perkins loan program;
  • authorize $5 billion over two years for elementary and secondary school facility projects, with a focus on “green” efforts;
  • authorize $10 billion over ten years for Early Learning Challenge Grants; and
  • furnish $12 billion for community colleges.

Not all of this, I should say, is terrible. Getting rid of the Federal Family Education Loan Program — which backs loans coming from ostensibly private companies and guarantees lenders a profit — is a good thing. But replacing it all with loans directly from D.C.? That’s a bad thing.

To be fair, transitioning from guaranteed to direct lending could save some money, especially in the short run, eliminating various fees and guarantees Washington pays to lenders under FFEL. But those savings almost certainly won’t be the $87 billion over ten years supporters claim, a number that is no doubt overstated as a result of budget chicanery and how quickly government grows. And don’t expect taxpayers to benefit from whatever savings are ultimately generated. According to the proud declaration of SAFRA sponsor George Miller (D-CA), only $10 billion of the projected $87 billion savings is slated for deficit reduction. The rest — breathtaking deficit be damned! — is going to standard, feel-good government spending, including school “modernization” projects and “early learning” grants

Which brings me to the community college components, which have, unlike the rest of the bill, been getting some media play. I wrote about them earlier this week, noting especially that they make little sense in light of Bureau of Labor Statistics numbers showing that positions requiring on-the-job training will grow in much greater numbers than jobs requiring at least an associate’s degree. What I didn’t mention was the dismal performance of community college students, who take remedial courses in droves and complete their programs at very low rates.

Ah, but we’re told that this new legislation, backed wholeheartedly by the Obama administration, is going to reform community colleges. As David Brooks celebrates in his column today:

The Obama initiative is designed to go right at these deeper problems. It sets up a significant innovation fund, which, if administered properly, could set in motion a spiral of change. It has specific provisions for remedial education, outcome tracking and online education. It links public sector training with specific private sector employers.

Now, I thought Brooks was supposed to be a seasoned political observer, but he seems to have swallowed the reform-y rhetoric hook, line, and sinker. He’s seasoned enough, though, to give himself an out with the qualifier, “if administered properly.”

He’s gonna’ need that out, though the reform failure probably won’t be primarily administrative; the legislation itself offers gaping holes through which schools can escape real reform. To get “innovation” grants, schools would simply have to agree to do such nebulous, input-centric things as provide “student support services” and implement “other innovative programs.” In other words, they’d need do nothing meaningful at all.

Unfortunately, this bill will probably become law. Few politicians or interest groups are standing firmly against it, and with health care storming the public’s front door, few people will notice SAFRA tiptoeing through the back. Combine that with the few people who are writing about the bill giving it little critical thought, and its passage seems assured.