‘Business’ model hurting college access, sparking colossal debt

Bill Knight column for Thurs., Fri., or Sat., July 10, 11 or 12

College costs and student loans aren’t being discussed enough, but maybe last week’s increase of student-loan interest rates will start something. Last summer’s Bipartisan Student Loan Certainty Act tied the interest rate to 10-year Treasury note rates, which this spring increased 8/10ths of a percent.

That meant on July 1, Stafford loans went from 3.86 percent to 4.66; graduate Stafford loans from 5.41 to 6.21; and Direct PLUS loans from 6.41 to 7.21 percent.

(Last week, incidentally, banks’ prime rate was 3.25 percent, the Federal discount rate 0.75 and the Fed Funds rate 0.25; somebody’s making a lot of money off students and their families.)

Student loans and the enormous debt they create are a problem, and they’re connected to costs that too much of higher education ignores. Tuition hikes add to many graduates’ debt, at best; at worst, they limit access to higher education, adversely affect enrollments, and hurt the U.S. economy. Borrowers starting out cannot buy durable goods, cars or homes.

In private and public institutions, enrollments are falling, legislatures are cutting funds to public-supported schools, and families are burdened or excluded; college employees increasingly face more belt-tightening (although few administrators talk about pay cuts, furloughs or layoffs for themselves).

Too many college teachers are now badly paid part-timers – just 30 percent of today’s professors are on “tenure-track” (meaning with job security), compared to twice that number 40 years ago.

Thomas Frank – author of "What's The Matter with Kansas?” – reports that U.S. college costs are up more than 1,000 percent since the 1980s. About 40 million Americans owe more than $1.2 trillion from going to college, and new grads seeking jobs owe an average of $33,000 in loans, the Wall Street Journal says.

President Obama recently ordered the Education Department to make lower annual student-loan payments available to those who borrowed money before October 2007, plus renegotiate with companies that service federal student loans. His Executive Order helps 5 million Americans unable to participate in the federal Pay As You Earn program, which caps monthly payments at 10 percent of borrowers’ income.

American Federation of Teachers President Randi Weingarten endorsed the order and also attempted legislation introduced by U.S. Sen. Elizabeth Warren (D-Mass.).

“No student should have to face the triple threat of skyrocketing higher education cost, high interest rates and crushing student loan payments,” Weingarten said.

Senate Republicans disagreed, as the GOP (except for Maine’s Susan Collins, Tennessee’s Bob Corker and Alaska’s Lisa Murkowski) last month blocked Warren’s Bank on Students Emergency Loan Refinancing Act. The measure would have let students refinance loans with interest rates of up to 7 percent to rates as low as 3.68 percent. It wouldn’t have erased debts, but made them more manageable – as consumers do in refinancing.

The act would have paid for itself by closing tax loopholes for people who make more than $1 million a year. The vote was 56-38, but 60 votes were needed to break a filibuster and debate it.

This would have let millions of Americans – including thousands in their 60s who still collectively owe $43 billion, she said – save money and stimulate the economy.

Obama asked how anyone can justify letting “tax loopholes for the very, very fortunate survive while students are having trouble just getting started.”

Over the last few decades, there’s been a trend to operate colleges according to a management approach that’s business-oriented (a model that arguably resulted in an economy enriching an elite and causing everyone else to struggle). Even rising administrator pay is justified as being “very competitive,” echoing the excuse for excessive CEO pay at corporations.

Colleges blame utility costs, new buildings, regulations such as Title IX and Americans with Disabilities Act (ADA) requirements and, of course, faculty. Some administrators even point to falling enrollment, which blames the victims. Others claim higher prices will be justified by future financial returns, a gross oversimplification.

A recent Federal Reserve Bank of New York study added perspective. With unemployment for 20- to 24-year-old college grads so high – 10.6 percent – it’s not unreasonable for students and their families to question the value of a degree and the whether it’s worth going in to such much debt to earn one, say co-authors Jaison R. Abel, Richard Deitz and Yaqin Su.

“It has become more difficult over the past decade for recent college graduates to find jobs that utilize their degrees,” they write.

Administrators should stop thinking of college strictly in commercial terms and revive the idea that education is a social investment that helps create and maintain a public good.

Meanwhile, as Congress considers reauthorizing the Higher Education Act, it must seek ways to lower college costs and help borrowers.

[PICTURED: dshort.com data chart from http://boulderisstoopid.com/]