Loan Sharks & Land Grants

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Loan Sharks & Land Grants: Student Debt, Economic Recession, and the Millennial Generation

The high cost of the crisis in higher education is being passed on to our students in the form of loans. These loans, used to finance college, shackle borrowers with debt for ten, twenty, sometimes thirty years or more, impeding both their own economic livelihood and those of others.

While the unprecedented amount of debt encumbered by the Millennial Generation has hindered their own economic prospects, and those of the nation, their increased borrowing is simply a response to the outrageous price of higher education in the United States today.

Consider the fact that from 2003 to 2013 tuition and fees at four-year public institutions “rose at an average rate of 5.2% per year beyond inflation.” When room and board are factored in, total charges at public four-year institutions grew faster than in either of the preceding decades.

Tuitions keep climbing, in part, because public funding for higher education in the United States has yet to rebound to pre-recession levels. Arizona, for instance, has cut funding for public higher education by a third since 2009 (while tuition in the state increased 78% from 2008 to 2013).

Likewise, in Massachusetts, state support for higher education has declined by 37% over the last five years, while tuition has risen at UMass campuses. Some historically black land-grant institutions, created by the second Morrill Act in 1890, are awaiting millions of dollars in matching state funds owed to them from 2010 to 2012.

Budget cutting at this pace means that students are paying more than ever to go to college, whether they attend public or private institutions. As tuitions outpace inflation across the board, Millennials are forced to borrow more than their debt-ridden Generation X predecessors (many of whom are mid-career and still saddled with student loans).

On the campaign trail in 2012, Barack Obama even quipped:

“Check this out, all right, I’m the president of the United States. We only finished paying off our student loans about eight years ago. That wasn’t that long ago. And that wasn’t easy—especially because when we had Malia and Sasha, we’re supposed to be saving up for their college educations, and we’re still paying off our college educations.”

At public institutions across the United States, 70% of students who graduate with a bachelor’s degree incur student loan debt. The Federal Reserve Bank of New York reported this month that that debt now exceeds one trillion dollars and “remains the second largest source of household debt behind mortgages.”

It seems preposterous that we find ourselves in such a position. Yet, Duke University, for the sake of example, cost $10,000 per year in 1984, but today that figure is a jaw-dropping $60,000, which the executive vice provost calls a “discount” price.

Little wonder then that some Millennials are graduating with student loan debt equivalent to the purchase of a small home, condo, or apartment—before they enter the recession-addled job market. As a result, they are defaulting on their loans at a faster pace than the previous generation, as well.

In the three years after repayment begins, 11% of borrowers at public institutions, and 7.5% at private colleges, default on their loans. Making repayment even more costly, those saddled with $40,000 or more of student loan debt are likely to “have private loans with interest rates of 8% or higher.” $8.1 billion of them are now in default, partly because student loan debt is so difficult to reduce or eliminate through bankruptcy proceedings.

Economists are increasingly alarmed about the negative implications of massive student loan debt on the broader U.S. economy. The housing recovery has been hindered by a shortage of first time homebuyers. Many young adults simply cannot save enough money “for a down payment or qualify for a mortgage” any longer because of student loan debt.

Even so, the student loan industry remains profitable despite increasing defaults by debtors. According to the Associated Press, “the federal government is earning an estimated $66 billion in profits from student loans originated between 2007 and 2012.” U.S. Senator Elizabeth Warren calls it “obscene” that the federal government is profiting “off the backs of our students.”

By way of conclusion, we should not neglect the role of administrative bloat in the skyrocketing cost of public higher education in the United States today. The American Institutes for Research (AIR) just released a study aimed at determining why “tuitions at public four-year colleges and universities have soared nearly 160 percent since 1990.”

One of its key findings was that “growth in administrative jobs was widespread across higher education,” particularly among professional positions. The Huffington Post, citing the American Institutes for Research and other sources, states the case in the starkest terms:

“In all, from 1987 until 2011-12 […] universities and colleges collectively added 517,636 administrators and professional employees, or an average of 87 every working day.”

In light of the scandalous reliance on contingent faculty at colleges and universities, the American Institutes for Research concludes rightly that faculty salaries “were not the leading cause of rising college tuitions” over the past decade. Rather, increased “benefits costs, non-faculty positions added elsewhere on campus, declines in state and institutional subsidies, and other factors all played a role.”

So, what’s to be done? First of all, taxpayers, students, and parents should petition for increased federal and state funding for public universities. Senator Kirsten Gillibrand has proposed legislation (entitled the Federal Student Loan Refinancing Act) that would cap student loan interest rates at 4% and allow those with loans at higher rates to refinance (thereby lowering their repayment costs).

In addition to this important step, those currently borrowing to pay for school, repaying student loans, or already in default should insist on better terms for loan forgiveness, more flexible income-based repayment plans, and better financial counseling so that students can limit how much they borrow.

Finally, the well-documented growth of management and administration positions at American colleges and universities must be stemmed in order to keep tuition in check. Cost savings associated with streamlining the administration can be used to provide students with full-time, tenurable faculty to instruct them.

After all, why should college students take out loans to pay for the full-time professors that they are not getting? Today, more than 70% of faculty teach on a contingent and part-time basis—and that will change only when students, and their parents, insist on receiving more for their tuition dollars.

Demand more tenure-track appointments at your college or university! Make the choice to attend an institution that invests in you by investing in the faculty!


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