Rising Student Loan Debt: Student Loans and the University System Itself are Both Problems

Atlantic online business contributor Jordan Weissmann just wrote a good, mostly-disparaging review of Governor Romney’s proposal for how to address the mounting related problems of college cost inflation and student loan debt.  Some time around the beginning of the year total student loan debt exceeded the $1 trillion mark, meaning that student loan debt now greatly exceeds both credit card debt and car loan debt.

Well, that certainly sounds massive; I sorta wonder if it could be dangerous to the economy…

Governor Romney’s recent stump proposals for dealing with the inflated cost of college and rising student loan debt all emphasize freeing-up the private sector and universities to “innovate,” whatever that means and chips-fall-where-they-may.  (Republicans have an intenselyly-romantic ideological fervor as they refrain on this solution to so many different policy problems; curious that they seem unselfconscious about the irony that they often sound so much more-erudite in explaining unwanted effects of policies they seek to end than they are at offering any explanation of the “innovations” that will solve all our problems if only the market were set free!)  As set-out by Weissmann, Governor Romney had 4 basic proposals for dealing with the rising cost of attending American universities, and the corresponding problem of rising student loan debt:

1. Reduce Federal grants, such as Pell Grants, for poorer students to attend college;

2. Get the Federal Government out–and banks back in–to the student loan business;

3. Deregulate for-profit universities;

4. Deregulate the way universities establish course credit and confer degrees.

Weissmann’s article is definitely worth reading, but for those too-lazy to bother, his basic upshot is that measures  1-3 likely wouldn’t reduce the inflationary influences on American universities, while they would introduce a truly predatory aspect into the student loan business.  On the other hand, Weissmann thought measure #4–allowing universities to be creative in how they award credit and degrees–would lead to positive and cost-saving innovations.

I’m worried about inflationary pressures (as in, costs for tenured faculty and new construction, etc.) and inflationary inducements (as in expanding enrollment facilitated by grants and loans) in higher education. (Actually, I imagine “everyone” is concerned about this.)  This strikes me as being a bread-and-butter issue like housing or health care, in which hybrid but essentially-Conservative policies are being employed to address what are typically Progressive social concerns, and it isn’t working.  (Examples from the other issues in this class: Student loans create perverse incentives to raise college tuition the way Medicare and Medicaid do this for critical services in a health care system where primary care visits and preventive care can do much to control costs over the long-term, but they aren’t subsidized.  There’s a similar problem with housing: Both Federal housing policy and banks on their own motion have encouraged the working class and the poor to become homeowners, putting a lot of pressure on a housing market that is constrained to varying regional degrees by zoning, geography, access to water or the job market, and construction costs; the Federal Government protects loans to move people into homes but doesn’t really organize more-proactive measures such as New Jersey’s Mount Laurel decisions mandating working-class housing, housing that is kept affordable by regulation, promotion of renting or the like.  The result is that our housing policies put upward pressure on the cost of housing without either taking any blunt but effective policy measures to lower the cost of housing itself or giving real security to the people taking out the loans.)

Anyway, I can mostly just parrot what I (and the author of the Atlantic piece, Jordan Weissmann) have already said: Reducing or eliminating Federal Pell Grants and the like is cruel, since it puts all the onus for inflating the cost of education on qualified but needy students–a policy as damaging to our country’s competitiveness as it is un-American and perverse.

I think Romney has actually contradicted himself in attacking grants and Federally-backed student loans for inflating the cost of college, while at the same time promoting private student loans issued by banks. Does he want banks to engage in the sort of predatory lending to students that not too long-ago was the norm in the sub-prime mortgage market? Of course he would say no–but what would he do to prevent such a dynamic from developing through the market? If banks actually found lending to students profitable, they would try to get more students to take out loans; the author of the Atlantic piece actually pointed-out horror stories of uncompetitive private universities “recruiting” new enrollees and signing them up for student loans they couldn’t afford to pay-off! To privatize the student loan market without letting the banks reduce students to indentured servitude would require more Federal regulations than a fundamentally-Federalized lending system, so why bother?

I agree with Mr. Weissmann about the importance of allowing universities to innovate more in the granting of degrees. True, some universities may fudge who receives a degree, but those conducting hiring interviews already know whether a degree from a given university is worth something. Romney’s last proposal is his most-serious, his least-ideologically-driven, and I daresay the most-interesting. I hate to say it–I really do–but if the university education is the key component in the establishment of one’s job qualifications, then our universities may encourage too much of a “Renaissance man” approach, at least for undergraduates. We need to do a better job of providing students–of any age and circumstance–a clearer way to attain and demonstrate the practical skills they will need to handle several different types of job. Students should probably be tracked earlier, as they are in Europe, but in any event they should certainly come out of their undergraduate education more highly-specialized.

On a related note, universities are probably too genuinely “universities” to be cost-effective for most students. I think it’s great that Drew had a sports center, a center for the arts with theater, plastic arts, and music wings, and a science center while fundamentally being a school that focused on the literate humanities and the general social sciences, but while this made for a positive and liberating experience it also drove our beloved alma mater–like so many liberal arts colleges–into debt. The Ivy League schools, the “Little Ivies,” and their few private competitors such as NYU or Stanford may be endowed well-enough that they can allow their tuition rates to be set by their selectivity goals, and State schools are somewhat-compensated in this problem by (currently much-reduced) State aid, Federal and corporate research grants and the simple fact of their enormous enrollments, but some small liberal-arts colleges are actually going belly-up because their ambitions to grow into universities aren’t always well-thought-out. Small liberal-arts colleges are trying too hard to simply be small versions of competitive universities, and State universities such as my own University of Maryland–College Park sometimes obsess over becoming major research hubs, like UC–Berkeley, UC–San Diego, or the University of Michigan–Ann Arbor. Their pursuit of new faculty and facilities drives up their costs, leading to a pursuit of higher enrollment, often taught by overworked and ill-paid graduate students because the State schools can’t afford to hire more true professors.

I’m rambling now. I suppose I’d like to end by saying that I think we need more experimentation with how to confer a valid degree, such as continuing with vocational schools and encouraging students to attend local community colleges. In my heart of hearts, I don’t want to give up on that beautiful insular college experience or deprive physics majors of a music department or political science majors of lectures by renowned classicists. But our current 4-years-to-a-liberal-arts-BA-and-you-get-a-job-just-live-here model is eating through the savings of millions of families, cheapening the quality of the modal education, and leaving employers with little certainty what a standard BA is worth. I say we invest more in new modes to promote actual contact between students and professors, and to help students attain demonstrable skills rather than formalized and scheduled courses of learning. I certainly do not favor replacing Federal grants with privately-provided student loans that will be unregulated and just as inflationary. On that issue Governor Romney wants to have his cake and eat it, too; he can’t.

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