The myths about student loans

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danwalk
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The myths about student loans

Post by danwalk »

Today, in the Chronicle of Higher Education (subscription only), there is a fascinating article titled "A Lifetime of Student Debt? Not Likely" that debunks the myth so prevalent in the financial press that students are massively overborrowing in order to attend college.

Some particularly interesting quotes follow.

On the media's penchant to create crises:
One college graduate had smashed a ceramic piggy bank, while another had adorned a life-size human statue with nothing but a silver ball and chain. A third drew a picture of a woman in a red coat stumbling down a seemingly endless pathway. The objects were all part of an art show last month in which graduates expressed fear and frustration over their student-loan debt.

The show joins a number of increasingly high-pitched campaigns aimed at exposing what some consider a national crisis: Student-loan borrowing that is threatening the financial future of today's college students. In January a lawyer with $100,000 in education debt started a Facebook campaign urging the federal government to "free us of our obligations to repay our out-of-control student loan debt." Forbes magazine published an article that same month called "The Great College Hoax," which said that the decision to borrow to attend college often amounts to a "financial disaster." A month later, a book came out decrying college debt, with the title The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back (Beacon Press).
Average student loan debt:
In fact, despite stories of a large number of students who face gargantuan debt, about a third of graduates leave college with no debt at all for their education. Of the 65 percent who face debt, the average they owe is around $20,000. That's just below the starting price of a 2009 Ford Escape.

"Most people borrow a reasonable amount of money, they pay it back, and they are better for having gone to college," says Mr. McPherson.

But for a vocal minority of borrowers, problems with student-loan debt are very real. About 8 percent of undergraduates borrow at least double the national average.

Why do some students borrow more than $40,000 for a bachelor's degree when average borrowing is only half that? The answer is almost never that they are from very low-income families and need that much money to get a four-year degree. Public four-year colleges charged an average of just $6,585 for in-state tuition and fees in 2008-9. The total cost, including textbooks, room and board, and other living expenses, averages $18,326 a year — and financial aid brings that figure down for many students.
Hype, hype, hype:
Students whom financial-aid experts call "overborrowers" capture most of the media's attention. "If you are a writer vying for a story on Page 1, which story do you want to write?" asks Mr. McPherson. "Is it going to be the careful story driven by the data, or is it going to be the headline that can scare people?"

He's talking about headlines like the one on a CNN report in 2006 that called student loans "A Life Sentence" and said: "Forget about getting married and buying a home. This generation is thinking about next month's payment."

But data on the average student-loan borrower tell a very different story. Figures compiled by the U.S. Education Department show that while roughly two-thirds of students graduated from four-year colleges in 2003-4 with some education debt, on average they borrowed $19,202. Those who attended public institutions graduated with an average debt of $17,277, and those from private colleges $21,957.

The data have been updated by the Project on Student Debt, a nonprofit research-and-policy organization, which found that for the Class of 2007, graduates' average debt was $18,482 at public colleges and $23,065 at private ones.
Graduate debt v. undergraduate debt:
Part of the confusion over the student-loan issue is that undergraduate debt is frequently conflated with graduate and professional-school debt — which is typically much, much higher. In 2003-4, for example, medical-school graduates borrowed an average of $113,661. Student-aid experts say the higher debt makes sense for people who earn degrees in law, business, and medicine because they are much more capable of landing high-paying jobs and paying off larger loans.
The dangers of for-profit schools (U of Phoenix, etc.):
Heavy borrowers are not necessarily poor students who would have been forced to forgo higher education if they hadn't received extravagant sums. Rather, some students enroll in high-priced for-profit programs only to learn later that their certificates or degrees are not as useful on the job market as they had expected. Students who attend four-year programs at for-profit institutions borrow much more on average — about $28,138 each in 2003-4 — than students at nonprofit institutions do.
Discuss.
:wink:

Dan
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livesoft
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Post by livesoft »

Thanks for the post. In general, journalists write about what they know. Maybe journalism is a low-paid career that lots of graduates with huge student loans try to get into? Or the reporters have kids that they are trying to send to expensive colleges? And if you live in the NYC and/or New England areas, practically all the college expenses articles are about Ivy League costs which really affect a very small number of students.

When you combine these bits of information (or did I add my own hype to this?), then you end up with what you have posted about.
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Re: The myths about student loans

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But for a vocal minority of borrowers, problems with student-loan debt are very real. About 8 percent of undergraduates borrow at least double the national average.
There's a vocal minority that is probably in a great deal of trouble. I hope these number are reliable, and they haven't included "parents paid for the student's education" in the borrowing average, as I;d imagine that would provide a distorted view.

I do note that, in my experience, community college is amazingly cheap. I don't know, however, whether typical 18 year olds have the financial discipline to choose a bargain school.
Graduate debt v. undergraduate debt:
Part of the confusion over the student-loan issue is that undergraduate debt is frequently conflated with graduate and professional-school debt — which is typically much, much higher. In 2003-4, for example, medical-school graduates borrowed an average of $113,661. Student-aid experts say the higher debt makes sense for people who earn degrees in law, business, and medicine because they are much more capable of landing high-paying jobs and paying off larger loans.
I wonder what a "student -aid" expert is. Somebody who works for a lender or a graduate school?

Anyway, this is brushing over whether graduate debt is a problem. While it may be true that a doctor or lawyer has a large theoretical earning potential, the risk associated with not finishing the degree or succeeding in the field is through the roof. I would also imagine a doctor or lawyer has tremendous pressure to overlitigate/ overtreat in the early phases of their career to generate money to pay off the debt. They also have to bill much, much higher than they would with a lower debt level, contributing to problems in unaffordable legal or medical access to portions of the population.

The other thing not mentioned is graduate plus loans are set at an 8.5% interest rate for government guaranteed debt.

I assume this is some sort of welfare for corporations program created by congress to enrich corporate interests. Interests rates should match risk, and this risk free debt for the corporation should be much lower. If students are genuinely risky enough to warrant this rate (and student loan debt can't be discharged), then I assume there is something genuinely broken in students taking on too much debt. But the real problem is likely that interest rates are locked in and do not go down when other interest rates do.
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Post by TheEternalVortex »

I like the idea of charging a percentage of future income for debt repayment. That is, if you borrow $100k, instead of repaying it, you would just pay maybe 10% of all future income.

I presume there are some legal challenges to make this work.
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Post by yobria »

Thanks for the info. It's not always averages that matter though. Even if only 2% of people crossing a street are hit by a car, a crosswalk may be in order.

What's newsworthy, no matter how common, is the fact that a 17 year old can borrow $100K for a private college and never be able to erase the debt.

Meanwhile, a 45 year old can borrow $100K to buy a Farrari, and simply have the debt removed through bankruptcy if he gets into financial trouble.

Nick
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Post by fishndoc »

My daughter is entering medical school next fall, and the financial aid office told her about a new plan to partially work off student loans with community service - sorry I don't have the link or exact details, but it was basically pay 15% of the portion of your salary that is above the poverty level in loan repayments each year for 10 years, and work in a job defined as community service for 10 years, and any remaining loan balance is forgiven.
While on the surface it doesn't sound like a big deal, the key is time during residency and fellowship count as community service, as does working at a teaching institution. When you consider the salaries during training are fairly low, as are starting salaries in academic positions, this works out as a great deal for the borrowers.


While most of the "victims" we see in the CNN & NYT type stories don't seem to warrent much sympathy (at least from me), I do think there is a lot of truth in the part about the for-profit private schools. My son was considering attending a fairly reputable, for-profit art school here in Atlanta (part of a national chain). When we went for a tour and interview, the admissions officer spent a lot of time explaining "how little it would actually cost out-of-pocket to attend - Hope scholarship and loans would take care of the rest". No mention of loan or repayment details, and when I asked him about the details, he said we would get the details when we received our Financial Aid package.

Clearly, these people have no interest in helping their students avoid over-borrowing. The majority of the students at this school are urban minorities, and I suspect neither they nor their parents really appreciate the problems they are going to have repaying those loans.

Too bad the schools are not held at least partially responsible when their graduates default on their student loans - this would probably change their approach.

Wayne
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Post by bottlecap »

Certainly, the media makes mountains out of mole hills. However, this does not change the fact that tuition to many institutions, even state schools, is significant. The student loan system throws gas on that fire.

"Higher" educators also have a vested interest in the system, as the easy money inflates their salaries. I'm not sure that "The Chronicle of Higher Education" is a reliable source as a result. I sure wish I could read the whole article.
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Post by chaz »

I'm fortunate that I was able to to college when the costs were very low - no borrowing needed. Today's cost seems to rise at a higher rate than inflation. Without scholarships, many students are locked out.
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Post by eas »

yobria wrote:Thanks for the info. It's not always averages that matter though. Even if only 2% of people crossing a street are hit by a car, a crosswalk may be in order.

What's newsworthy, no matter how common, is the fact that a 17 year old can borrow $100K for a private college and never be able to erase the debt.

Meanwhile, a 45 year old can borrow $100K to buy a Farrari, and simply have the debt removed through bankruptcy if he gets into financial trouble.

Nick
From what I hear, since I didn't have to take loans out myself, it is pretty dang hard to get a significant amount of student loans for college with the youngin' being the only name on the loan. That changes it a little bit into :
What's newsworthy, no matter how common, is the fact that a 17 year old and his parents can borrow $100K for a private college and never be able to erase the debt.
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Re: The myths about student loans

Post by saurabhec »

danwalk wrote:Today, in the Chronicle of Higher Education (subscription only), there is a fascinating article titled "A Lifetime of Student Debt? Not Likely" that debunks the myth so prevalent in the financial press that students are massively overborrowing in order to attend college.
I suppose it would be too much for the Chronicle of Higher Education to actually see if complaints of tuition inflation are justified? Perhaps they could compare what a college education cost 20 years ago vs today adjusted for inflation.

Let us say a gifted student wants to attend a selective private university and his/her parents are unable to support their tuition. A four year education at such a school can easily cost $200,000 including living expenses. Even if the student chose to work part-time while attending, it is not inconceivable that they could end up with a debt load of $100,000 or higher.
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Post by junior »

TheEternalVortex wrote:I like the idea of charging a percentage of future income for debt repayment. That is, if you borrow $100k, instead of repaying it, you would just pay maybe 10% of all future income.

I presume there are some legal challenges to make this work.
They do have something like that starting in July. The idea is you refinance your loans with the government and you only have to pay 15% of salary over 150% of the poverty level. The catch is it only applies to government backed loans so those with private loans, which were popular until recently and sometimes a better deal due to lower interest rates, lose out.

The principle will go up if you are not paying the full amount on the interest, but there is loan forgivness if you work in the public sector for 10 years, 25 years years for the private sector.

The government backed loans have fairly high interest rates, so the government is helping on the one hand and not helping so much on the other. Much of the money that may be forgiven is really just profit on the interest on the loan. (Though there is a tax credit up to 2500 on interest student loan payments)

It definitely helps for people not making a lot of money, especially those in public interest jobs, where there is loan forgiveness after 10 years.
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Re: The myths about student loans

Post by livesoft »

saurabhec wrote:...
Let us say a gifted student wants to attend a selective private university and his/her parents are unable to support their tuition. A four year education at such a school can easily cost $200,000 including living expenses. Even if the student chose to work part-time while attending, it is not inconceivable that they could end up with a debt load of $100,000 or higher.
The above reads like many of the same pablum we see in the NYTimes, WSJ, and Boston Globe from time to time. Folks who cannot afford "a selective private university" do not pay retail prices for a college education. If the student is truly gifted (i.e. not just in the minds of his/her parents), then I believe that "a selective private university" will reduce the cost of attending for that student.

Full disclosure: I help decide who gets what scholarship money paid out by a small grant. My experience (repeated each year over the last 20 years) is that (a) everyone cries a river that they can't afford to pay anything and (b) if you don't give them the money, they somehow figure out a way to pay anyways. Thus, I prefer to leverage the small amount of scholarship money by giving out partial scholarships that help folks find more money on their own. I know of not one single case where in the end someone admitted did not attend due to lack of money. They always found money in the particular situation that I am involved with.
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Re: The myths about student loans

Post by saurabhec »

livesoft wrote: The above reads like many of the same pablum we see in the NYTimes, WSJ, and Boston Globe from time to time. Folks who cannot afford "a selective private university" do not pay retail prices for a college education. If the student is truly gifted (i.e. not just in the minds of his/her parents), then I believe that "a selective private university" will reduce the cost of attending for that student.
Of course students who are motivated and qualified will find a way to attend a selective school, regardless of expense. However, for most of them it will involve taking on student loans if their parents will not/can not fund their education.
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Post by rich »

yobria wrote:Thanks for the info. It's not always averages that matter though. Even if only 2% of people crossing a street are hit by a car, a crosswalk may be in order.

What's newsworthy, no matter how common, is the fact that a 17 year old can borrow $100K for a private college and never be able to erase the debt.

Meanwhile, a 45 year old can borrow $100K to buy a Farrari, and simply have the debt removed through bankruptcy if he gets into financial trouble.

Nick
This is a good point but it does have a weakness. The Ferrari driver loses the car. The student does not lose the education.
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Post by Quidnam »

rich wrote:This is a good point but it does have a weakness. The Ferrari driver loses the car. The student does not lose the education.
Neither does society lose the benefit of higher education in the aggregate, which is putatively why the government guarantees the loans in the first place.

What we seem to have ended up with, however, is a "worst of all worlds" scenario in which the economic benefits are artificially inflated and privatized, all of the risk of default (i.e. death or inadequacy of lifetime earnings) is socialized, and borrowers are left with inescapable debt burdens (short of death, that is).

I say this as someone who left college without any debt (due to the liberal need-based policies of an "elite" northeastern school), and who is going to great lengths to minimize any borrowing for graduate school.

The student loan "market" is seriously distorted, and a classic example of regulatory capture by the likes of SLM. I think the market either needs to be fully privatized, so that risk underwriting can be done realistically in the absence of taxpayer backing, or fully socialized, so that the "worst of all worlds" situation can be rectified.

Full privatization is not likely, given the prevalence of populist pandering and press articles like the above, so I think it is fortunate that we appear headed toward the latter pole.
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Post by ruralavalon »

saurabhec wrote:I suppose it would be too much for the Chronicle of Higher Education to actually see if complaints of tuition inflation are justified? Perhaps they could compare what a college education cost 20 years ago vs today adjusted for inflation.
Here is the data on inflation in college tuition, it is dramatic and far greater than the rate of inflation in the economy as a whole.

"On average, tuition tends to increase about 8% per year. An 8% college inflation rate means that the cost of college doubles every nine years. For a baby born today, this means that college costs will be more than three times current rates when the child matriculates in college."
http://www.finaid.org/savings/....ation.phtm

"Cumulative results over this period [11 years, 1993 - 2004] are average public tuitions growing 53 percent above inflation, and average private, nonprofit tuitions growing 47 percent above inflation. As of 2004, private, nonprofit colleges cost on average 3.3 times as much as public colleges attended by residents of their states."
http://en.wikipedia.org/wiki/College_tuition .
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Post by ElJay »

I guess people must be lucky with scholarships? I have no clue how I could've gone to a private college and ended up with 'only' $22,000 in debt. That sounds like one year of tuition to me, if that.

Is the Chronicle cherry-picking data? The Project on Student Debt page has some alarming info for 1993-2004:
FACT – Over the past decade, debt levels for graduating seniors with student loans more than doubled from $9,250 to $19,200 – a 108% increase (58% after accounting for inflation).

FACT – At public universities, debt levels for graduating seniors with student loans more than doubled from $8,014 to $17,250 over the past decade – a 116% increase (65% after accounting for inflation).

FACT – At private universities, debt levels for graduating seniors with student loans nearly doubled from $11,356 to $22,125 over the past decade – a 95% increase (49% after accounting for inflation).

FACT – In 2004, the parents of 15.3% of graduating seniors took out federal PLUS loans: 12.3% at public 4-year institutions, 21% at private 4-year institutions. Their average PLUS debt was $17,709: $14,056 at public institutions, $21,984 at private institutions. (These data are for dependent students only and do not include other forms of debt, such as home equity loans, that parents may take on to help pay for college.)
http://projectonstudentdebt.org/files/F ... ources.pdf
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Post by saurabhec »

ruralavalon wrote:Here is the data on inflation in college tuition, it is dramatic and far greater than the rate of inflation in the economy as a whole.
Thanks! This is the real issue The Chronicle should be focusing on, rather than trying to demolish "myths" about increasing levels of student debt.
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Post by nerf »

Rich wrote:
This is a good point but it does have a weakness. The Ferrari driver loses the car. The student does not lose the education.
Yes, but not all dischargable debt is secured by fancy cars. Those who accrue large amounts of credit card debt by travelling or taking vacations, for example, can have it discharged in bankruptcy. Not so for those with student debt. I find it odd that the law favors overconsumption at the expense of education.
Last edited by nerf on Tue May 19, 2009 11:39 am, edited 1 time in total.
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Post by Opponent Process »

nerf wrote:I find it odd that the law favors overconsumption at the expense of education.
but in so doing it favors the preservation/guarantee of funding for education. good or bad is another discussion, but the idea is that kids should always be able to get education loans at good rates. to do this, organizations need some incentive to provide them.
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Post by nerf »

but in so doing it favors the preservation/guarantee of funding for education. good or bad is another discussion, but the idea is that kids should always be able to get education loans at good rates. to do this, organizations need some incentive to provide them.
Yes and the reason why mortgage companies were willing to hand out no-doc mortgages to anybody with a pulse was because of the explosive growth in home prices and their concern that everyone would not be able to afford the house of their dreams. Oh wait...

The availability of mortgage debt was not a response to the housing bubble--it was a direct cause if the bubble (though surely not the only one). The explosive rise in the cost of education is similarly not the cause of easy credit, it is the result. Schools would never have raised tuition as precipitously as they have if not for all the money sloshing around and being distributed to students.
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Post by stjoe56 »

Thirty years ago the tuition for in-state residents at the University of Missouri Columbia law school was basically $0. You had to pay an approximate $250 student activity fee, your books, and room and board.

My daughter lives in France. She is going to get an advanced degree. Her tuition at a French university is approximately 300 Euros per year.

The question becomes, how much to we wish to subsidize education.

SJ
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Post by SP-diceman »

Thanks! This is the real issue The Chronicle should be focusing on, rather than trying to demolish "myths" about increasing levels of student debt.
Not sure I would trust the Chronicle to be an unbiased observer.
Don't know anything about them but just a guess they would be
pro-education.


Thanks
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My opinion

Post by NetNet »

If banks and the us government are to loan money to students at the rates that they do I believe that warrants the "unable to wipe clean with bankruptcy" reality of such loans.

I also believe that consumerism is happening with the "product" of degrees. There is a large price variable for a BA and an arguable value difference. There are affordable schools and ways to make expensive schools more affordable(transferring after 2 years at a community college)....I just think that often times the same reason one attends an expensive school is similar to the reason one buys a brand new car....oh and lets not forget about the credit card debt that students heap up by their senior year - 4k worth

http://www.usatoday.com/money/perfi/cre ... debt_N.htm
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Post by danwalk »

SP-diceman wrote:
Thanks! This is the real issue The Chronicle should be focusing on, rather than trying to demolish "myths" about increasing levels of student debt.
Not sure I would trust the Chronicle to be an unbiased observer.
Don't know anything about them but just a guess they would be
pro-education.
Yes, isn't it horrible to be pro-education? :wink:

I don't know anyone in higher education (and I do know quite a few people) that thinks that large amounts of student debt is a good thing. Tuition has increased higher than inflation but do keep in mind that in the case of public universities, this is all very much dependent upon the degree to which individual states choose to fund them.

Higher education is one of the first budget items to get slashed in times of recession (and even in times of plenty). When these cuts happen, guess what has to go up. Yep, tuition.

Ultimately we (through our representatives in government) decide how we are going to pay for higher education but it must be paid for in all cases.

Dan
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Post by danwalk »

ElJay wrote: Is the Chronicle cherry-picking data? The Project on Student Debt page has some alarming info for 1993-2004:
No, they are not. If you look at some of the quotes in the original post, you will see that the Project on Student Debt is cited.

My oh my, people's hackles get raised in discussions about higher education. Although the US may not have some of the issues with social class traditionally ascribed to our forefathers across the pond, there is certainly something about (perceived) intellectual elites...

I'm in higher education and you must believe me when I tell you that there is nothing to fear. We are not that powerful. Not even close to powerful, in fact. And if you are in the humanities, you are close to powerless in today's climate.
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Post by nerf »

Harvard, as the most egregious example, has an endownment of $35 billion. They are a hedge fund, not a university.
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Post by danwalk »

nerf wrote:Harvard, as the most egregious example, has an endownment of $35 billion. They are a hedge fund, not a university.
We've been down the endowment road before here. Note that I was specifically addressing public universities in my most recent posts. I completely agree that Harvard is a different beast than most public institutions.

I had the good fortune to attend a top university (same league, at least ivy-wise) as Harvard and leave with approximately $15,000 in loans (a bit over 10 years ago). How? Because of massive grants given to students coming from lower to middle-class families. The vast majority of my education was completely free. If I were attending the institution now, my ENTIRE education would be free because of new financial aid parameters set:
On January 22, 2008, Dartmouth College President James Wright announced a number of exciting new enhancements to Dartmouth's Financial Aid program for current and prospective students. This latest initiative provides free tuition for students who come from families with annual incomes below $75,000 with typical assets, replaces loans with scholarships for all scholarship recipients, assures need-blind admission for all students, and replaces one "leave term" earnings expectation with additional scholarship dollars.
That is putting endowments to good use.
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Post by nerf »

That is putting endowments to good use.
Agreed. But the issue, at least for me, is not whether giving need-based aid helps mitigate the very high cost of tuition (yes). It is why in the heck has it become so expensive in the first place? And there is obviously a correlation between the rise in tuition and the small (or not so small) fortunes being amassed by a number of private universities.
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Post by danwalk »

nerf wrote:
That is putting endowments to good use.
Agreed. But the issue, at least for me, is not whether giving need-based aid helps mitigate the very high cost of tuition (yes). It is why in the heck has it become so expensive in the first place? And there is obviously a correlation between the rise in tuition and the small (or not so small) fortunes being amassed by a number of private universities.
The mistake here is to assume that universities' endowments increase due to tuition-collecting. To go back to the Dartmouth example (as an alum, I know it best), they are currently in the middle of a $1.3 billion capital campaign and have hit the $1.1 billion mark on schedule. From The Dartmouth:
The College’s seven-year capital campaign reached a landmark $1.1 billion this June, putting the fundraising initiative on track to reach its $1.3 billion goal by December 2009, when the drive is scheduled to end.

Although overall fundraising was up for the year, participation was down, vice president of development Carolyn Pelzel said, explaining that the decrease may have been due to the recent Association of Alumni lawsuit against the College and the state of the U.S. economy.

The College has allocated the majority of the funds from the program, the Campaign for the Dartmouth Experience, towards improving Dartmouth’s “academic experience.” About $711 million will be invested in the “recruitment and retention of faculty,” as well as related facilities and equipment, according to the campaign’s web site. The remaining $589 million will be distributed among residential and campus life, financial aid and annual giving. Annual contributions provide 10 percent of the College’s yearly budget.
This kind of fortune (definitely not small) enables these kinds of schools to be literally the best in the world.

But this is not the world in which I am currently employed as a faculty member at a large state non-flagship institution whose tuition is still quite low. In my world, library budgets have been cut, departments are being eviscerated, conference travel is just about entirely out of pocket, and I believe salaries have been frozen for the time being. Public universities and their employees are very much of this world and are hit hard in times like this.

The advantage for the richest of our private relatives is that they are quite insulated from these problems, no matter how much they might protest to the contrary. Should they be criticized for this? For protesting, definitely. For being rich, I'm not so sure; they are able to continuously provide an incredibly good education for their students and excellent work environment for their faculty.

We do what we can. Reducing tuition significantly at our university would mean the end of our university as we know it and our students would be the first to suffer.

Dan
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Post by yobria »

eas wrote:From what I hear, since I didn't have to take loans out myself, it is pretty dang hard to get a significant amount of student loans for college with the youngin' being the only name on the loan.
It doesn't sound like the students in this article needed co-signers (though it's not explicitly stated):

http://articles.latimes.com/2008/dec/27 ... legedebt27

I don't see why you'd need a co-signer since the debt can only be discharged by death (this is a recent change in the law, probably not the case when you were in school).
rich wrote:This is a good point but it does have a weakness. The Ferrari driver loses the car. The student does not lose the education.
As mentioned, you can substitute medical care, vacations on credit cards, or any other service the debtor gets to "keep".

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Post by danbek »

nerf wrote:It is why in the heck has it become so expensive in the first place?
Some possible answers:

1) Productivity growth in higher education (and primary/secondary education) hasn't kept up with productivity growth in the larger economy (due to it's highly labor-intensive nature). An industry who's productivity lags behind the rest of the economy will inevitably see it's prices rise faster than inflation.

2) Some of your customers are willing to pay a lot more for your products than other customers. How can you set things up so that each customer pays the maximum that they are willing to pay? Private colleges and universities appear to have hit upon the idea of large sticker prices, with large discounts based on "need" and "merit".
And there is obviously a correlation between the rise in tuition and the small (or not so small) fortunes being amassed by a number of private universities.
Correlation != causation! I'm pretty sure Harvard's endowment is enormous because it's (very wealthy) graduates donate large sums of money, not because of it's large tuition.
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Post by bottlecap »

Consider the following 2002 study:
Undergraduate student loan debt has increased significantly since 1997. The average undergraduate debt is $18,900, up 66% from $11,400. The median undergraduate debt rose 74% to $16,500 from $9,500. Those who attended private four-year colleges borrowed most (average $21,200/median $18,400), followed by those who attended public four-year colleges (average $17,100/median $16,200), next were those who attended vocational/technical school (average $15,000/median $11,900), and those borrowing the least attended public two-year institutions (average $8,700/median $7,700).
Source: http://www.nelliemae.com/library/research_10.html

Based on this, the median balance is rising faster than the average. If this continued, the median should be now closer to the average. The "Chronicle" doesn't mention the median statistics, but this is very much more important than the average.

The Chronicle article also strikes me as an argument that student loans aren't necessary to the educational system - or at leas that a fully private loan system would due as the loan balances are "so" low. I Don't think the "Chronicle" would argue this, however.

The "Chronicle"'s statistics raise more questions than they provide answers.
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Post by nerf »

nerf said
And there is obviously a correlation between the rise in tuition and the small (or not so small) fortunes being amassed by a number of private universities.
danbek said
Correlation != causation! I'm pretty sure Harvard's endowment is enormous because it's (very wealthy) graduates donate large sums of money, not because of it's large tuition
dan- you're arguing against a straw man (note my use of the word "correlation," not "causation" in the post that you quoted).

take a step back--why do we have universities? why reasons do universities themselves proclaim for their own exisence (per their own mission statements)? i guarantee that the accumulation of massive amounts wealth is not high on these lists, if it appears at all. the relevant question is not what level of tuition will the market bear, it is what level of tuition will further these goals?

as mentioned above, university tuition (and corresponding levels of debt) has made it increasingly difficult for graduates to pursue careers in public service. the government has started the IBR program to forgive the debt of students who want to enter public service after graduation. this is a noble goal, for sure. however, it is public tax money which will be used. in effect, public dollars will be used to subsidize these unsupportable levels of tuition!

in my view, the rise in the cost of attendence is another bubble which has grown, like the housing bubble, in an environment of cheap credit for all comers. the solution is to tackle the credit problem, which will force a correction in university pricing back into line with reality.
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Post by nerf »

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Post by Index Fan »


What's newsworthy, no matter how common, is the fact that a 17 year old can borrow $100K for a private college and never be able to erase the debt.

Meanwhile, a 45 year old can borrow $100K to buy a Farrari, and simply have the debt removed through bankruptcy if he gets into financial trouble.
Ah, the perils of government intervention. Supply entitlement loans at below-market value to raise the price and demand of the product, and then declare that money to be off-limits for bankruptcy. They giveth and then taketh away, as usual.
Last edited by Index Fan on Thu May 28, 2009 7:23 am, edited 2 times in total.
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Post by tfb »

They should separate student loan data by private schools vs public schools. Attending a private school is optional and voluntary just like buying a Lexus when there is Toyota, Hyundai and Kia. If people voluntarily borrow a lot in order to attend private schools, I don't see how it's the schools' fault that their tuition is too expensive. If people think Harvard is better, well a better product costs more. Really not any different from all the other products in the market. Consumers have to weigh between cost and benefit.
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Post by junior »

nerf wrote:nerf said

as mentioned above, university tuition (and corresponding levels of debt) has made it increasingly difficult for graduates to pursue careers in public service. the government has started the IBR program to forgive the debt of students who want to enter public service after graduation. this is a noble goal, for sure. however, it is public tax money which will be used. in effect, public dollars will be used to subsidize these unsupportable levels of tuition!
There may be a subsidy (I have no data) but the government will also be making a profit on loans if the earner earns enough or chooses a different payment plan or pays off the entire loan plus interest after earning a high salary in the private sector.
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Post by sciencewhiz »

ElJay wrote:I guess people must be lucky with scholarships? I have no clue how I could've gone to a private college and ended up with 'only' $22,000 in debt. That sounds like one year of tuition to me, if that.
I graduated from a private university 5 years ago, with 18k in debt. My program was 5 years for a degree, so the costs are higher then usual. Here's some of the ways I did it. I easily could have been 100k in debt from the same school.

I went to a community college for 2 years, and then transferred, saving almost 40k.
I went to a "cheap" private university, saving 20-50k.
I got scholarships, saving 27k.
I worked enough during school to pay for living expenses, and did paid internships that paid for living expenses + money for tuition.
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Post by avalpert »

livesoft wrote:Thanks for the post. In general, journalists write about what they know.
Huh, I wouldn't have guessed that from reading what they write. I always though they wrote about what they wished they knew...
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Re: The myths about student loans

Post by 'Ponine »

junior wrote:
I do note that, in my experience, community college is amazingly cheap. I don't know, however, whether typical 18 year olds have the financial discipline to choose a bargain school.
I am the product of community college and state schools and still ended up with over $70,000 in school debt (from a state grad school to which I had a 2/3 scholarship). Students are not given the finanical education they need before getting into school debt. If I knew now what I knew then... I would have handled things differently. (I happened to get lucky though with my federal loans which are now locked at 1.6%).

I have a colleague that went to an ivy grad school and graduated with over $160,000 in school debt. She then promptly bought a house (with no money down) that she could barely afford b/c another $250,000 in debt simply didn't phase her when she had the $160,000 w/out blinking an eye. (Luckily she got out before the housing crash without gaining or losing).
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