Don’t occupy Wall Street. Occupy a college, because they are the ones who have built a house of cards using borrowed money, that is now the taxpayers’ burden. When you see occupiers marching around with placards announcing the size of their college loans, you have to wonder why they’re not protesting at one of the many expensive colleges not far from Wall Street.
Not everyone went to college in the past, it’s a modern day phenomenon. Today, it’s expected that, regardless of aptitude, everyone must go, often to a boarding college, and the amenities are expected to equal the curricula.
Everyone can go as long as they are willing to borrow the money the government has made so readily available, but the price is becoming too high.The American Council on Education says that 80% of all students are enrolled in public colleges and their costs have increased 28% in the last five years.The U.S. Public Interest Research Group reports that student debt has more than doubled from 1993-2004.
College tuition is rapidly becoming what will be a lifelong burden for middle class college students. According to the National Center for Education Statistics, the difference between tuition and the net cost less financial aid at public two-year colleges is not significant at a few thousand dollars, but the difference at private nonprofit four-year schools is about $20,000. The average annual tuition with expenses, less board, at a private nonprofit four-year college is about $35,000.
The government easy money program has enabled colleges to simply raise tuition as costs increase instead of making the necessry cuts.
The US Department of Education funded 88% of federal education loans in 2008-09 and 85% in 2009-10, 87% overall. The total federal education loan volume, not including consolidation loans, will exceed $100 billion for the first time in 2010. Total federal funding for college loans is $173 billion. This does not include all the spending bills or innumerable other grants.
Then there are the states grants which are heavily tied to race and ethnicity and quite costly. Orthodox Jews were recently added to the list of racially-eligible students.
Easy money grants, with their high default rates, are government loans, hence taxpayers will shoulder the losses, while colleges can continue their unabated spending. This year alone, college costs have risen by 8.3% while the inflations rate is 3.77%.
The default rate on college loans is 20% and growing. Some for-profits have default rates at 40%. With fewer students able to pay back their college loans, the college-bundled derivatives are the new bubble, and the costs will be placed squarely on the shoulders of the taxpayer.
Pell grants, the grandest of the grants, are an unsustainable tax burden. Some try to say that enrollment explains the increases, but enrollment only accounts for 40% of the rise in costs.
Sixty percent of the increases are because of the government loan program.
The Higher Education Opportunity Act of 2008 allows students to receive two Pell Grants in one academic year (to include summer school) and this change alone adds about $4 billion annually in program costs. The maximum Pell grant, as part of the Stimulus, boosted the grant from $5,350 to $5,550. In 2009, the income threshold went from $20,000 to $30,000 and income exclusions were increased to include Earned Income Tax Credit, refundable child tax credit, welfare and social security. This was added to other exclusions from 2008. This totals up to 60% of the growth in the cost of Pell Grant program and it has nothing to do with enrollment growth. The majority of increasing costs are directly attributable to legislative changes in the program.
College tuition will increase at triple the rate of inflation next year. College officials know that students can borrow more money for college so they’ve come to rely on raising tuition to deal with their problems as opposed to looking for waste, fraud, or contractual changes for staff.
Lending for college has become profitable and risk-free. Increasing college costs mean students must take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders (soon-to-be only the government) can offer more loans to package and sell, more selling means lenders can offer more loans with the capital they’ve accrued, which means colleges can continue to raise costs (CrooksandLiars).
The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government (the taxpayer) directly or indirectly on the hook for almost all of it (CrooksandLiars).
College costs are rising partly because of high salaries for reduced work loads –
NPR cites one of the problems as time off for professors –
Faculty members are paid for their output in three areas: teaching, research and service (e.g. committee work and student advising). For many years, at schools where serious research was frequent and prolific, faculty members were granted reduced teaching loads in order to free up additional time for writing, lab work or creative endeavors. Over time, what was once a normative classroom load of 3 classes each semester (3 & 3) was reduced for scholars to 3 & 2, then 2 & 2, then 2 & 1 – to the ultimate extreme. Soon this reduction became normative, regardless of the amount of research produced. “Good schools” had lower teaching loads than others.
Colleges award lifetime contracts to Professors on the basis of their publications, and sometimes the published works are insignificant. Professors tend to stay too long with the benefits and short work days. Craig Carnaroli of the University of Pennsylvania said that “Over 50% of our budget goes to the people that we employ.” College professors now make an average of over $100,000 a year. Penn’s president makes over $1 million.
USA Today reported that 23 Private College Presidents Made More Than $1 Million in 2008, while 110 made more than $500,000. In case you were wondering, this is not the norm — as recently as 2002, there were no million-dollar presidents, says NakedLaw. All this is possible because of easy loan money.
The number of salaries at colleges has multiplied as well. According to The Atlantic – staff salaries have increased because of the array of enrichment components that include head-counselors, cruise directors, personal physicians, trainers, tutors, student-life workers, alumni affairs, and so on.
A New York Times article reported that over the past 20 years, colleges have doubled their non-teaching staff, while enrollment has only increased by 40%. Jobs include monitoring environmental sustainability, or their focus is on student “lifestyle.” Economist Daniel Bennett, who conducted this study, says “Universities and colleges are catering more to students, trying to make college a lifestyle, not just people getting an education.”
There are more social programs, more athletics, more trainers, more sustainable environmental programs.” The student loan program made this possible.
Spending on luxury dorms, gyms, swimming pools and other amenities has become a necessity to lure students. Freakonomics author Stephen Dubner said that the chancellor of his alma mater told him that “[the gym] was a top priority because parents and prospective students increasingly think of themselves as customers, shopping for the most amenities for the best price, and the colleges that didn’t come to grips with this would soon see their customers going elsewhere.”
But gyms are nothing. At High Point University in North Carolina, students are treated to valet parking, live music in the cafeteria and Starbucks gift cards on their birthdays, according to NakedLaw.
Colleges generally operate on two 14-week semesters and summer school, which amounts to a 50% utilization rate. Classrooms, libraries, labs sit idle for the other 50%. There’s room for improvement here.
The colleges spend billions to advertise, lobby and make campaign contributions. For example, the University of Phoenix, a for-profit college, has an exclusive partnership with GOOD magazine, sponsoring an education editor, and they have spent $9 million on lobbying and campaign contributions in 2010 alone. The for-profits are becoming the fastest growing sector in our college level programs.
For-profit colleges are encouraging homeless people to attend because student loans are so easy to acquire. They pay a $2000 stipend to the homeless and the college gets $20,000 a year, with their loans making up the difference. Often the students never graduate but they keep the debt.
CrooksandLiars.com reports that 96% of for-profit students take on debt and within fifteen years 40% are in default. A Government Accountability Office sting operation in which agents posed as applicants found all fifteen approached institutions engaged in deceptive practices and four in straight-up fraud. For-profits were found to have paid their admissions officers on commission, falsely claimed accreditation, underrepresented costs, and encouraged applicants to lie on federal financial aid forms.
Bloomberg states that publicly traded higher education companies rely on three-fourths of their revenue from federal funds, an increase of about 48% in 2001 and currently approaching the 90% limit set by federal law. In other words, colleges rely on borrowed money to finance their schools up to the legal limit.
The non-profits suffer from the same problem. For-profits account for less than half of student loan defaults. Nor is the issue one of “good colleges” vs. “bad colleges.” As this New York Times article illustrates, even students at prestigious non-profit schools like NYU can find themselves in financially ruinous circumstances because of their student loans.
Obama’s solution is to shift the entire unsustainable burden of college loans, socialist style, to the taxpayer with his Income Based Repayment, which ties the size of student loan payments to the borrower’s income. IBR allows borrowers to pay out no more than 15% of their discretionary income, per month, to the loan. The U.S. also forgives whatever hasn’t been paid off in 25 years.
It was passed in 2010, and it was to go into effect in 2014, but Obama has moved part of the timetable up to 2012. The IBR cap will drop to 10% of discretionary income, and the government will forgive whatever hasn’t been repaid in 20 years. Also, holders of federally-backed private loans will be given the opportunity to consolidate them with their federal loans and only send out one check a month.
The government has fixed it so we will all pay. The President sees the problem, and I give him credit for that, but his answer is, as always, to put it on the taxpayer and there is no accountability for the colleges in his plan. The losses will be placed on the backs of taxpayers and colleges will continue their spending spree.
Government driving up the cost of education
Rethink our status driven approach to a career