Monday, July 01, 2013

The remedy for student loan debt? Higher tuition and fees, of course!

I now truly appreciate why we go on vacations.  The Costa Rica trip was only for a week.  But, even for the week before and the one after, I was pretty much disconnected from the news. From the kind of topics that I would otherwise read up about, fret and fume, and then blog about some.  Three weeks of blissful ignorance about so many issues!  It was one awesome affair with my love.

Now, it is all over. Back to reality.  Which means that there is now so much to catch up on.

Like the financial aspects in the university system where I work.

The agenda materials for the June board meeting had an item on student debt management.  So, of course, I had to read through that.  Bad call!

The Board agenda notes:
The various impacts of the recession, including more students taking on debt as their parents’ ability to help pay for college declined, the difficult job market producing unemployment and underemployment at higher than normal rates, and lower earnings, have all made it more difficult for some students to repay their student loans.
Indeed!  So far, so good.  Let's first get some data on the situation:

A system-weighted average of almost $24,000 in student loan debt. Holy macaroni!  Given the spread between the median and the average, it means there are some high debt students, whose numbers might just about numb our senses.

The policy response includes all those things that anybody would like to hear.  Including about strategies to slow down increases in tuition and fees.

But, that is the talk.  How is the walk? Like so:

Yes, tuition and fees will go up. The system-average of 4.5 percent increase will be pretty much double the rate of inflation. Correction: 4.5 is nearly four times the current inflation rate!

Which means, we can confidently project that the student loan debt of future graduating classes will be higher than the current average of $24,000.

We are locked into this mode for various reasons.  Yes, rock climbing walls and fancy dorms are wasteful expenditures.  The phenomenal increase in student-life bureaucracy is another.

And one more: the cost of personnel and the guaranteed wage increases from year to year.  Ramesh makes a similar point when noting about garbage collectors in New York City. Whether it is teaching or non-teaching personnel, contracts guarantee wage increase over the years.  (With the non-teaching unionized employees, there has been a salary freeze, with furloughs as well, for a couple of years now.)

We faculty offer courses and majors depending on the whims and fancies of the faculty.  Not only at WOU but all over the country.  It is one thing to offer specialized courses at graduate levels--that is exactly what one would expect.  But, at the undergraduate level?  Seriously?  As I noted in a recent op-ed,
My favorite, of the ones I have come across in the news, is a course on Lady Gaga. It will require quite some effort on a student's part to use that course as a vehicle to understand what it means to be human. 
 A similar point is made in this WSJ op-ed.  While I disagree with its ideological framework, I concur with this statement there:
Meanwhile, courses proliferate on highly specialized topics—Muslims in movies, gay and lesbian gardeners, the mathematical formalization of political decision making, for example—that closely correspond to professors' niche research interests
In contrast, the courses I teach have dull and boring titles.  Nothing fancy.  No sex in the titles. Nothing about popular culture or sports. No Lady Gaga.  And then I wonder why students do not want to enroll in my classes!  Maybe I should rename the course on "The Indian Subcontinent," for instance, to "Lovemaking according to the Kamasutra."

The entire exercise of higher education increasingly seems to be no different from digging holes and filling them back again--plenty of work going on, but nothing to show for it.

Well, other than the student loan debt, that is.

The national data, as in this chart from Pew Research, will depress you:

A reminder on how that debt matters when one is about to begin an economically productive life:
debt held by millions of Millennials may be forcing this generation to:
  • Put off home ownership
  • Divert money from retirement accounts
  • Impede the ability to take small-business loans
  • Forgo securing car loans
Though hard data linking student-loan debt to a delay in these financial commitments are elusive, personal finance experts say that when one is saddled with any kind of debt, economic lives can grind to a halt. The consequences of massive student-loan debt — a trillion dollars and counting — could threaten the standard of living for this generation and harm the country's economic competitiveness.
Maybe I should have simply stayed back in Costa Rica.  Except a couple of them, my colleagues also would have been happier that way!


Ramesh said...

This is an issue we have much debated on the past and one I completely concur on as the worst legacy we can leave for our children.

What caught my eye was that the mean debt amount is only $ 24,000. That's only 1.5 times the annual wage at the minimum wages in the US. And college grads can earn more than the minimum wage, which means the loan amount is one times annual wage and with a possible savings rate of 20%, extinguishable in 5 years. That's not bad - debt levels in even India, if you have to take a loan to cover your education, will be 3 or 4 times annual entry salary level. Take the other crippling debt problem that families face - housing. Again easily 4 or 5 times annual salary levels.

That doesn't take away from the debt problem you rightly highlight and the need to bring that down, if not eliminate it. The short term cure simply has to be to create more jobs. If a grad has a reasonable chance of landing a full time job, then the problem isn't as bad.

PS - I would like to meet the prof whose research interests are in Muslims in movies or gay and lesbian gardeners !!!

PPS - Can I enroll for your Lovemaking according to the Kamasutra course :)

Sriram Khé said...

Hmmmm .... college grads being underemployed and "under-earning" is a big part of this problem. We aren't quite sure if this is a part of a transition in the economic structure or whether this will be the new normal. If the new normal, then we are in deep doodoo.

An engineering major graduating with a $30K debt is not as much a hassle as a music major graduating with a $30K debt. Even if the music major is lucky enough to get a job that pays 30K a year, remember that in the US there is payroll taxes--soc. sec, Medicare, ... and then if the new employee wants to set aside for savings ... Even without savings, the net will drop from 2500 gross a month to perhaps $1900. About $250 will go towards this debt servicing.

So, we have $1650 to work with.
Rental housing, depending on the cost of living, can run from 400 to 1000. Say $500. Utilities, phone, TV, will be another $200.

Now, we are down to $950.
In the US, it is extremely difficult to be productive (economic and social) without a car. The cost of car and gas. Say $200.

Down to $750. Remember that we haven't eaten yet. Nor have we set aside money for savings.

All these, of course,if one finds a job.

When you look at it from India, you might think "hey, what is the hassle? Millions of Indians would gladly take up those conditions."

George Packer has a related short note on how it then depends on our own political philosophies on whether these working/living conditions are all ok, good, or bad:

ps: oh, it is totally ok to have whatever research interests ... but, the problem is when we begin to offer them as courses for undergrads ... the number of crazy courses can be astonishing. Movies and rock-n-roll are all popular with faculty and students alike!

pps: hahaha ;)

Ramesh said...

I read that article and went livid at Charles Murray's arguments. If there is such a heartless society that cannot even empathise with the lot of those for whom life has dealt a bad hand, then I am not sure what humanness is. This despite my being a loud votary of taking responsibility and living your own life without depending on handouts.

In your arithmetic, the largest single deduction is $ 600 (a full 25%) for social security , Medicare, etc. Pertinent to note that this pays for somebody else. When your turn comes, it is fairly obvious that there will be no money left in the government pot.

You guys have become completely cost uncompetitive. If you can't live a fair life with a $ 30,000 annual salary, you stand no chance in this world.

Sriram Khé said...

hehe ... join the long line of people who have had such reactions to Murray's arguments over the decades!

The social security ponzi, er, scheme, is in a way related to the Alzheimer's post--people living longer and longer and sucking up valuable resources. We humans never planned for a scenario in which people live long lives.

BTW, here is another take on college degrees ... more of the same, yes, but note that the author was President Obama's federal budget adviser and an accomplished budgetary policy wonk:

I remain convinced, unless I see overwhelming evidence otherwise, that we better adjust to this new reality soon .... well, it is already a tad late, but at least before it becomes way too late :(

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