Tying Student-Loan Interest Rates to Market Rates

Posted on April 12th, 2013, by 1 Comment

President Obama’s proposal on Wednesday to tie student loan interest rates to government borrowing costs has received opposition from some who usually support the president’s higher-education initiatives. The immediate effect would decrease the interest rates on loans, but probably increase in the long run, as The Atlantic illustrates. However, instead of focusing on whether the proposal would increase or decrease interest rates, policymakers should question the conventional wisdom about expanding loans to more students.

When it’s acknowledged that about four in 10 college students don’t finish their degrees within six years, keeping interest rates low and widely available isn’t benevolent policy for students so much as trapping them in debt with no degree to justify it. The debate about student-loan rates needs to move beyond motives and focuses on policy outcomes; until then, the unintended effects will be ignored and “student advocates” will continue to harm them. Students should have options beyond college and high levels of debt, and to assume college holds the only path to success stinks of elitism and denigration of alternative pathways.

Interest rates shouldn’t be kept artificially low to encourage more students; they should reflect market risk and opportunity cost so students don’t blindly choose college. The easy money for college students feeds higher spending and tuition by colleges and universities; why worry about restraining costs when students can always find the money to pay? The efficiency of the student-loan program as a whole is questionable; if the desirable policy goal aims to benefit college students, the student-loan program might not even meet that standard.

Certain College Advertising Is OK

Posted on April 12th, 2013, by 1 Comment

Barry Mills, the President of Bowdoin College, makes what to me is a slightly curious remark in the course of responding to a recent report on the college published by the National Association of Scholars. Mills takes issue with the NAS report’s characterization of the college’s curriculum (since I haven’t read the report myself, I can’t speak to the accuracy of Mills’ reading of the report). In response Mills says the following:

Yes, there are some courses offered at Bowdoin that come with provocative titles

In my view, the title and course description are what get you in the door… (emphasis in original)

In other words, course titles and descriptions are merely the academic form advertising. But I thought that advertising in higher education was to be frowned upon. Or is that only in the case when the institution doing the advertising is owned by a for-profit entity? If only the University of Phoenix had thought to style itself the “University of Advanced Gender Studies,” they would not have raised the ire of Senator Harkin. Or maybe advertising per se is fine as long as it isn’t billed as “advertising.”

CCAP In the News

Posted on April 5th, 2013, by Comments Off

A few prominent media hits for CCAP during the past week or two:

  • In a special project on student loans, The Guardian uses CCAP research for statistics on student-loan debt, underemployment, and related information.
  • The Huffington Post reports on college graduates working minimum-wage jobs and underemployment.
  • The Philadelphia Daily News references CCAP for an article on student debt and collegiate athletics spending surrounding the NCAA basketball tournament.
  • The Wall Street Journal reports on the financial burden of collegiate athletics spending for all but a few sports programs in higher education.
  • Russia Today writes an article about underemployment based on CCAP’s recent study.

The Indecipherability of Financial-Aid Award Letters

Posted on April 2nd, 2013, by Comments Off

Students and parents, upon receiving financial-aid award letters, can have difficulty in comprehending it. A discussion may ensue about whether financial-aid administrators model themselves after Kafkaesque bureaucrats, or if colleges are in such a bubble that they imagine the letters easy to understand.

As Insider Higher Ed reports, a study by the National Association of Student Financial Aid Administrators finds that most parents and students have difficulty deciphering how much they owe for college out-of-pocket; from 23 percent to 42 percent could answer the question after reading one of three proposed templates, depending upon which was given.

It’s important to note that, of the templates, only one has been adopted (the Education Department’s “shopping sheet”), which about 500 colleges use.

In general, colleges and universities have difficulty with transparency, but it’s particularly difficult to justify when students can’t understand the price of a higher education. True, an award letter isn’t synonymous with a bill, but when the letter doesn’t show a direct, simple connection to the cost of attending college, universities should re-evaluate their approach to providing information.

Upcoming Lecture in Minnesota by Richard Vedder

Posted on April 2nd, 2013, by 1 Comment

For anyone in or near Minnesota, Richard Vedder will speak at Minnesota State University-Mankato, April 9 (Tuesday), on “The Value of an American College Education: Student Engagement, Retention, and Success.” The lecture begins at 6 p.m.; it’s free and open to the public.

The Latest from West Lafayette

Posted on April 2nd, 2013, by Leave a comment

Kevin Kiley’s profile for InsideHigherEd of Purdue University’s new President, Mitch Daniels is well worth the read.

Chart of the Week: Academic Costs vs Overhead Costs

Posted on March 29th, 2013, by Comments Off

In their paper, “Measuring Baumol and Bowen Effects in Public Research Universities,” Robert Martin and R. Carter Hill present cost data for public research universities in the United States. They break the cost data into two broad categories: academic costs (which they define as spending on instruction, research and public service) and overhead costs (which includes spending on academic support, student services, institutional support, plant operations/maintenance, auxiliary activities, hospitals, and independent operations). They examine spending growth over two periods: 1987 to 2008 and 2008 to 2010. They use the former period to gauge the long-run spending trends in higher education (at least for the past twenty years) while they use the latter period to assess institutions’ responses to the financial crisis and recession. The average annual growth rates in the spending categories are given in the following chart.

Source: Martin and Hill

Source: Martin and Hill

These data show that from 1987 t0 2008, costs increased across the board: total spending increased by 2.1 percent per year, with 1.8 percent annual increases in academic costs but 2.5 percent increases in overhead costs. Because overhead costs were increasing at a faster rate than academic costs, the academic share of total costs fell slightly from 49 percent to 48 percent from 1987 to 2008. However, following the 2008 financial crisis, there was an “abrupt” break in spending trends: while academic costs increased 8.2 percent per year, overhead costs actually declined by 6.1 percent per year. Because total costs increased by 0.5 percent per year from 2008 to 2010, academic costs as a share of total costs rose from 48 percent to 55 percent in 2010.

To Consolidate or Not Consolidate? That Is the Question.

Posted on March 21st, 2013, by Comments Off

House Republicans want to consolidate federal job training programs; House Democrats are largely opposed. California Watch published some investigative reporting which suggests that California community colleges could save millions by consolidating; however, “a litany of… financial, legal and political hurdles would stand in the way.”

Without commenting on the merits of either the House Republicans’ bill or the suggestion from California Watch, I think both may be excellent illustrations that while consolidation (in one form or another) may, on its face, present the simplest way to improve affordability in education and job training, there are numerous obstacles (and not all of them are necessarily political in nature) to the implementation of any revamping that is based on that premise.

Heading in the Right Direction

Posted on March 20th, 2013, by 2 Comments

Yesterday’s InsideHigherEd reports on an interesting new development down in the Peach State. The Board of Regents of the University System of Georgia has announced that it will assume some direct oversight authority over the athletics programs at the System’s institutions (none of which have their own separate Board). Previous System policy left control of the athletics programs exclusively at the institutional level. Though Georgia is not the first university system to make this move (apparently the University System of Maryland has already adopted a similar policy), this is, I think, very much a step in the right direction and may be an indication of things to come. Basically the new policy allows for the Board to require a formal review and approval of expansions of athletic programs. There is, however, one big loophole: the whole process is triggered by a requirement of the presidents of the various institutions to alert the System’s chancellor who then gets to decide whether or not the proposal should be forwarded to the Board. What if the Chancellor decides not to go that route? Will the new accountability measures be thwarted in that manner?

On the plus side, the reason this move makes sense is that it is odd to keep certain System functions outside of the purview of the Board whose job it is to oversee the System. If we are going to pair high-stakes athletics programs with institutions of higher education, let’s at least put it all under the channels of command. Obviously, micro-management of athletics may not be desirable (even if it were workable), but that in no way is a sufficient argument against the move by the Georgia Board to take on a modest oversight  role over the athletics programs. If anything, this shift may put pressure on the institutions to be more circumspect and accountable with their athletics programs knowing that they may have to justify their plans to the Board.

CCAP In the News: March Madness Edition

Posted on March 19th, 2013, by Comments Off

CCAP’s Faculty Fellow David Ridpath has been interviewed by major media outlets during the past month. A few highlights follow:

  • USA Today asked for his opinion on Miami University’s scuffle with the NCAA over an ongoing investigation:
  • The New York Times discussed the benefits and costs for Florida Atlantic University from letting a private prison corporation buy stadium naming rights
  • Time magazine discusses his recent research on students relative knowledge (or ignorance) on how much their fees pay for intercollegiate athletics