CQR Student Debt - The Maxwell School of Syracuse … · Student Debt IAs the college-loan system...

Student DebtIs the college-loan system fair?

As Congress tries to reduce the federal debt, it is

forcing federal loan and grant programs for higher

education to fight for scarce dollars. In negotiations

this summer over the debt ceiling, lawmakers shifted

money from loan programs for students who borrow for graduate

and professional school and students who pay back loans on time

to Pell Grants for low-income students. The government has imple-

mented several new programs to make the loan system fairer,

including making payments easier for lower-wage earners and

providing federal loans directly to borrowers rather than through

banks, to avoid subsidizing commercial institutions. However, some

consumer advocates say unless education debt can be forgiven

through bankruptcy proceedings, as most other debt can, the

system will never be fair to student borrowers. Meanwhile, tuition

continues to rise, and total higher-education debt has surpassed

credit-card debt for the first time, rising to $830 billion in mid-

2010 and continuing to climb.

I

N

S

I

D

E

THE ISSUES ....................879

BACKGROUND ................885

CHRONOLOGY ................887

CURRENT SITUATION ........892

AT ISSUE........................893

OUTLOOK ......................894

BIBLIOGRAPHY ................897

THE NEXT STEP ..............898

THISREPORT

Costumed as the “Master of Degrees” and holding aball and chain representing his college-loan debt,unemployed graduate Gan Golan attends the

Occupy D.C. protest in Washington’s Freedom Plazaon Oct. 6, 2011. It was one of several demonstrations

around the country protesting corporate greed and the gap between rich and poor.

CQResearcherPublished by CQ Press, an Imprint of SAGE Publications, Inc.

www.cqresearcher.com

CQ Researcher • Oct. 21, 2011 • www.cqresearcher.comVolume 21, Number 37 • Pages 877-900

RECIPIENT OF SOCIETY OF PROFESSIONAL JOURNALISTS AWARD FOR

EXCELLENCE � AMERICAN BAR ASSOCIATION SILVER GAVEL AWARD

878 CQ Researcher

THE ISSUES

879 • Are students incurringtoo much education debt?• Is rising college debtlimiting who attends andcompletes college?• Has the increasing avail-ability of education loansdriven up college costs?

BACKGROUND

885 Private SystemU.S. colleges started outrelying on private tuitionrather than tax-supportedloans and grants.

888 Borrower, Beware?Consumer safeguards foreducation loans shrankeven as student loans increased.

890 Consumer ProtectionsNew laws made direct government lending possible.

CURRENT SITUATION

892 Debt and DeficitsCongress has agreed tocut student loan programsto reduce federal debt.

894 More Students, MoreLoansMore students are gettingpost-secondary training, increasing education debt.

OUTLOOK

894 Explosive Debt?Many policymakers advo-cate further expansion ofpost-secondary schooling,which would boost debteven higher.

SIDEBARS AND GRAPHICS

880 Students at For-ProfitSchools Have Most DebtMore than half of bachelor-degree recipients at for-profitinstitutions borrowed at least$30,500 in 2007-2008.

881 Loans Make Up Half ofFinancial AidMore than $129 billion in un-dergraduate financial aid wasdistributed in the 2007-2008academic year, half in loans.

883 College Debt Heaviest forModerate-Income StudentsLow-income students pay asmaller share of the “stickerprice,” on average.

884 Default Rates Highest atFor-Profit CollegesHigh cost and limited careerprospects are blamed.

887 ChronologyKey events since 1944.

888 Colleges Challenged toGive Students More ValueRising student debt fuels call fortuition cuts, better education.

891 Tips on Taming the College-Debt MonsterTrack costs and pay high-interest loans first.

893 At IssueAre students borrowing morethan their educations are worth?

FOR FURTHER RESEARCH

896 For More InformationOrganizations to contact.

897 BibliographySelected sources used.

898 The Next StepAdditional articles.

899 Citing CQ ResearcherSample bibliography formats.

STUDENT DEBT

Cover: AP Photo/Jacquelyn Martin

MANAGING EDITOR: Thomas J. [email protected]

ASSISTANT MANAGING EDITOR: Kathy [email protected]

CONTRIBUTING EDITOR: Thomas J. [email protected]

ASSOCIATE EDITOR: Kenneth Jost

STAFF WRITERS: Marcia Clemmitt, Peter Katel

CONTRIBUTING WRITERS: Sarah Glazer, Alan Greenblatt, Barbara Mantel, Tom Price,

Jennifer Weeks

DESIGN/PRODUCTION EDITOR: Olu B. Davis

ASSISTANT EDITOR: Darrell Dela Rosa

FACT CHECKER: Michelle Harris

An Imprint of SAGE Publications, Inc.

VICE PRESIDENT AND EDITORIAL DIRECTOR:Jayne Marks

DIRECTOR, ONLINE PUBLISHING:Todd Baldwin

Copyright © 2011 CQ Press, an Imprint of SAGE Pub-

lications, Inc. SAGE reserves all copyright and other

rights herein, unless pre vi ous ly spec i fied in writing.

No part of this publication may be reproduced

electronically or otherwise, without prior written

permission. Un au tho rized re pro duc tion or trans mis -

sion of SAGE copy right ed material is a violation of

federal law car ry ing civil fines of up to $100,000.

CQ Press is a registered trademark of Congressional

Quarterly Inc.

CQ Researcher (ISSN 1056-2036) is printed on acid-

free paper. Pub lished weekly, except: (May wk. 4)

(July wks. 1, 2) (Aug. wks. 2, 3) (Nov. wk. 4) and

(Dec. wks. 4, 5). Published by SAGE Publications, Inc.,

2455 Teller Rd., Thousand Oaks, CA 91320. Annual

full-service subscriptions start at $803. For pricing, call

1-800-834-9020. To purchase a CQ Researcher report

in print or electronic format (PDF), visit www.cqpress.

com or call 866-427-7737. Single reports start at $15.

Bulk purchase discounts and electronic-rights li-

censing are also available. Periodicals postage paid at

Thousand Oaks, California, and at additional mailing

offices. POST MAS TER: Send ad dress chang es to CQ

Re search er, 2300 N St., N.W., Suite 800, Wash ing ton,

DC 20037.

Oct. 21, 2011Volume 21, Number 37

CQRe search er

Oct. 21, 2011 879www.cqresearcher.com

Student Debt

THE ISSUESN ew York City lawyer

Robert Applebaumgraduated from law

school in 1998 with morethan an impressive diploma.He also was saddled with$80,000 in student loans.Over the next five years, asApplebaum delayed repay-ment while working as anassistant district attorney, in-terest drove the balance to$100,000.

Still making payments 11 years after graduation,Applebaum had a brainstorm.Why, he wondered, shouldn’tthe federal government for-give student loans as a wayto stimulate the economy?

“With the stroke of thePresident’s pen, millions ofAmericans would suddenlyhave hundreds, or in some casesthousands, of extra dollars . . .every month . . . to spend,”reads a petition Applebaumplaced online at the liberal ac-tivist site Moveon.org. 1

Applebaum’s proposal maybe quixotic, but his storypoints to what many expertssee as a growing crisis inhigher education: As collegeand university enrollmentsmushroom and tuition soars, they say,college is fast becoming unaffordableto tens of thousands of current andprospective students.

Student debt surpassed credit-carddebt in June 2010 for the first time inhistory, rising to about $830 billion —or nearly 6 percent of the nation’sannual economic output. Meanwhile,new student loans surpassed $100 bil-lion for the first time in the 2010-2011academic year. 2 As loans have rocketed,so has tuition: It exploded 375 per-

cent — nearly four times the inflationrate — between 1982 and 2005 andhas been climbing 4 percent to 8 per-cent annually since. 3

“Student loans should help people,”says Lauren Asher, president of the In-stitute for College Access and Success,a research and advocacy group inOakland, Calif. That purpose is lost“when people face the prospect ofdebt they can never repay.”

What’s more, critics complain thatmany student borrowers face repayment

requirements far more oner-ous than those for mortgageand car-loan borrowers. Forexample, it is exceedingly dif-ficult, if not impossible, for stu-dents pleading hardship todelay repayment or have loansforgiven through bankruptcy— even though consumerborrowers can declare insol-vency and wipe their debtslate clean.

And unlike consumer debtorswho fall into arrears, collegeborrowers can have their SocialSecurity and other federal ben-efits garnished — an especial-ly frightening prospect for olderstudents attending college to re-train for employment.

Some consumer advocatessay recent legislative changes,such as easier payment op-tions for lower-income studentsand loan forgiveness for thoseworking in public-service jobs,should make borrowing lessrisky. However, college loansmade by private lenders un-affiliated with federal loanprograms lack such options.Thus, say critics, as tuitionscontinue rising, the sheersize of college debt, publicand private, poses greater fi-nancial risk to students andtheir families.

Few argue that educationborrowing is bad in itself. Indeed, boost-ing attendance and graduation havelong been national goals. But college-loan experts debate whether students,on the whole, are borrowing too much.

Many students incur debt that willnever pay dividends in higher wagesor greater job satisfaction, arguedRichard Vedder, an economics profes-sor at Ohio University, in Athens, anddirector of the Center for College Af-fordability and Productivity, a thinktank in Washington. About 45 percent

BY MARCIA CLEMMITT

Getty Imag

es/D

avid M

cNew

University of California students in Los Angeles protestthe UC Board of Regents’ decision in November 2009 toraise undergraduate tuition 32 percent. More increasesin the past 18 months have pushed up tuition by another17.6 percent. For the first time in history, student debtfor higher education is higher than the nation’s credit-card debt. Congress has passed some reforms aimed at

making the loan system fairer for lower-incomestudents, but critics say lawmakers need to do more.

880 CQ Researcher

of those who go to a four-year col-lege don’t complete a bachelor’s de-gree in six years, so “their investmentisn’t particularly good” because theyspend years earning less than collegegraduates, Vedder said. 4

Ross Rubenstein, an associate profes-sor of public administration at SyracuseUniversity’s Maxwell School, calls studentloans “a human-capital investment” that,for most, will likely pay lifetime dividendsof higher wages and better quality of life.Still, he says, “beyond the big-picturetheoretical idea is the question of what’sthe appropriate level of debt.”

Donald Heller, a professor of edu-cation at Pennsylvania State Universi-ty, has a more optimistic view. He ac-knowledges “heightened concern” that

high unemployment and lagging wagesmake it difficult for students to see areturn on their education investment.“But,” he says, “we have to rememberthat the vast majority of people get-ting bachelor’s degrees are getting jobs”and have better employment oddsthan people without degrees.

“When people question whetherdegrees are worth their cost, I ask,what’s the alternative?” Heller says.Furthermore, he says, earnings data“show that having some college isbetter than no college.”

Government grants and other aidoften can help low-income studentsreduce their borrowing. Families withannual earnings of about $75,000 typi-cally are the first to seek loans be-

cause they aren’t eligible for need-based aid. But it is not always themiddle class that suffers most. In a bidto induce their best students to attendin-state schools, Georgia and Missouri,among others, handed out educationgrants based on good grades ratherthan student need.

And although the switch to merit-based state aid has slowed in the eco-nomic downturn, the trend has forcedmany low-income students — manyof whom are the first in their familiesto attend college — to borrow more,divide their time between work andclasses or quit school altogether whenthey run out of money.

On balance, says Heller, lower-incomestudents still “bear more of the brunt”of paying for school. And, he says, be-cause “many of these students are re-luctant to borrow,” many of them “gopart time and work while enrolled.”But research shows that working be-yond a minimal number of hours great-ly increases the risk of dropping out.

Even when financially struggling stu-dents don’t drop out, they often takefar longer than four years to completetheir degrees — adding to the cost oftheir education, experts note.

Sandy Baum, a professor emeritaof economics at Skidmore College, inSaratoga Springs, N.Y., and a longtimecollege-funding analyst for the CollegeBoard, says that while declining four-year completion rates are a problem,“it’s hard to know” whether they stemfrom rising tuition costs. But, she adds,“we know that we can’t continue thistrend of tuition increases that are rapidand huge forever” because the steepincreases make it impossible for fami-lies to plan and save for school.

While many economists say soar-ing tuition fuels college debt, someargue the opposite is true: that thegrowing availability of government-subsidized college loans has inducedschools to hike tuition in a drive toincrease revenue. That prospect “flowsquite logically” from an understanding

STUDENT DEBT

Students at For-Profit Schools Have Most Debt

More than half of bachelor-degree recipients at four-year for-profit institutions carried education debt of $30,500 or more during the 2007-2008 academic year, compared with 24 percent of those at private four-year institutions and 12 percent at public four-year schools. Only 4 percent of degree recipients at the for-profit schools were debt-free, compared with 28 percent at the private schools and 38 percent at the public institutions.

* Percentages do not total 100 because of rounding.

Source: Sandy Baum and Patricia Steele, “Who Borrows Most?” College Board, 2010, advocacy.collegeboard.org/sites/default/files/Trends-Who-Borrows-Most-Brief.pdf

Education-Loan Debt forBachelor’s Degree Recipients, 2007-2008

Publicfour-year

institutions*

Privatenonprofit four-year

institutions

For-profitfour-year

institutions

No debt Cumulative debt less than $30,500 Cumulative debt of $30,500 or more

0

10

20

30

40

50

60%

4%

43%

53%

28%

48%

24%

38%

51%

12%

(Percentage of students with debt)


of how colleges operate, wrote An-drew Gillen, research director for theCenter on College Affordability andProductivity.

“First,” he wrote, “any additional re-sources obtained by a school will bespent” at least partly on services andamenities aimed at enhancing theschool’s reputation and competing forthe best students. That might meanshelling out big money to attract fa-mous professors or to build well-equipped gymnasiums for students’use, he wrote.

Then, Gillen argued, a vicious cyclebegins. As improvements are added,tuition climbs, and the higher tuitionqualifies students to obtain still larg-er subsidized loans to pay the grow-ing bill. As the school rakes in moretuition dollars, it spends them thenext year on more improvements.Ultimately, Gillen argued, this “armsrace in spending . . . reduces accessand affordability — the exact oppo-site of what [grant and loan pro-grams] intend.” 5

But not all experts agree. The ar-gument that college prices rise main-ly in response to students’ ability topay is “way too simple-minded,” saysRobert B. Archibald, an economics pro-fessor at the College of William andMary, in Williamsburg, Va. “I don’t thinkthe link between price and the avail-ability of loans holds up at all.”

Manufacturers have used technolo-gy to increase productivity, but in-dustries like higher education rely onhighly skilled workers — college pro-fessors — who can’t be replaced bymachines, Archibald says. No wonder,then, he says, that the cost of collegehas climbed at a far faster rate thanfor goods like clothing and cars.

“It’s no coincidence that the priceof services” such as higher education“has increased more rapidly than theprice of goods,” Archibald says.

As students and policymakers mulla future of rising debt, here are someof the questions being asked:

Are students incurring too mucheducation debt?

Many analysts call current education-debt levels truly alarming, arguing thatcollege loans saddle students with long-term burdens that can affect their choiceof jobs and ability to shoulder otherresponsibilities such as mortgages.Others, however, contend that whiletotal debt is high by historical stan-dards, the average student’s debt is rea-sonable in light of potential higher life-time wages that education offers.

A growing number of students findtheir debt unmanageable, reportedthe finance website Smart Money. Near-ly 10 percent of federal student-loanborrowers defaulted during the twoyears ending Sept. 30, 2010, “mean-

ing they failed to make a paymenton their loans for more than 270days.” That was a leap from a 7 per-cent default rate in 2008. Much of theincrease came at for-profit colleges,where 15 percent of borrowers de-faulted, up from 11.6 percent twoyears earlier. 6

A substantial number of collegegraduates “end up taking jobs for whichcollege education is not really a pre-requisite,” making any debt they in-curred to get the education essential-ly a waste, argued Ohio University’sVedder. “Twelve percent of the mailcarriers in the United States today havecollege degrees.” 7

But others warn against dismissingthe value of student loans.

Loans Make Up Half of Financial Aid

More than $129 billion in undergraduate financial aid was distrib-uted in the 2007-2008 academic year, half in loans from the federal government and private sources. Grants, work-study payments and tax breaks that helped families pay for higher education made up the other half of the total.

Source: Donald E. Heller and Claire Callender, “Institutional Bursaries in England and the United States: A Comparative Analysis,” Organization for Economic Cooperation and Development, September 2010, www.oecd.org/dataoecd/49/58/46130211.pdf

Sources of Financial Aid for U.S. Undergraduates(in $ billions, 2007-2008)

Federal loans35%

($45.6)

Private loans

15% ($19.4)

Tax benefits5% ($6.3)

Federal grants 15% ($18.9)

Federal work study2%

($2.8)

Private grants5% ($7.2)

Institutional grants

16% ($20.7) State grants

7% ($8.5)

882 CQ Researcher

“Lately, a lot of the public dis-cussion is geared towards panic,”some of which results from focus-ing on the wrong statistics aboutdebt, says Baum of Skidmore Col-lege. Many recent news stories “havefocused on the total amount of debtthat’s out there,” but that number in-evitably has risen steeply in recentyears because of climbing enroll-ments, she says.

Furthermore, Baum says, while itmakes sense to be concerned aboutthe minority of students who rack upvery high debts, “thetypical bachelor’sstudent is borrowing$25,000 or less” —about $5,000 lessthan the average carloan in 2009. 8

Jennifer Delaney,an assistant profes-sor of educationalorganization andleadership at theUniversity of Illinoisat Urbana-Cham-paign, argues thata sh i f t ha s oc -curred in people’sthinking about howcollege should befunded, with manynow seeing stu-dents’ future in-come as the mostimportant fundingsource. “Our student-aid system isbased on the idea that parents willhelp, but the volume of loans andthe debt levels tell us that there’s agreater and greater reliance on stu-dents and their future employment”to pay for school by borrowing againstfuture income, she says.

That approach can make sense, al-though the size of the college “wagepremium” is often overstated, espe-cially by public officials, says RobertK. Toutkoushian, a University of Geor-gia professor of higher education.

“The returns of going to collegeare still high enough to justify” somedebt, Toutkoushian says. But, he adds,an oft-cited statistic that puts the“wage premium” for a bachelor’s de-gree at $1 million is too high. The$1 million figure compares bachelor’s-degree holders with people who havea high-school diploma — leaving outthose who have some college but nodegree, he says. A more accuratenumber is about $500,000, still“worth the debt” most graduates incur,Toutkoushian says.

Two scholars at the BrookingsInstitution, a centrist think tank inWashington, compared the wage pre-mium from a college degree to his-torical earnings on stocks and otherinvestments. “On average, the ben-efits of a four-year college degreeare equivalent to an investment thatreturns 15.2 percent per year” —more than double what stocksearned since 1950, and more thanfive times the returns on corporatebonds, gold, long-term governmentbonds and residential real estate,

wrote Adam Looney and MichaelGreenstone, of the Hamilton Pro-ject, a study group on economic de-velopment at Brookings. 9

Still, while student loans may payoff in the long run, many analysts saythe tandem trends of rising debt andrising tuitions are highly worrisome.“College sticker prices are too high,and debt will continue to rise,” saysPenn State’s Heller.

“Borrowing really works for a lotof people, but there’s a growing seg-ment for whom it becomes prob-

lematic,” especiallythose who don’t ob-tain their degrees orcertificates, adds LauraW. Perna, a professorat the University ofPennsylvania’s Gradu-ate School of Educa-tion, in Philadelphia.

Increasingly, studentloans are the fallbacksource for college fi-nancing, as taxpayerdollars and parentalcontributions pay lessof the bill, many say.

“The need-based aidavailable isn’t keepingup with rising costs, andthe country’s anti-tax at-titude” is limiting pub-lic subsidies at the sametime that many gov-ernment officials are

demanding higher rates of collegeattendance and completion, says Ed-ward St. John, a professor at the Uni-versity of Michigan’s School of Edu-cation, in Ann Arbor.

Furthermore, many families, by ne-cessity or choice, are picking up asmaller portion of the tab. Says Baum,“When the grandparents of today’s col-lege students went to college, you justassumed that you worked hard andpaid for it. In the interim, people start-ed to assume that the governmentwould pay for it.”

STUDENT DEBT

Sixteen-year-old Bianca Gutierrez and other Hispanic students fromthe New Design Charter School attend the Cash for College conventionin Los Angeles on Dec. 8, 2010. The convention helps low-income

students find funding for college. The College Board recently reportedthat only 19.2 percent of Latino college students ages 24-35

graduate, less than half the national average.

Getty Imag

es/K

evork D

jansezian


Does rising college debt limit whoattends and completes college?

Increasing the number of Ameri-cans who graduate from college orother post-secondary training programshas been deemed a national goal fordecades, but many experts worry thatrising college debt is underminingthat aim.

History suggests that when peopleworry about their ability to pay forcollege, it deters them from applying,says Donald Hossler, a professor at In-diana University’s School of Education,in Bloomington, and director of theresearch center at the National StudentClearinghouse, an organization found-ed by the nation’s colleges and uni-versities to collect national student data.

Hossler recalls that in the 1980s,when false rumors circulated that Con-gress was about to cut federal PellGrants for low-income students, “somelow-income people didn’t even apply”for college.

Data from the 1970s through the1990s show that financial concerns playa major role in college decisions, es-pecially for students from low- andmiddle-income families earning less thanabout $70,000 a year, says MichaelLovenheim, an assistant professor ofpublic finance at Cornell University inIthaca, N.Y. Families’ financial resourcesaffect “where and whether” students at-tend college and “whether they com-plete” degrees, he says. What’s more,evidence suggests that this effect “isgrowing over time,” Lovenheim says.

Among the 2007-08 graduatingclass at four-year public colleges,about 62 percent of families carriedloans, according to FinAid, a consumer-assistance website. The average cu-mulative debt per student, includingso-called federal PLUS loans borrowedby parents to help foot their children’scollege costs, was $23,227. 10

At a public four-year university today,students from low-income families typ-ically face an annual net cost of $11,700after need-based grants are factored

in, according to the Advisory Com-mittee on Student Financial Assistance,an independent panel jointly appoint-ed by Congress and the secretary ofEducation. Students from lower-middle-income families earning just above thefederal Pell Grants cutoff incur annualnet college costs of $18,450. As a re-sult, families with moderate incomes,which don’t qualify for need-based aid,typically borrow about 75 percent morethan low-income families do, the panelcalculated. 11

The figures “are staggering andhave a profound effect on the deci-sion-making of qualified high-schoolgraduates” as to whether and whereto attend college, the panel said. 12

Yet some analysts worry that an out-sized focus on debt — not debt itself— will discourage some students fromapplying. News stories about student

debt “often make it seem that borrowingfor education ruins your life, as if it’sthe same as running up a big bill ona trip to the Caribbean,” says SkidmoreCollege’s Baum.

Numerous studies have found thatso-called debt aversion can push stu-dents to take on such excessive work-ing hours that they drop out or avoidcollege altogether. The problem is es-pecially acute in some minority com-munities. 13

St. John at the University of Michi-gan says the picture is changing some-what, so that debt aversion is “notquite the problem it used to be.” Byand large, African-American studentsare no longer as reluctant to borrowas in the past, he says. However, headds, “Latinos still have more debtaversion” than others, with college-completion rates likely suffering for it.

Debt Heaviest for Moderate-Income Students

Students and families with moderate incomes often incur the heaviest college debt. At a typical public university costing $80,000 for a four-year degree, a low-income student can expect to receive about $43,000 in aid, including need-based federal Pell grants, and to need an additional $37,000. But a student in a moderate-income family earning $50,000 to $60,000 per year can expect to receive only about $16,000 in aid, leaving a shortfall of about $64,000.

Source: “The Rising Price of Inequality,” Advisory Committee on Student Financial Assistance, June 2010, chronicle.com/items/biz/pdf/acsfa_rpi.pdf

Typical Costs and Financing for a Four-year Public University

Low-income student

Cost of four-year degree $80,000Grants and work-study available $43,200Amount remaining $36,800

Moderate-income student

Cost of four-year degree $80,000State and university need-based grants plus federal work-study grants $16,200Federal grants $0Amount remaining $63,800

884 CQ Researcher

A new report from the CollegeBoard finds that only 19.2 percentof Latino students ages 24-35 whobegin college complete it, farbelow the national average of justover 40 percent. 14

So far, however, researchers are stillseeing a higher number of peoplegoing to college and finishing than inthe past, says the University of Geor-gia’s Toutkoushian.

Indeed, the number of bachelor’sand associate’s degrees and the pro-portion of the workforce that attainsthem both have risen continually, saysArthur M. Hauptman, an independentpublic-policy analyst in Arlington, Va.,who has advised the World Bank, sev-eral federal agencies and more thantwo dozen national governments onhigher-education finance. In 1970, about10 percent of Americans over age 25had attended four years of college,

compared with about 30 percenttoday, he says. 15

While debt may not deter manypeople from enrolling, it is subtlychanging the way a college educa-tion is viewed, says Burton A. Weis-brod, an economics professor at North-western University in Evanston, Ill. “Itwas always true there were collegemajors that were not going to opendoors to high incomes,” he says, point-ing as examples to sociology and arthistory. Yet, in the past, such studieswere widely viewed as worthwhilebecause they were seen as vital toAmerican culture and helped create“better voters,” he says.

As education debt rises, however,students who are struggling financial-ly will increasingly seek to major insubjects that lead to high-wage pro-fessions, Weisbrod argues. “That’ll workagainst” the humanities, potentially

putting them out of reach for many,he says. “We need to have a discus-sion about that.”

Has the increasing availabilityof education loans driven upcollege costs?

In 1987, William J. Bennett, Presi-dent Ronald Reagan’s Education sec-retary, wrote that while making fed-eral college grants and subsidized loansmore available did “not cause collegeprice inflation, . . . there is little doubt”that it helps “make it possible.” 16

Today, as college costs and studentdebt rise, debate over that proposi-tion grows louder.

Some economists argue that in-creasing access to college funding —especially loans, which are availableto rich and poor students alike — cre-ates a vicious cycle: As more moneyflows to students, colleges are inducedto raise their prices, which in turncauses the government to increase itslimits on subsidized loans, and so on.

“Without anybody intending this,the subsidized student-loan programsactually incentivize states to raise tuition,”says Northwestern’s Weisbrod. “Any-thing that makes it less expensive fora student to attend makes it easier fora school to raise the tuition.”

When Bennett’s piece was published,“I disagreed with it, but I changed mymind,” says Hauptman, the policy con-sultant. “I don’t see grants” pushingschool-spending increases “becausethey aren’t big enough,” but “there isa correlation between loans and pric-ing.” Just as the increased availabilityof mortgage loans helped drive uphome prices in recent years, Haupt-man argues, increased availability ofsubsidized loans can help boost col-lege prices.

Early results of a study of for-profitschools suggest that institutions withstudents eligible for federal grants andsubsidized loans have higher tuitionthan comparable schools where stu-dents aren’t eligible, says Stephanie R.

STUDENT DEBT

Default Rates Highest at For-Profit Colleges

For-profit colleges accounted for 12 percent of college enrollment but 48 percent of student-loan defaults in the 2008-2009 academic year. By contrast, students at two-year public colleges accounted for 40 percent of college enrollment but less than 20 percent of defaults.

* Percentage of student borrowers who began repaying loans in 2008 and had defaulted within three years. Enrollment was in 2008-2009.

Source: “For-Profit College Student Loan Default Rates Soar,” Project on Student Debt, February 2011, projectonstudentdebt.org/files/pub/TICAS_3YR_CDR_NR.pdf

College Enrollment and Three-year Default Rates*

Percentage of enrollment/defaults

For-profitPublic two-yearPublic four-yearPrivate nonprofit

0

10

20

30

40

50%

Share of defaultsShare of enrollment

12%

40%

32%

16%

48%

19% 21%

12%

Type of School


Cellini, an assistant professor of pub-lic policy and public administration atGeorge Washington University in Wash-ington. However, the research, whichshe is conducting with Claudia Goldin,a Harvard University economics pro-fessor, doesn’t reveal whether thepricier institutions are “just betterschools” using the funds to providestudents with superior training or aresimply “capturing more money forthemselves,” Cellini says.

While some economists see a con-nection between loan and grant avail-ability and rising tuition, others de-bunk the idea of a link. All high-skillservice industries — including notonly higher education but also healthcare and legal services — have raisedtheir prices in re-cent decades forreasons that havelittle or nothing todo with rising de-mand or availabilityof funds, they argue.

“When you pur-chase a personalservice like a hair-cut, you are pur-chasing the time ofthe barber, andthere are limitedthings he or shecan do to shortenthe experience thatwill not be per-ceived as a reduc-tion in the qualityof the haircut,” wroteWilliam and Mary’s Archibald and fel-low economics professor David H. Feld-man. The same is true of collegeteaching and other professions withhighly educated workforces, such aslaw, they argued. 17

In addition, says Archibald, collegesmust constantly upgrade expensivetechnology to prepare students ade-quately for tomorrow’s workplaces.“Take chemistry, for example,” he says.“These students are going to go to

[the pharmaceutical giant] Pfizer andtry to get a job,” but they won’t getthe work “if to save money the col-lege said, ‘We’ll do chemistry usingnothing but [old-fashioned] beakers andtest tubes.’ ”

The unpredictability of technologytrends also is driving up costs, Archibaldsays. At William and Mary, for exam-ple, “we spent a whole lot of moneywiring every dorm room” to link tothe Internet just before technologicalchange meant “we had to put wire-less hubs everywhere” instead. Whilethat double spending could be per-ceived as wasteful, it’s not clear howschools could avoid it, he says.

Still, Archibald says, while loansaren’t driving up costs, “a financial-aid

arms race” among some collegesmight be.

“If you’re a school that’s not IvyLeague but close, you offer big fi-nancial aid to nab a potential Yaliewho may end up being a RhodesScholar” and boost your school’s rep-utation, he says. To lure students frommore prestigious schools, a collegewill raise its own stated “full stickerprice,” then offer prized students dis-counts that appear to be deals too

good to pass up. These new, inflatedsticker prices are then published asthe schools’ base tuition rates, eventhough only a handful of people ac-tually pay them, he says.

BACKGROUNDPrivate System

U nlike most other countries, the Unit-ed States built a higher-education

system that is supported more by pri-vate money — much of it in the formof tuition — than public dollars. But

as more and more low-income students enroll,efforts to maintain thatprivate support havemade education loansincreasingly prevalentin the college-financeequation. 18

U.S. “colleges startedout as private entities,”says William and Mary’sArchibald. Indeed, Williamand Mary, founded in1693 and now part ofVirginia’s system of statecolleges and universities,“was private until 1906,”he says, and just beforeWorld War II half ofU.S. students attendedprivate colleges.

A century or more ago, when col-lege attendance was confined mainlyto the very well-off, reliance on pri-vate tuition rather than tax-supportedloans and grants may have been theworld’s fairest system, Archibald sug-gests. England, by contrast, requiredtaxpayers to subsidize university costsfor a tiny elite — mostly students fromupper-class families, he notes.

In the United States, tax-supportedefforts to expand the college system

The University of Phoenix, an online, for-profit institution, maintains asatellite office in Raleigh, N.C., above. Nearly 10 percent of federal

student-loan borrowers defaulted during the two years ending Sept. 30,2010, up from 7 percent in 2008. Much of the increase came at for-profit colleges, where 15 percent of borrowers defaulted

during the same two-year period.

www.SayPeo

ple.com

886 CQ Researcher

STUDENT DEBT

— and therefore the number of grad-uates — began, albeit slowly, in themid-19th century. In 1862, for exam-ple, the federal government grantedstates federal land to establish techni-cal colleges, forerunners of many oftoday’s state colleges and universities.

Public support for college atten-dance expanded sharply after U.S. in-volvement in World War II (1941-1945).The so-called G.I. Bill, which providedtuition subsidies to military veterans, wasthe largest public initiative to date.

Beginning in the late 1950s, othertax-funded higher education initiativesburgeoned.

In 1957, the Soviet Union launchedSputnik, the first manmade Earth-orbitingsatellite, and the following year Con-gress passed and President Dwight D.Eisenhower signed into law the Na-tional Defense Education Act. It con-tained programs to improve math, sci-ence and language training andpost-secondary education, plus the Na-tional Defense Student Loan Programfor low-income students.

The program, precursor of today’slow-interest Perkins loans throughwhich post-secondary institutions dis-burse federal loans to needy students,was the first explicitly aimed at help-ing students from poor families attendcollege. It provided for direct loansfrom a designated tax-supported fund.

Lawmakers expanded college lendingin 1965 with a new program underwhich private banks made loans thatwere guaranteed by the federal Treasury.

Robert Shireman, chief consultantfor California Competes, a group inSan Francisco that advocates for in-creased public support for higher ed-ucation, says one reason for enlistingbanks was to help keep student loansoff the government’s books. Underfederal budget rules, a direct loan count-ed as “a total loss” to the Treasury “inthe year it was made, even thoughmost of it would be paid back withinterest,” Shireman wrote. By contrast,so-called guaranteed loans from pri-

vate banks, which the governmentagreed to reimburse if students de-faulted, did not count as immediategovernment costs. 19

In 1965, Congress established theGuaranteed Student Loan Program,which subsidized low-income studentsby paying the interest on their loansfrom government funds while theywere attending school or otherwisedeferring repayment. Moderate-incomestudents also could get loans, but with-out the interest subsidies. In 1978 stu-dents at all income levels became eli-gible for nonsubsidized loans, and in1980 the government agreed to guar-antee private lenders against borrowerdefaults in a new loan program —PLUS, Parent Loans for Undergraduates.

The programs came to represent anattempt to leverage both public and pri-vate funding to expand post-secondaryeducation, says Baum of SkidmoreCollege. The principle behind this splitresponsibility, in which the governmentpays upfront and students pay moredown the road, is that college-educatedadults “will make more money thanothers, so you can argue that theyshould pay for [their education] ratherthan taxpayers.”

Several federal need-based college-grant programs also target lower-incomestudents. They include the Education-al Opportunity Grant, enacted in 1965,and the Basic Educational Opportuni-ty Grant — forerunner of today’s PellGrants — in 1972.

But with college costs and enroll-ments rising steeply, loans have gainedground on grants as the main sourceof funding. And that, says St. John ofthe University of Michigan, graduallyhas turned a college education intoan individual “debt burden for aver-age Americans” rather than a sharedpublic responsibility. That’s emblemat-ic of “how the conception of the pub-lic role in education has changed” overthe six-plus decades since the federalgovernment began subsidizing collegeattendance, he says.

Both the percentage of studentsborrowing and the amounts they bor-row have swollen recently. At for-profitcolleges, for example, 92 percent ofstudents borrowed in the 2007-2008academic year, up from 61.3 percentin 1995-1996. 20 In 1996, 23,000 stu-dents owed at least $40,000 in col-lege loans, but by 2008, more than200,000 did. 21

The United States, Canada andSouth Korea are the only countries thatcommit 2 percent or more of annualgross domestic product to higher ed-ucation. The United States tops the list,at 2.9 percent, of which 1.9 percentconsists of private resources, includingtuition payments and charitable dona-tions, a higher private share than anyother country. 22

The bulk of enrollment, however,has shifted from private to public col-leges and universities in recent decades,says Hauptman, the policy consultant.In 1950, half of college students at-tended private colleges, while only afifth do today.

The growth of tuition and fees asa proportion of total revenues at pub-lic colleges and universities is “oneof the most marked trends in post-secondary finance in recent decadesin the U.S. as well as in many othercountries,” Hauptman wrote. Tuitionpayments now fund more than a thirdof the educational activities of pub-lic institutions in the United States,up from a tenth 30 years ago, hesaid. Proportions vary widely amongstates, from 13 percent in New Mex-ico to 77 percent in Vermont, Haupt-man wrote. 23

A state-university president is saidto have quipped that “once we werea state university, then we were a state-supported university, now we’re state-located,” observes Philip G. Altbach,director of the Center for Internation-al Higher Education at Boston College.

Nevertheless, “I don’t think the pub-lic side is quite as privatized as some

Continued on p. 888


Chronology1940s-1970sFederal-aid programs improveaccess to higher education, whichpreviously has been fundedmainly by private dollars.

1944First major federal college-aid pro-gram, the G.I. Bill, offers tuitionpayment to veterans.

1950Fifty percent of students attendprivate colleges.

1958National Defense Education Act creates the first federal college-loanprogram, for low-income students.

1965Expanded federal loan program pro-vides nonsubsidized loans to middle-income students and covers someinterest payments for low-incomestudent borrowers. New private-lender college loans are launched,with banks protected by the govern-ment from losses if students default.

1970About 10 percent of Americansover age 25 have attended fouryears of college.

1972Student Loan Marketing Association(Salle Mae) established as a gov-ernment-sponsored enterprise tobuy student loans from privatelenders to free up banks to makemore loans.

1976Congress bars student loans frombeing written off through bankruptcyfor five years after graduation.

1978Congress makes students of anyincome eligible for federal loans.

1980s-1990sControversies grow over whetherfederal loan programs harmstudents while enriching lendersand driving up college costs.New for-profit colleges spring up.

1980Government protects privatelenders against loss in new ParentLoans for Undergraduate Studentsprogram.

1986Federal Loan Consolidation Programpermits consolidation of college loansinto one debt with lower monthlypayments, longer repayment period.

1987Reagan administration Secretary ofEducation William J. Bennett ar-gues in The New York Times thatfederally subsidized loans helpdrive college-price inflation.

1993New direct government-loan pro-gram to compete with federallyguaranteed bank loans. . . . Income-contingent repayment op-tion for direct loans introduced.

1996Congress permits Sallie Mae to be-come a private company.

1998Colleges with high default rates arebarred from federal loan programs.

•

2000s College debtand tuition soar.

2005Tough, new law bans virtually alldischarge of college debt throughbankruptcy proceedings.

2007New York Attorney General An-drew Cuomo alleges private-lenderkickbacks to universities and financial-aid officers; accused universitiesand banks reach financial settle-ment, agree to new conduct code.. . . Congress adds new income-based repayment option for directloans. . . . More than 61 percentof students at four-year publiccolleges carry education debt (including borrowing by parents).

2010Total college debt rises to $830billion, surpasses total credit-carddebt. . . . Volume of new federalcollege loans tops $100 billion forfirst time in 2010-2011 school year.. . . Congress replaces federallyguaranteed private-lender loan pro-gram with direct federal loans, ef-fective July 1, 2010, and, starting inJuly 2014, eases terms of income-based repayment. . . . Twenty per-cent of nation’s students attend pri-vate colleges. . . . Loan defaults bystudents who attended for-profitcolleges soar 30 percent over pre-vious two-year period.

2011To free up money for Pell grantsfor low-income students, congres-sional and White House debt-ceilingnegotiators end loan-interest subsi-dies for graduate- and professional-school students and eliminate in-centives for on-time repayment. . . .About 30 percent of Americansover age 25 have attended fouryears of college. . . . Tuition for2011-2012 in the University of Cali-fornia system is 18 percent higherthan in previous year and 80 per-cent higher than in 2007-2008. . . .Beginning this month, all collegewebsites must post net-price calcu-lators for prospective students.

888 CQ Researcher

say,” says Hauptman. The University ofVirginia, for example, claims that onlyabout 8 percent of its funding comesfrom the state. But when funding foreducational activities only — rather thanresearch and a UVA-affiliated hospital— is counted, “a third to a half” con-sists of state dollars, he estimates.

Borrower, Beware?

E ven as the students’ loan burdengrew, consumer protections for

education loans shrank.

The strict repayment conditions fac-ing today’s student borrowers are afar cry from the gentler atmosphereprevious generations remember, wroteNew York Times business columnistJoe Nocera.

Nocera graduated in 1974 with about$8,000 in debt and a journalism de-gree, and in 2007 he recalled “con-stantly falling behind on my payments.The bank . . . would send a stern no-tice whenever I got too far behind,which would prompt me to cobbletogether a few payments by skippingsome other bill.” However, “it neverraised my interest rate as punishment,

nor did I ever have to pay any latefees. My chronic tardiness didn’t evenaffect my credit rating. And had I de-faulted, I would not have had mywages garnished, or been stuck withthe debt if I had filed for bankruptcy.All of which can happen today.” 24

To keep private lenders’ cash flow-ing and to reimburse the Treasury incases when the government must paya bank after a borrower defaults ona guaranteed loan, Congress has en-acted stricter rules for education loansthan for most other lending.

In 1976, Congress barred writing offeducation loans through bankruptcy

STUDENT DEBT

Continued from p. 886

With a growing number of students facing big debtswhen they leave college, calls are increasing for ed-ucational institutions to do more to provide value

for tuition dollars.“Public-college tuitions just can’t keep going up at the rate

they have,” even though “the net prices that people actually payhaven’t gone up as rapidly,” says Sandy Baum, a professor emeri-ta of economics at Skidmore College, in Saratoga Springs, N.Y.,and a longtime college-funding analyst for the College Board.

There’s little doubt that many colleges are overspending andcould cut costs, say many education-policy experts.

“When some people on a faculty are teaching only onecourse a semester, one obvious answer is to get them teach-ing more,” says Arthur M. Hauptman, an independent public-policy consultant in Arlington, Va.

Others argue, however, that cutting costs can be easier saidthan done.

“I’m skeptical about ideas for things that can reduce costsdramatically,” such as increasing online education, says DonaldHossler, a professor at the Indiana University School of Edu-cation, in Bloomington. For one thing, much online instructionwould likely take place in introductory courses and at com-munity colleges, where lower-income, less-prepared andyounger students likely need “more personal intervention” tosucceed, not less, Hossler says. “I think we will see pretty highdropout rates if that’s all we can offer them.”

Recently, institutional spending has risen faster in a relativelysmall cost category dubbed “student services” than for the biggest-ticket spending items, such as teaching, says Douglas A. Web-ber, a doctoral student in economics at Cornell University anda researcher at Cornell’s Higher Education Research Institute.

Webber defines student services as “anything outside of the class-room that encourages student engagement” with school, suchas counseling, tutoring, clubs and student publications.

While many see such services as potential sources of cost cuts,Webber says a solution that looks good in theory may be morecomplicated in practice. At current spending levels, extra dollarsspent on student services pay off better in improved student re-tention and achievement than equivalent investments in teaching,especially at schools with many lower-income students, he says.

In the current system, states award funding to public col-leges and universities based on cost lists that schools submit.But with prices skyrocketing, more discriminating judgment isrequired, says Hauptman. Lawmakers themselves wouldn’t nec-essarily make the judgment calls but might instead assemblepanels of academic experts to set reasonable compensation fordifferent sorts of college investments, he suggests.

The rates would be based on how much those investmentsfurthered such public goals as increasing the proportion of en-tering freshmen who complete their degrees, Hauptman says.Expensive institutions should also be required to make finan-cial contributions, given the fact that taxpayers must pony upmoney in advance for loans and students must pay back thosedebts for years afterward, Hauptman argues.

Under current rules, a school’s “sticker price,” which only a hand-ful of the very richest students actually pay, determines how big afederal loan students may obtain, Hauptman says. Basically, a loanis capped at the difference between the school’s sticker price anda student’s estimated family contribution, calculated according tothe government’s Free Application for Student Aid (FAFSA).

A student with $30,000 in resources who attends a schoolwith a $50,000 sticker price is authorized to borrow $20,000

Colleges Challenged to Give Students More ValueRising student debt fuels call for tuition cuts, better education.


for five years following graduation.Lawmakers extended that period toseven years in the 1990s, and in 2005they made it nearly impossible to usebankruptcy to discharge any collegeloans, including bank loans notguaranteed by the federal govern-ment. Other lender protections in-clude guaranteeing “that banks . . .get back not just the principal butthe interest” should a student de-fault. “It took all the risk out of lend-ing,” wrote Nocera. 25

The tough rules are justified, saidJ. Douglas Cuthbertson, a McLean, Va.,lawyer who represents the National

Council of Higher Education LoanPrograms, a trade group for financialinstitutions that make student loans.He told a House Judiciary subcom-mittee in 2009 that if hardship ex-emptions were easy to get, studentborrowers could “enjoy the benefitsof their education,” then seek “bank-ruptcy without ever attempting torepay.” That would convert “a studentloan . . . into a scholarship” and causebanks to stop lending for education,Cuthbertson said. 26

John A. Hupalo, managing direc-tor of Boston-based Ramirez CapitalManagers and an adviser to banks and

other groups on setting up student-loanprograms, told the Judiciary panellast year that, in fact, college loans“are the most consumer friendly prod-ucts in the marketplace.” Features in-clude the absence of prepaymentpenalties “for borrowers who wish topay ahead of schedule, and . . . op-portunities for borrowers to stop mak-ing payments for a period of time,”he said. 27

Other experts disagree. DeanneLoonin, a staff attorney at the StudentLoan Borrower Assistance Project atthe National Consumer Law Center inBoston, acknowledges that in the past

from the government, for example. Topressure colleges to think twice be-fore pushing sticker prices sky high,students might instead be permittedto borrow half the difference — $10,000— with the school required to dis-count its sticker price by the other$10,000, Hauptman suggests.

Furthermore, when colleges seethe need to spend more to providetheir services, “Why do they raisetuitions rather than increasing en-rollments” to pay for it? Hauptmanasks. Adding more tuition-paying stu-dents is just as valid a means to in-crease revenue as increasing indi-vidual tuitions, he says. But whilecommunity colleges and some otherlower-tier public colleges are requiredto follow that course, higher-pricedschools seldom do, he says. “The focus of faculty membersis to keep enrollment down, but I think we need a morefundamental discussion” of how rising costs are funded.

School accountability “is really important,” says Deanne Loonin,staff attorney at the Student Loan Borrower Assistance Projectat the National Consumer Law Center in Boston. With studentsaccumulating ever-greater debt to attend college, “schools shouldcare about their completion rates” and take more responsibil-ity for ensuring that students who enter get what they’re pay-ing for, she says.

Higher-education groups say that figuring out exactly what

colleges should be held accountable for,and how to measure that performance,isn’t easy. “Effective assessment of studentlearning is complex and multifaceted,”said Christine M. Keller, executive direc-tor of Voluntary System of Accountabili-ty, a membership group of public col-leges and universities. “A top-downapproach that imposes a one-size-fits-all. . . method” of judging schools’ educa-tional accomplishments would be “coun-terproductive.” 1

And while colleges are accused ofengaging in a pricey institutional “armsrace” in their quest for prestige and bet-ter students, more than just the institu-tions may be to blame.

“It would be nice to think that stu-dents are making their decisions aboutschool on the basis of pedagogy,” but,

in fact, many are not, says Robert K. Toutkoushian, an educa-tion professor at the University of Georgia. Instead, decisionsabout which school to attend often are influenced by factorsthat are costly for schools to accommodate. For students, itmay be, “I have my own bathroom,” he says. And for parents:“The grounds are kept well.”

— Marcia Clemmitt

1 Christine M. Keller, statement to the National Advisory Committee on In-stitutional Quality and Integrity, June 8, 2011, www.voluntarysystem.org/docs/news/Keller-VSA_NACIQI_comments_060911.pdf.

An Iowa State University student readsthe student paper. Institutional spendinghas risen faster for student services, suchas clubs and student publications, thanfor big-ticket items such as teaching.

Getty Imag

es/Steve Pope

890 CQ Researcher

10 to 15 years, loan policies have “be-come much more liberal at the frontend about who can get how muchmoney” as loan limits and eligibilityrestrictions have been lifted. “But atthe same time,” she says, “we’ve steadi-ly increased the government’s collec-tion power.”

Loonin points out that the govern-ment can even seize money from alow-income student borrower’s SocialSecurity benefits and Earned IncomeTax Credit, a federal program designedto help needy families. Garnishing thatmoney “contradicts another policy goal”— reducing poverty, she says.

“There shouldalso be more dueprocess, to give peo-ple the opportunityto challenge” rulingsabout their qualifi-cation for hardshipexemptions, Looninsays. And she wants“more relief for peo-ple affected by abu-sive practices suchas fraud” by schoolsthat, for example,make false claimsabout the value oftheir degrees.

Alan Coll ingebecame a student-loan reform advo-cate after penaltiesand interest pushed$38,000 in collegedebt to $50,000 andthen $95,000 fol-lowing temporarypayment defermentswhile he finisheddegree requirements in aerospace en-gineering and then was unemployed,he said in a 2010 book, The StudentLoan Scam.

A bureaucracy that seemed hostileto borrowers compounded his difficul-ties, he wrote. The big loan-originatingand collections company Sallie Mae

mistakenly billed him multiple timesfor what should have been a one-timelate-payment fee and apparently losthis request for an economic-hardshipsuspension, Collinge wrote. 28

“The analogy to subprime [mortgage]loans is a good one” for student loans,Collinge says. Just as easy-seemingmort-gage terms drove up home prices, hesaid, the availability of education loansfuels consumer demand that helps driveup the price of college. And in bothsituations, Collinge says, “people gotinvolved in a form of debt that theydon’t understand,” with multiple loanprovisions “that run up the total that

must be paid.” College loans don’t rep-resent a price bubble that can pop,but borrowers “experience a completeloss of faith in a government lendingsystem” supposedly intended to helppeople, he said.

Furthermore, Collinge complainedthat when a student defaults and the

Department of Education must reim-burse the lending bank, the govern-ment can easily recoup the money andthen some by pursuing the student allthe way into retirement. The govern-ment has no incentive to help stu-dents and lenders work out a pay-ment plan, he argues.

Consumer Protections

E ducation lending has “been an ex-traordinarily profitable business,”

wrote Fortunemagazine reporter BethanyMcLean in 2007. Sallie Mae, for exam-

ple, had had one of thehighest rates of return onshareholder investmentsof any American com-pany and compensatedits executives hand-somely, paying CEO Al-bert Lord more than $200million between 1999 and2004, McLean wrote. 29

But consumer con-cerns that the loan in-dustry put profits abovestudents have led toseveral changes overthe past 20 years, no-tably instituting income-related repayment plansand limiting privatebanks’ role in collegelending.

In the early 1990s theClinton administrationargued that direct loansfrom the federal gov-ernment, rather thanbanks, were safer forstudents and cheaper

for taxpayers because they eliminat-ed subsidies to commercial lenders.That view prevailed, and in 1993 Con-gress passed the Student Loan ReformAct, giving universities the option ofoffering direct federal loans rather thanloans offered through banks. The lawalso introduced a program for lower-

STUDENT DEBT

In 2007 New York Attorney General Andrew Cuomo revealed what hecalled an “unholy alliance” in which colleges and college officials

accepted kickbacks for naming certain banks “preferred lenders” forstudent loans. Financial-aid officers at several universities, includingColumbia and Johns Hopkins, resigned. Some universities and lenders,

including Citibank, agreed to settlements that included financialpenalties and pledges to submit to a new industry conduct code.

Getty Imag

es/M

ichael Nag

le


wage borrowers that pegged paymentson direct loans to income.

But many in the financial industry,along with many political conserva-tives, opposed direct loans. The gov-ernment is not as well positioned asbanks to “manage risk, market stu-

dent loans or service ongoing lend-ing,” wrote Douglas Holtz-Eakin, aformer chief of the Congressional Bud-get Office who served as economicadviser to Presidents George H. W.and George W. Bush and to the Con-sumer Bankers Association. Budget

estimates pegging direct governmentloans as cheaper for taxpayers failedto capture their true costs, includinglost income-tax revenues from privatelenders, he wrote. 30

For more than a decade, the student-loan industry fought hard to induce col-

S oaring college tuition is translating into bigger educationloans, so college-bound students must mull their higher-education choices more carefully than ever. Here are some

tips from experts:• Consider alternatives. Deciding between a four-year col-

lege and a cheaper two-year community college should bebased on more than just money. If you know you’re going fora bachelor’s degree, starting at a four-year school may be thebetter choice, says Douglas A. Webber, a doctoral student ineconomics at Cornell University and a researcher at Cornell’sHigher Education Research Institute. But for professional fieldsthat don’t necessarily require four years, such as nursing, hesays, community college certificate programs are “often under-valued.” They cost less than comparable programs at four-yearschools, “so they’re well worth considering,” Webber says.

Shopping around among two-year colleges also is impor-tant, says Stephanie R. Cellini, an assistant professor of publicpolicy at George Washington University in Washington. For ex-ample, if a for-profit college in your area advertises a certifi-cate you want, such as in auto mechanics, it’s worth checkingto see if a community college near you offers it, too, becausecommunity colleges are the lowest-cost option, Cellini says.

• Find out whether you qualify for aid, such as need-based federal Pell grants, so you don’t foreclose the option ofattending a favorite school too early. “Students simply don’t knowwhat aid is available” and may simply write off the possibility ofattending some schools because they don’t think they can affordtheir advertised “sticker prices,” says Donald Heller, an educationprofessor at Pennsylvania State University in State College.

Very few students pay those sticker prices, however, and low-income students never do because need-based grants are avail-able, Heller says. Starting this October, all colleges must post so-called “net-price calculators” on their websites to help studentsfigure out their bottom-line cost. The calculators factor in grants,loans and upfront costs, and the figures are adjusted to reflect dis-counts based on the financial status of students’ families. Althoughthe calculators aren’t perfect, they can provide a much better senseof actual costs than the estimates available in the past. 1

Too often overlooked in the financial-planning stage is the ques-tion of “how are you going to live?” says Sandy Baum, a Chicago-based independent education consultant and longtime College Board

analyst. Living expenses run about $12,000 to $15,000 a year, “whichcan give you a lot of added debt,” she says.

• Borrow your permitted maximum through federalloan programs before considering private loans, whichhave much higher interest rates and don’t allow the deferredor income-related payments or loan-forgiveness programs thatapply to most federal loans.

• Keep careful records of your borrowing. “People aremaking these huge financial decisions, and a lot of times theydon’t even realize how big, because loans are so easy to get,”says Webber.

Track the lender, balance and repayment status of each loan.These details will determine your options for repayment sched-ules and loan forgiveness down the line, advises the Oakland,Calif.-based Project on Student Debt. Details matter. For exam-ple, different loans have different “grace periods” — the amountof time you can wait after leaving school before you mustmake your first payment. The federal website http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp providesinformation about federal aid and loan programs and allowsyou to manage and track your personal financial-aid applica-tion process, loans and more.

• Make savvy choices about repayment, suggests finan-cial analyst Mark Kantrowitz, publisher of the college-aid web-site FinAid. Paying off your debt as soon as possible will saveon interest, and the best way to cut interest costs is to pay offthe loan with the highest after-tax interest rate first. If you haveboth federally guaranteed and private loans or have used acredit card to pay some college expenses, the highest-interestloan — and thus your first target for repayment — should bethe credit-card or private-lender loan, Kantrowitz said. 2

— Marcia Clemmitt

1 For background on net price calculators, see Daniel de Vise, “Calculatingthe Net Price of College,” Washington Post blogs, March 17, 2010, http://voices.washingtonpost.com/college-inc/2010/03/more_on_the_net_price_of_colle.html, and Tim Johnson, “Colleges Unveiling ‘Net Price Calculators,’ ” BurlingtonFree Press [Vermont] blogs, Sept. 27, 2011, http://blogs.burlingtonfreepress.com/highered/2011/09/27/colleges-unveiling-net-price-calculators.2 Mark Kantrowitz, “Best Strategies for Paying Off Debt Quicker,” Fastweb.com, Oct. 11, 2010, www.fastweb.com/financial-aid/articles/2747-best-strategies-for-paying-off-debt-quicker.

Tips on Taming the College-Debt MonsterTrack costs and pay high-interest loans first, experts say.

892 CQ Researcher

STUDENT DEBT

leges to stick with federally guaranteedbank loans. But those efforts backfiredin 2007, when then-New York AttorneyGeneral Andrew Cuomo revealed whathe called an “unholy alliance” in whichcolleges and college officials acceptedkickbacks for naming “preferred lenders.”

Financial-aid officers at universitiesincluding Columbia, in New York City,Johns Hopkins, in Baltimore, and theUniversity of Texas, at Austin, resigned.Some universities and lenders, includ-ing banking giant Citibank, agreed tosettlements that included financialpenalties and pledges to submit to anew industry conduct code. 31

Over the past few years, Congresshas changed the federal education-loanprograms in waysthat many analystssay should makethem less onerous,at least for futureborrowers and somepast ones eligible toopt into the new re-payment plans.

In 2007, Con-gress created a loan-forgiveness programfor some studentdebtors who gointo public-servicejobs and added anincome-based re-payment option fordirect loans to theone it had passed in1993. It allowedborrowers to opt intoa repayment planthat caps paymentsat 15 percent of discretionary incomeand forgives any remaining debt after25 years. Then last year Congress low-ered the cap to 10 percent of incomeand shortened the pay period to 20 years,beginning July 1, 2014. 32

Many higher-education analysts wel-come the plans that offer lower-incomepeople smaller monthly payments butsay they wish they covered more peo-

ple. “It’s good, but not as good as itcould be,” says Skidmore’s Baum.

Delaney of the University of Illinoiscomplains that the programs requirestudents to opt in rather than beingautomatically enrolled — a problemshe says guarantees that relatively fewstudents will be covered.

Another 2010 provision fulfilled alongtime Democratic goal — replac-ing federally guaranteed bank loanswith direct federal loans. The provi-sion, which applies to loans made inJuly 2010 or later, will work better forconsumers and taxpayers because itcuts out fees charged by private in-stitutions acting as middlemen, sup-porters argue. Private lenders can still

make college loans, but no new edu-cation loans made by banks will be af-filiated with any federal loan-guaranteeprogram.

The 2010 changes are “hugely sig-nificant,” says Delaney. “I’m not surewe’ll fully understand their significancefor a long time, but it’s the biggestthing that’s happened in student aidfor 30 years.”

CURRENTSITUATION

Debt and Deficits

S tudent-loan programs continue toplay a role in heated debates over

federal spending. In negotiations betweenCongress and the White House this sum-mer over raising the federal debt ceil-ing — the amount Congress authorizesthe government to borrow — college-loan programs took a hit as negotiatorsstruggled to find money to shore up the

Pell Grant program forlow-income students.

On Aug. 2, lawmak-ers passed and PresidentObama signed the Bud-get Control Act of 2011,raising the debt ceilingto forestall a governmentdefault. 33 Negotiatorsauthorized a temporary$17 billion boost in PellGrant funds for 2012and 2013, in part to re-place expiring increasespassed in 2009 and 2010as part of economic-stimulus and health-carereform bills.

The Pell increase isn’ta done deal, however.Congress ultimately mustmake additional spend-ing cuts elsewhere be-fore it can appropriate

the funds. An appropriations bill recent-ly approved in the Republican-led House,for example, would trim $44 billion fromPell over 10 years by limiting eligibility,according to the advocacy group Insti-tute for College Access and Success. 34

What’s more, in passing the BudgetControl Act, Congress eliminated pro-grams offering loan-interest subsidies

Continued on p. 894

New York University graduates celebrate commencement at YankeeStadium on May 18, 2011. Education experts generally agree that

while the cost of obtaining a college degree may pay off in the long run,the dual trends of rising debt and rising tuition are becoming

increasingly problematic, especially for low-income students who rackup large debt and those who don’t obtain degrees or certificates.

Getty Imag

es/Steven Vlasic

no


At Issue:Are students borrowing more than their educations are worth?yes

yesALAN COLLINGEFOUNDER, STUDENTLOANJUSTICE.ORG

WRITTEN FOR CQ RESEARCHER, OCTOBER 2011

p resident Obama made it clear in his State of the Unionaddress that two areas of focus going forward will beeducation and “fixing what is broken” in the federal government. The most meaningful way for the president

to demonstrate this — on both fronts — lies in the federalstudent-loan system.

Like subprime lending, the student-lending system has beencorrupted deeply, enabling college prices to rise faster thanboth housing and health care over the past three decades.Today, we owe an astounding $1 trillion in student debt, andinstead of decreasing in the slow economy, borrowing has ac-celerated massively to keep pace with record-breaking tuitionincreases.

Unlike loans for housing, student loans were stripped ofbankruptcy protections and nearly every other consumer pro-tection Americans assume is there when they borrow. At thesame, time, Congress gave the student-lending system collec-tion powers so draconian that big lenders, guarantors andlikely even the Department of Education have made far moremoney on defaults than healthy loans. This is not tolerable inthis or any other country. On this there is no debate.

As Harvard Law Professor Elizabeth Warren, who establishedthe government’s new Consumer Finance Protection Bureau,put it: It’s impossible to buy a toaster that has a one-in-fivechance of exploding, but similar standards aren’t imposed onfinancial products. Indeed, education-loan defaults have beengreater than one in four for many years and are probably be-tween 30 percent and 40 percent today, yet the Department ofEducation has not warned the public. Congress, too, neededto know this as they debated whether to raise loan limits timeand again. But they were shown only misleading cohort ratesthat reflected a small fraction of the true default rate. As a re-sult, students now borrow far more than their educations areworth, and they (and often their co-signing relatives) are beingdecimated financially.

Ultimately, the removal of bankruptcy protections is theroot of this mess, and their immediate return is the solution toboth the exploitation of borrowers and the prices beingcharged to all students, rich and poor. Economists and trueconservatives everywhere should agree with this assertion.Student debt is a top issue in the protests going on aroundthe country this fall, demonstrating that the public is unlikelyto tolerate for much longer the political and administrativegames that perpetuate this harm.no

NEAL MCCLUSKEYASSOCIATE DIRECTOR, CENTER FOREDUCATIONAL FREEDOM, CATO INSTITUTE

WRITTEN FOR CQ RESEARCHER, OCTOBER 2011

l ooking at the basic facts, college students are not absorb-ing more debt than their educations are worth. But thatdoesn’t mean debt shouldn’t be much smaller.

While methodologies for calculating it are hotly debated,the college-earnings premium is generally considered to besubstantial. On the high end, the Census Bureau estimatesexpected lifetime earnings to be $1.1 million greater with abachelor’s degree than just a high-school diploma. Low-endestimates — between $100,000 and $300,000 — also suggestthat debt pays off. Why? Because the average debt for gradu-ates is only $24,000, so most are paying only a modest pricefor the return in additional wages — at least $100,000, evenby the most conservative estimates. Those, though, are justbasic averages. There is much that they miss.

First, many students enroll in college, incur debt, but neverfinish their studies, failing to obtain the degree that is crucialto increased earnings. Indeed, the six-year graduation rate forfirst-time, full-time students enrolled in four-year institutions isjust around 57 percent, and most who do not finish in sixyears probably never will.

Then there’s what a degree does. Rather than indicatingmastery of valuable skills, it often signals to employers only thatthe possessor has some basic positive traits, such as thresholdlevels of intelligence or perseverance. The extent to which thatis the case varies greatly by major — as do earnings — butgenerally speaking, paying for college is a very expensive wayjust to indicate that you’ll show up at work on time.

Proving this, to be fair, is tough, because we have no compre-hensive measures of what students actually learn in college. Whatwe do have, though, is discouraging. The National Assessment ofAdult Literacy shows markedly decreasing literacy rates for collegegrads between 1992 and 2003. Meanwhile, research by academicsRichard Arum and Josipa Roksa, authors of Academically Adrift:Limited Learning on College Campuses, suggests that 45 percentof four-year college students learn little in their first two years,and 36 percent nearly nothing in four years.

Finally, there’s price inflation: Going into debt might beworthwhile, but the levels shouldn’t be nearly as high as theyare. College prices have inflated at astronomical rates over thelast several decades, at least in part because student aid, in-cluding grants and cheap federal loans, enable it. Give stu-dents an extra dollar, and schools raise tuition by a buck.

So does a degree pay off handsomely? Generally, yes. Doesthat mean debt levels are just right? No way.

894 CQ Researcher

for graduate- and professional-schoolenrollees and interest reductions onloans that students pay on time. 35

Student-loan programs have long beenpart of Washington debt-reduction de-bates, but with new loans all using gov-ernment rather than private funds, manymay see the matter in a new light.

In the past, observed the online mag-azine Inside Higher Ed, “because signifi-cant proportions of the programs’ prof-its flowed to banks and other lenders,slashing [the programs] — to increasespending on grants to students or evento pay down the federal deficit — wasoften portrayed as taking money from‘fat cat’ companies” and using it for stu-dents or other public purposes. Today,however, with commercial lenders re-moved from the picture, “it is clearer thanever before” that cutting loan programsactually means taking money from cash-strapped “borrowers themselves.” 36

Meanwhile, taxpayer funding forpublic colleges in at least some statesis drying up. And as the economicdownturn lingers and federal stimulusfunds wind down, state lawmakers areresisting tax hikes to shore up highereducation. 37 That means tuitions atpublic colleges will likely rise, fuelingfurther increases in student debt.

In the University of California sys-tem, for example, 2011-2012 tuition willrise 18 percent from 2010-2011 andmore than 80 percent from 2007-2008,according to Equal Justice Works, aWashington-based advocacy group thatpromotes access to education. 38

More Students, More Loans

T he biggest higher-education trend,in the United States and elsewhere,

is the ever-growing number of studentswho get post-secondary training. Butas costs outpace public funding, thetrend sets education debt on a perma-nent upward path, worldwide.

“We are in a new era where resourcesdon’t seem endless, and nobody’s founda cheap way to pay for a college edu-cation,” says Indiana University’s Hossler.

As a result, “lots of countries,” bothdeveloping and industrialized, “are look-ing into loans,” including countries suchas the United Kingdom that formerlyrelied on tax revenues rather than stu-dents’ tuition loans, says Boston Col-lege’s Altbach.

Countries looking to expand the useof student debt are unlikely to use theU.S. system as a model, though, saysindependent analyst Hauptman. Morelikely models are Australia and NewZealand, where student borrowers areautomatically enrolled in plans that areadministered through the tax systemand base repayment amounts on stu-dents’ post-graduate incomes. Whilethose nations face their own strugglesover how heavily government shouldsubsidize higher education and howmuch individual debt is acceptable, theirsystems are far preferable to the U.S.approach, Hauptman contends.

But others criticize schemes that baseloan repayment on income, arguing thatthey are merely stealth methods of shift-ing more college costs from society atlarge to individual students. Low earn-ers end up paying more in interest thanhigh earners who can pay off their loanrelatively quickly, said the Canadian Fed-eration of Students, a student-advocacygroup in Ottawa that has opposedincome-contingent repayment plans inCanada. Many women, in particular,might end up with a “lifelong debt sen-tence” because women earn less on av-erage than men, the group said. 39

OUTLOOKExplosive Debt?

E ven as college costs rise, many pol-icymakers are calling for expansion

of post-secondary schooling to create abetter-prepared pool of workers to buildtomorrow’s economy. But college-priceincreases, coupled with policies en-couraging more people to complete post-secondary training, will continue to raisequestions about how heavily taxpayersare willing to subsidize higher educa-tion and how much debt students canbe expected to shoulder.

The nation faces a huge dilemma,says the University of Pennsylvania’sPerna. “How do we balance these bud-gets and achieve our goals” for im-proving college-completion rates “inthe face of declining revenues? Youcan become paralyzed by the magni-tude of the problem.”

Experts say some states that havebeen basing student aid on recipients’grades rather than financial need maybe starting to back away from thatpolicy, concerned that it isn’t expandingaccess to college. But, says Penn State’sHeller, “in the nation as a whole Idon’t expect to see merit-based aidback off” — a trend that could con-tinue to bode ill for cash-strapped stu-dents lacking top-tier grades but whononetheless seek a college degree.

Even as students pay more to at-tend college, look for the nature ofhigher education to change. Hugeclass sizes, reflecting colleges’ strug-gles to accommodate enrollment surges,will be one manifestation, says North-western’s Weisbrod. “In a class with500 students rather than a class of 20,you’ll be less likely to assign papers,”for example, “so there is a qualityissue,” he says. “The nature of educa-tion is changing as we try to make itavailable to everybody.”

In such a climate, requiring indi-viduals to take on more and moredebt for schooling will eventually losepolitical support, Weisbrod argues.“Leaders will come to realize that youcan’t have a successful program” ofencouraging college graduation “if youare saddling people with unworkabledebt” to do it.

STUDENT DEBT

Continued from p. 892


St. John of the University of Michi-gan says “loans have become very im-portant” because “they enable the work-ing class” to get post-secondary training.Still, he says, “there are ways to workwithin a problematic system to movetoward something that’s fairer.”

But student debtor and activistCollinge thinks it may take a near-revolution to get there. Congress seemsunlikely to take a serious step, such asrestoring bankruptcy protection, he says.On Capitol Hill, “they’re scared of thepower” of the higher-education estab-lishment, including colleges, privatelenders and even the Department ofEducation, Collinge asserts. All havevested interests in opposing such large-scale changes, he says.

As debt burdens become untenablefor more students, the federal programssupposedly intended to help peoplepay for college “will become a na-tional joke,” Collinge predicts. “No-body will pay. There could be a na-tional strike. It could get very dodgyat that point,” as Americans suffer “aloss of faith in a major government-lending system.”

Notes

1 For background, see “MoveOn.org, U.S.Rep. Promoting Student Loan Debt Forgive-ness,” The Daily Caller, Sept. 15, 2011, http://dailycaller.com/2011/09/15/moveon-org-u-s-rep-promoting-student-loan-debt-forgiveness; Car-olyn Elefant, “Law Student Organizing LoanForgiveness Drive,” Legal Blog Watch, March 26,2009, http://legalblogwatch.typepad.com/legal_blog_watch/2009/03/law-student-organizing-loan-forgiveness-drive.html; “Robert Ap-plebaum’s Bio,” Robert Applebaum.com, www.robertapplebaum.com/content/robert-applebaums-bio.2 Mark Kantrowitz, “Total College Debt NowExceeds Total Credit Card Debt,” Fastweb,Aug. 11, 2010, www.fastweb.com/financial-aid/articles/2589-total-college-debt-now-exceeds-total-credit-card-debt.3 The 1982-2005 data are from Patrick M.Callan, “College Affordability: Colleges, States

Increase Financial Burdens on Student andFamilies,” Measuring Up 2006: The NationalReport Card on Higher Education,” NationalCenter for Public Policy and Higher Educa-tion, http://measuringup.highereducation.org;more recent figures are from “Trends in Col-lege Pricing,” College Board, p. 3.4 Quoted in Korva Coleman, “Is a College Ed-ucation Worth the Debt?” NPR, Sept. 1, 2009,www.npr.org/templates/story/story.php?storyId=112432364.5 Andrew Gillen, “Financial Aid in Theoryand Practice: Why It Is Ineffective and WhatCan Be Done About It,” Center for CollegeAffordability and Productivity, April 2009, www.centerforcollegeaffordability.org/uploads/Financial_Aid_in_Theory_and_Practice%281%29.pdf.6 Annamaria Andriotis, “For Student Borrowers,a Hard Truth,” SmartMoney, Sept. 16, 2011,www.smartmoney.com/borrow/student-loans/for-student-borrowers-a-hard-truth-1316118955339/?link=SM_hp_ls4e. For background, seeBarbara Mantel, “Career Colleges,” CQ Researcher,Jan. 7, 2011, pp. 1-24.7 Quoted in Coleman, op. cit.8 “Car-Financing Basics,” Money-Zine.com, www.money-zine.com/Financial-Planning/Leasing-or-Buying-a-Car/Car-Financing-Basics.9 Michael Greenstone and Adam Looney,“Where Is the Best Place to Invest $102,000— In Stocks, Bonds, or a College Degree?”Brookings Institution website, June 25, 2011,www.brookings.edu/papers/2011/0625_education_greenstone_looney.aspx.10 “Student Loans,” FinAid, www.finaid.org/loans.11 “The Rising Price of Inequality: How In-adequate Grant Aid Limits College Access andPersistence,” Advisory Committee on StudentFinancial Assistance, June 2010, http://chronicle.com/items/biz/pdf/acsfa_rpi.pdf.12 Ibid.13 For background, see “Paving the Way: HowFinancial Aid Awareness Affects College Ac-

cess and Success,” The Institute for CollegeAccess & Success, October 2008, http://projectonstudentdebt.org/fckfiles/Paving_the_Way.pdf,p. 7.14 “The College Completion Agenda: 2011Progress Report, Latino Edition,” The CollegeBoard, October 2011, http://completionagenda.collegeboard.org/sites/default/files/latino_pdf/progress_report_latino_2011.pdf.15 For background, see David Moltz, “Is Com-pletion the Right Goal?” Inside Higher Ed,Feb. 16, 2011, www.insidehighered.com/news/2011/02/16/scholars_debate_merits_of_completion_agenda.16 William J. Bennett, “Our Greedy Colleges,”The New York Times, Feb. 18, 1987, www.nytimes.com/1987/02/18/opinion/our-greedy-colleges.html.17 Robert B. Archibald and David H. Feld-man, “Avoiding Tunnel Vision in the Studyof Higher Education Costs,” College ofWilliam and Marry Department of Econom-ics Working Paper Number 53, June 2007,http://ideas.repec.org/p/cwm/wpaper/53.html.18 For background, see Charlene Wear Sim-mons, “Student Loans and Higher Education,”California Research Bureau, January 2008,www.library.ca.gov/crb/08/08-002.pdf; “Historyof Student Financial Aid,” FinAid, www.finaid.org/educators/history.phtml; and the followingCQ Researcher reports: Thomas J. Billitteri,“The Value of a College Education,” Nov. 20,2009, pp. 981-1004; Marcia Clemmitt, “StudentAid,” Jan. 25, 2008, pp. 73-96; and Tom Price,“Rising College Costs,” Dec. 5, 2003, pp. 1013-1044.19 Robert Shireman, ‘Straight Talk on StudentLoans,” University of California, Berkeley, Occa-sional Paper Series, 2004, http://cshe.berkeley.edu/publications/publications.php?id=66.20 “Web Tables” for “Trends in Student Fi-nancing of Undergraduate Education: Select-ed years, 1995-96 to 2007-08,” National Cen-

About the AuthorStaff writer Marcia Clemmitt is a veteran social-policy re-porter who previously served as editor in chief of Medi-cine & Health and staff writer for The Scientist. She hasalso been a high school math and physics teacher. Sheholds a liberal arts and sciences degree from St. John’sCollege, Annapolis, and a master’s degree in English fromGeorgetown University. Her recent reports include “SchoolReform” and “Regulating Credit Cards.”

896 CQ Researcher

STUDENT DEBT

ter for Education Statistics, U.S. Departmentof Education, January 2011, http://nces.ed.gov/pubs2011/2011218.pdf.21 Lisa Wade, “Number of College StudentsOwing $40,000+ in Loans, 1996-2008,” Socio-logical Images, May 23, 2010, http://thesocietypages.org/socimages/2010/05/23/number-of-college-students-owing-40000-in-school-loans-1996-2008.22 Arthur M. Hauptman and Young Kim, “Cost,Commitment and Attainment in Higher Edu-cation: An International Comparison,” Jobs forthe Future, May 2009, www.jff.org/publications/education/cost-commitment-and-attainment-higher-ed/836.23 Arthur M. Hauptman, “Thirty Per Cent HoldBachelor’s Degrees,” Federations Magazine,Forum of Federations, June/July 2007, www.forumfed.org/en/products/magazine/vol6_num2/special_us.php.24 Joe Nocera, “The Profit and the Pauper,”The New York Times, July 29, 2007, www.nytimes.com/2007/07/29/education/edlife/nocera.html?pagewanted=all.25 Ibid.26 J. Douglas Cuthbertson, testimony beforethe House Judiciary Subcommittee on Com-mercial and Administrative Law, Sept. 23, 2009,http://judiciary.house.gov/hearings/pdf/Cuthbertson090923.pdf.27 John A. Hupalo, testimony before the HouseJudiciary Subcommittee on Commercial andAdministrative Law, April 22, 2010, http://judiciary.house.gov/hearings/pdf/Hupalo100422.pdf.28 Alan Collinge, The Student Loan Scam: TheMost Oppressive Debt in U.S. History — andHow We Can Fight Back (2010), pp. vii-ix.29 Bethany McLean, “The Surprising Profitsof Student Loans,” CNN Money, April 16, 2007,http://money.cnn.com/2007/04/16/news/companies/pluggedin_mclean_sallie.fortune/index.htm.30 Douglas Holtz-Eakin, “Budget-Scoring Bar-riers to Efficient Student Loan Policy,” paperprepared for Consumer Bankers Association,et al., December 2006, www.studentloanfacts.org/NR/rdonlyres/65DDECF9-3020-4C6A-8C8F-B568556FEA64/7398/BudgetScoringBarrierstoEfficientStudentLoanPolicy.pdf.31 For background, see Karen W. Arensonand Diana Jean Schemo, “Report DetailsDeals in Student Loan Industry,” The New YorkTimes, June 15, 2007, www.nytimes.com/2007/06/15/washington/15loans.html.32 For background, see Mark Kantrowitz, “Pres-ident Obama Proposes Capping Student Loan

Payments at 10 Percent of Discretionary In-come,” Fastweb, Jan. 25, 2010, www.fastweb.com/financial-aid/articles/2057-president-obama-proposes-capping-student-loan-payments-at-10-of-discretionary-income.33 For background, see Stephen Burd andJason Delisle, “A Temporary, Albeit Tenuous,Reprieve for Pell Grants,” Higher Ed Watch,New American Foundation, July 28, 2011, http://higheredwatch.newamerica.net/blogposts/2011/a_temporary_albeit_tenuous_reprieve_for_pell_grants-55499.34 “House FY12 Appropriations Bill Cuts PellGrants by $44 Billion: Reduces College Ac-cess, Penalizes Work and Hurts the NeediestStudents,” The Institute for College Access andSuccess, Oct. 11, 2011, http://ticas.org/files/pub/House_FY12_Approps_Bill_one-pager.pdf.35 Isaac Bowers, “Make Sense of the DebtCeiling Jabberwocky,” U.S. News & World Re-

port blogs, Aug. 10, 2011, www.usnews.com/education/blogs/student-loan-ranger/2011/08/10/make-sense-of-the-debt-ceiling-jabberwocky.36 Libby A. Nelson and Doug Lederman, “Loansand the Deficit,” Inside Higher Ed, July 18,2011, www.insidehighered.com/news/2011/07/18/increased_student_loan_interest_rates_to_reduce_deficit_and_probably_not_expand_grants.37 For background, see Erica Williams,Michael Leachman and Nicholas Johnson,“State Budget Cuts in the New Fiscal Year AreUnnecessarily Harmful,” Center on Budget andPolicy Priorities, July 28, 2011, www.cbpp.org/cms/index.cfm?fa=view&id=3550.38 Bowers, op. cit.39 “Study Now, Pay Forever: Income Contin-gent Repayment Loan Schemes,” CanadianFederation of Students, Winter 2007, www.cfs-fcee.ca/html/english/research/factsheets/factsheet-icr.pdf.

FOR MORE INFORMATIONAdvisory Committee on Student Financial Assistance, 80 F St., N.W., Suite413, Washington, DC 20202-7582; 202-219-2099; www2.ed.gov/about/bdscomm/list/acsfa/edlite-index.html. Independent expert panel that issues in-depth analysesof and advises the federal government on financial aid for higher education.

The Center for College Affordability and Productivity, 1150 17th St., N.W.,Suite 910, Washington, DC 20036; 202-375-7831; http://centerforcollegeaffordability.org.Independent, nonprofit think tank that analyzes college finances and spending.

Delta Project on Postsecondary Education Costs, Productivity and Account-ability, 1250 H St., N.W., Suite 700, Washington, DC 20005; 202-349-4143;www.deltacostproject.org. Research group studying ways to hold down collegecosts and improve productivity in higher education.

FinAid, www.finaid.org. Independent, advertising-supported news and informationwebsite about loans and other college-finance issues, run by financial analystMark Kantrowitz.

Project on Student Debt, Institute for College Access and Success, 405 14th St.,11th Floor, Oakland, CA 94612; 510-318-7900; http://projectonstudentdebt.org. In-dependent research and education group.

Sallie Mae, 888-272-5543 and 317-570-7397; www.salliemae.com. Publicly tradedcorporation, no longer government-chartered, that provides, manages and serviceseducation loans and education-savings plans.

Student Loan Borrower Assistance Project, National Consumer Law Center, 7 Winthrop Square, Boston, MA 02110-1245; 617-542-8010; www.studentloanborrowerassistance.org. Foundation-supported information and education center on stu-dent loans.

StudentLoanJustice.org, http://studentloanjustice.org. Grassroots group that advo-cates greater consumer protections for student borrowers, including the right todischarge student loans in bankruptcy.

StudentLoans.gov, https://studentloans.gov. Government information portal aboutfederal education loans.

FOR MORE INFORMATION


Selected Sources

Bibliography

Books

Cohen, Arthur M., and Carrie B. Kisker, The Shaping ofAmerican Higher Education: Emergence and Growth ofthe Contemporary System, 2nd Edition, Jossey-Bass, 2009.Cohen, a professor emeritus of higher education at the Uni-

versity of California, Los Angeles, and education-policy consul-tant Kisker put the development of the U.S. higher-education sys-tem from the early 1600s to the 21st century into its social andeconomic context, focusing on the continued push to expandaccess and examining the recent privatization trend.

Collinge, Alan, The Student Loan Scam: The Most OppressiveDebt in U.S. History and How We Can Fight Back, Bea-con Press, 2010.A student-debt activist chronicles the growth of the education-

loan business and accompanying federal bureaucracy, which heargues have profited on the backs of student debtors.

Weisbrod, Burton A., Jeffrey P. Ballou and Evelyn D.Asch,Mission and Money: Understanding the University, Cam-bridge University Press, 2008.Weisbrod, a professor of economics at Northwestern University,

and his coauthors describe how colleges fund their academic ac-tivities with a complicated revenue mix that includes tuition, pri-vate donations, taxpayer dollars and proceeds from commercial-type activities, such as research and intercollegiate sports.

Articles

Byrne, John A., “Wharton MBA 2013: The Class the LoansFell On,” CNN Money, Aug. 22, 2011, http://management.fortune.cnn.com/tag/tuition-payments.At the University of Pennsylvania’s Wharton School, mem-

bers of the MBA class of 2013 will be the first to owe morethan $100 million in education debt, including interest, whenthey complete their degrees.

Chavkin, Sasha, “Education Department Backs AwayFrom Fix to Help Disabled Student Borrowers,” ProPublica, August 2011, www.propublica.org/article/education-department-backs-away-from-fix-to-help-disabled-student-borrowers/single.Students who become disabled after taking out loans can

be excused from repayment, but the Education Departmenthesitates to adopt a simplified disability-certification process.

Nelson, Libby A., and Doug Lederman, “Loans and theDeficit,” Inside Higher Ed, July 18, 2011, www.insidehighered.com/news/2011/07/18/increased_student_loan_interest_rates_to_reduce_deficit_and_probably_not_expand_grants.The revenues flowing to banks and the Department of

Education as students repay their loans far exceed the loans’cost, making student-loan programs a hot business.

Reports and Studies

The Rising Price of Inequality: How Inadequate GrantAid Limits College Access and Persistence, Advisory Com-mittee on Student Financial Assistance, June 2010, www.immagic.com/eLibrary/FIN_AID/US_ED/A100630R.pdf.Too few need-based grants are available to ensure that

qualified low- and moderate-income students can completecollege, says a federal advisory panel.

Abernathy, Pauline, “Drowning in Debt: Financial Out-comes of Students at For-Profit Colleges,” Institute forCollege Access, June 7, 2011, http://projectonstudentdebt.org/files/pub/Abernathy_testimony_June_7_2011.pdf.For-profit career colleges have the highest proportion of

students with debt, says the vice president of a student-debtresearch and advocacy group.

Carey, Kevin, and Erin Dillon, Drowning in Debt: TheEmerging Student Loan Crisis, Education Sector, July 2009,www.educationsector.org/sites/default/files/publications/CYCT_Drowning_In_Debt.pdf.As tuitions soar, more students are taking on the riskiest kind

of education debt — non-federally guaranteed private-lenderloans, write analysts at an independent think tank.

Cunningham, Alisa F., and Gregory S. Kienzl, Delin-quency: The Untold Story of Student Loan Borrowing,Institute for Higher Education Policy, March 2011,www.ihep.org/assets/files/publications/a-f/Delinquency-The_Untold_Story_FINAL_March_2011.pdf.Analysts for a nonprofit group say policymakers remain un-

aware of the seriousness of student-debt problems because fed-eral statistics don’t reveal that many borrowers temporarily fallbehind in their payments.

Vedder, Richard, The Coming Revolution in Higher Ed-ucation, Center for College Affordability and Productivi-ty, October 2010, www.centerforcollegeaffordability.org/uploads/Revolution_in_Higher_Ed.pdf.The combination of rising tuitions, rising debt and pres-

sure for more Americans to complete college may soon forcecolleges to demonstrate that they provide value for the dol-lar, says the founder of a nonprofit group that advocates foraccountability in higher education.

From the CQ Researcher Archive:“Financial Support for Higher Education,” May 5, 1948; “Costs

of Education,” May 25, 1959; “College Financing,” Feb. 24, 1971;“What’s Behind High College Price Tags,” May 19, 1989.

898 CQ Researcher

College Costs

Alex, Patricia, “No End in Sight for the Rising Cost ofCollege,”The Record (Bergen County, N.J.), Oct. 29, 2010,p. A1.There are few signs that the rising cost of college will abate

anytime soon as states continue to contend with budget short-falls and the lingering recession, according to education experts.

Pender, Kathleen, “College Websites Help Tally Poten-tial Net Costs,” The San Francisco Chronicle, March 24,2011, p. D1, articles.sfgate.com/2011-03-24/business/29180780_1_calculator-financial-aid-postsecondary-schools.Congress has ordered almost all post-secondary schools to

post a “net price calculator” on their websites so potentialstudents can know the full price of attending college afterfinancial-aid awards are given.

Pender, Kathleen, “Figuring Out College Costs, Finan-cial Aid,” The San Francisco Chronicle, April 3, 2011,p. E1, articles.sfgate.com/2011-04-03/business/30226162_1_federal-loans-private-loans-perkins-loans.Financial-aid award letters that follow admission offers sug-

gest to students that they will be able to afford a specificschool, but they actually offer little insight into the actualcost of attendance.

Reinwald, Christina, “College Costs Force Saving,” TheBoston Globe, Aug. 23, 2011, p. 5, articles.boston.com/2011-08-23/business/29919338_1_college-costs-public-colleges-and-universities-massachusetts-educational-financing-authority.The rapidly rising cost of college is forcing many Massa-

chusetts parents to adjust expectations and approaches tofinancing their children’s education.

Sider, Alison, “Rises in Tuition Outpace Inflation,”Arkansas (Little Rock)Democrat-Gazette, Sept. 10, 2011.Tuition and fees at Arkansas public colleges and universi-

ties rose faster than inflation in the past five years at all butsix institutions, according to legislative auditors.

Stokes, Stephannie, “Higher Tuition Unfairly BurdensGraduates With Huge Debt,”Seattle Times, April 20, 2011,p. A17, seattletimes.nwsource.com/html/opinion/2014817000_stephannie20.html.Students fortunate enough to get accepted into state uni-

versities will face annual tuition hikes, according to a Uni-versity of Washington student.

Debt Levels

Grant, Tim, “Students Facing Mounting College Debt,”Pittsburgh Post-Gazette, Oct. 9, 2011, p. A9, www.post-

gazette.com/pg/11282/1180806-298-0.stm?cmpid=MOSTEMAILEDBOX.Rising student-debt levels coupled with dismal employment

prospects have left many students wondering whether theywill be able to repay their loans.

Kress, Adam, “Arizona Student Debt Grows, RemainsBelow Average,”Phoenix Business Journal, May 11, 2011,www.bizjournals.com/phoenix/news/2011/05/11/arizona-student-debt-grows-below.html.The average student-loan debt in Arizona rose in 2011 to

more than $28,000, or about $1,500 more than the 2010level. The increase was slightly less than the national aver-age hike.

Lewin, Tamar, “College Loans Weigh Heavier on Grad-uates,” The New York Times, April 12, 2011, p. A1, www.nytimes.com/2011/04/12/education/12college.html.Student-loan debt is expected to surpass $1 trillion in 2011

as more students go to college and a growing share of themborrow money to do so.

Price, Margaret, “Big Squeeze for Grads: Student LoansRise, Job Opportunities Dim,”The Christian Science Mon-itor, Oct. 5, 2011, www.csmonitor.com/Business/2011/1005/Big-squeeze-for-grads-Student-loans-rise-job-opportunities-dim.Today’s graduates are having to pay back larger student

loan amounts despite the dim prospects of landing em-ployment after graduation.

Simon, Anna, “More Graduates Leave School Carrying aLarge Debt Load,” Greenville (S.C.) News, April 18, 2011.Rising student-debt levels mean that many of today’s grad-

uates will be making payments when their kids are takingloans out for college.

Young, Steve, “S.D. First in College Debt,” Argus Leader(Sioux Falls, S.D.), Oct. 23, 2010.More than three-quarters of students who graduated from

South Dakota colleges in 2009 had debt, the highest levelin the nation, according to the Project on Student Debt.

Loan Defaults

Alaimo, Jessica, “College Students Taking More Loans, MoreLikely to Default,”Newark (Ohio) Advocate, May 22, 2011,www.newarkadvocate.com/article/20110522/NEWS01/105220303/College-students-taking-more-loans-more-likely-default.Recent graduates are more likely than past graduates to

default on their loans within three years because the pooreconomy is providing fewer jobs.

The Next Step:Additional Articles from Current Periodicals


Bregel, Emily, “Loan Defaults Sting Nurses,”Chattanooga(Tenn.) Times Free Press, Jan. 18, 2011, p. A1, www.timesfreepress.com/news/2011/jan/18/loan-defaults-sting-nurses/.Dozens of Tennessee nurses have had their licenses sus-

pended for ignoring their student loans under new en-forcement of a decade-old statute.

Field, Kelly, “Government Doesn’t Profit From Student-Loan Defaults, Budget Analysis Shows,” The Chronicleof Higher Education, Feb. 14, 2011, chronicle.com/article/Budget-Footnote-Government/126373/.The White House budget indicates that the government ex-

pects to make 17 cents on every dollar of guaranteed studentloans that default, but the figure doesn’t account for the timeit takes the government to collect the loans.

Martinez, Michael, “Nevada College Student Loan De-faults Under National Average,” Reno (Nev.) Gazette-Journal, Feb. 28, 2011.The 10.8 percent federal student-loan default rate at Nevada’s

four-year universities has lagged behind the nearly 14 percentnationwide default rate since 2008.

Rosen, Steve, “Unpaid Student Loan Debt Looms As NationalCrisis,” Kansas City Star, Sept. 24, 2011, p. A16, www.kansascity.com/2011/09/23/3162790/unpaid-student-loan-debt-looms.html.Default rates on federal student loans for higher education

are now at their highest since 1997, according to the U.S.Department of Education.

Singletary, Michelle, “Student Loan Debt Isn’t Always aSmart Investment,”The Washington Post, March 27, 2011,p. G1.About a quarter of student-loan borrowers in financial dif-

ficulty keep default and delinquency at bay by postponingrepayment.

Travis, Scott, “8% of Student Borrowers Default on Debtin 2 Years,” Sun-Sentinel (Fort Lauderdale, Fla.), May 30,2011, p. A1, articles.sun-sentinel.com/2011-05-30/news/fl-south-florida-college-debt-20110530_1_national-default-rate-college-access-success-student-loan-debt.More than 40 percent of student-loan borrowers are delin-

quent at least once in their first five years of repayment, ac-cording to the Institute for Higher Education Policy.

Repayment

Block, Sandra, “Tips to Handle Student Loans,” USAToday, May 27, 2011, p. B3, www.usatoday.com/MONEY/usaedition/2011-05-27-Personal-Financerepaying-student-loans_ST_U.htm.The best way to avoid the negative consequences of

student-loan default is to take charge of repayment rightaway.

Choi, Candice, “Studying Strategies to Graduate From Stu-dent Loans Would Be Wise,” Honolulu Star-Advertiser,July 11, 2011, www.staradvertiser.com/business/20110711_Studying_strategies_to_graduate_from_student_loans_would_be_wise.html.Many students become complacent about student loans be-

cause repayments don’t begin until after a six-month graceperiod following graduation.

Kristof, Kathy M., “Grads Must Handle Student Loans Well,”Los Angeles Times, Nov. 14, 2010, p. B3, articles.latimes.com/2010/nov/14/business/la-fi-perfin-20101114.Missing just one student loan payment can ruin a credit

score, and a bad credit score can lead to higher costs forother loans.

Mulkins, Phil, “On Student Loans, There’s No EscapeFrom Repayment,” Tulsa (Okla.) World, Sept. 23, 2011,p. E3, www.tulsaworld.com/news/article.aspx?subjectid=15&articleid=20110923_15_E3_bDearA133674.Unlike most consumer loans, student loans cannot be dis-

charged in bankruptcy, and the government and privatelenders can sue to collect.

O’Connor, Brian, “Carve Away At That Student Loan Debt,”Detroit News, Nov. 1, 2010, p. D1.Student-loan consolidation used to be more advantageous

when rates were variable, but with most loan rates nowfixed, consolidation could raise monthly payments for manycollege students with outstanding loans.

Yip, Pamela, “Congrats on That College Degree: Now PayUp,” Dallas Morning News, May 23, 2011, p. D1.One of the first steps in paying back student loans is adopt-

ing good financial habits that will last.

CITING CQ RESEARCHERSample formats for citing these reports in a bibliography

include the ones listed below. Preferred styles and formats

vary, so please check with your instructor or professor.

MLA STYLEJost, Kenneth. “Remembering 9/11,” CQ Researcher 2 Sept.

2011: 701-732.

APA STYLEJost, K. (2011, September 2). Remembering 9/11. CQ Re-

searcher, 9, 701-732.

CHICAGO STYLEJost, Kenneth. “Remembering 9/11.” CQ Researcher, September

2, 2011, 701-732.

ACCESSCQ Researcher is available in print and online. For access, visit yourlibrary or www.cqresearcher.com.

STAY CURRENTFor notice of upcoming CQ Researcher reports or to learn more aboutCQ Researcher products, subscribe to the free e-mail newsletters, CQ Re-searcher Alert! and CQ Researcher News: http://cqpress.com/newsletters.

PURCHASETo purchase a CQ Researcher report in print or electronic format(PDF), visit www.cqpress.com or call 866-427-7737. Single reports startat $15. Bulk purchase discounts and electronic-rights licensing arealso available.

SUBSCRIBEAnnual full-service CQ Researcher subscriptions—including 44 reportsa year, monthly index updates, and a bound volume—start at $803.Add $25 for domestic postage.

CQ Researcher Online offers a backfile from 1991 and a number oftools to simplify research. For pricing information, call 800-834-9020, ore-mail [email protected].

Upcoming ReportsChildren and Poverty, 10/28/11 Google’s Dominance, 11/4/11 Public Lands, 11/11/11

In-depth Reports on Issues in the News

?Are you writing a paper?

Need backup for a debate?

Want to become an expert on an issue?

For more than 80 years, students have turned to CQ Researcher for in-depth reporting onissues in the news. Reports on a full range of political and social issues are now available.Following is a selection of recent reports:

Civil LibertiesRemembering 9/11, 9/11Government Secrecy, 2/11Cybersecurity, 2/10Press Freedom, 2/10

Crime/LawEyewitness Testimony, 10/11Legal-Aid Crisis, 10/11Computer Hacking, 9/11Class Action Lawsuits, 5/11Cameras in the Courtroom, 1/11Death Penalty Debates, 11/10

EducationSchool Reform, 4/11Crime on Campus, 2/11Career Colleges, 1/11Value of a College Education, 11/09

Environment/SocietyProlonging Life, 9/11Extreme Weather, 9/11Aging Population, 7/11Nuclear Power, 6/11Business Ethics, 5/11Artificial Intelligence, 4/11

Health/SafetyMilitary Suicides, 9/11Teen Drug Use, 6/11Organ Donations, 4/11Genes and Health, 1/11Food Safety, 12/10Preventing Bullying, 12/10

Politics/EconomyReviving Manufacturing, 7/11Foreign Aid and National Security, 6/11Public-Employee Unions, 4/11Lies and Politics, 2/11

CQR Student Debt - The Maxwell School of Syracuse … · Student Debt IAs the college-loan system...

Documents

Transcript of CQR Student Debt - The Maxwell School of Syracuse … · Student Debt IAs the college-loan system...