POLITICS OCTOBER 26, 2011
In early September, officials from the Chilean Embassy in Washington, DC came to my office for advice about a political crisis wracking their country. Angry about the state of university education—including high tuition costs, predatory student loans, ineffective school vouchers, pervasive inequality, and rampant profit-taking—hundreds of thousands of Chileans have taken to the streets regularly since May of this year, participating in demonstrations and national strikes. As riot police used tear gas and water cannons on protesters in the streets of Santiago, approval ratings for President Sebastian Pinera dropped to record lows. Ongoing high-level negotiations between students and government officials have yet to produce resolution.
I was happy to talk policy with the visiting Chilean officials, but I warned them that the American experience of higher-education reform wasn’t an especially inspiring example. Indeed, I was struck by the fact that, even though the American higher education financing system is itself on the verge of catastrophe—its integrity crumbling under the weight of three decades of relentless tuition hikes by colleges and universities and fresh cuts in public aid—massive student-led protests hadn’t yet forced the hand of American policy makers.
Almost on cue, the Occupy Wall Street movement proved me wrong. The protesters in lower Manhattan and elsewhere have many grievances, but it has been impossible to overlook the prominent place given to college debt. Finally, President Obama has felt compelled to respond. On Wednesday, he’ll be unveiling a new set of initiatives designed to address the student-loan crisis. On their own, they mark a good start, but much more will need to be done. Otherwise, the growing expenses of our higher education system will continue to threaten the very underpinnings of our system of opportunity.
THE STUDENTS IN ZUCCOTTI PARK are right to focus on the injustices of student debt: Many of them are indentured to the very banks that destroyed the economy and along with it the jobs students need to pay their loans back. The banks were bailed out for their trouble, while students are left with debt that, thanks to financial industry lobbying, can’t be discharged in bankruptcy. Outstanding student loans in the United States are projected to reach $1 trillion this year, a larger sum than credit card debt.
Some OWS participants have called for blanket forgiveness of all student loans. This strikes me as both unlikely and extreme. I’ve seen videos of a Harvard Law School graduate complaining that he didn’t understand how compound interest works and expressing his preference not to have to work in a law firm to repay the $100,000 he borrowed to pay for his Harvard degree. That guy doesn’t have my sympathy. Some college degrees are worth a lot more than others, and—terrible media coverage notwithstanding—the well-off students who graduate from Ivy League universities are going to be fine.
But for most college students, debt is a legitimate and growing problem. As recently as the early 1990s, most undergraduates didn’t borrow. Now, two-thirds emerge from college with a loan. Over the last three decades, college tuition has grown far faster than inflation, in good economic times and bad. Even health care costs have grown slower by comparison. Colleges like to blame feckless state legislators who won’t financially support higher learning, and in states like California they certainly have a point. But much of the guilt lies with higher education institutions themselves. They have spent billions on vanity building projects, administrative overhead, and money-losing sports programs in order to compete for status and fame. Students and parents have been left with the bill.
At the same time, the economy has increasingly organized itself so that people require a college degree in order to pursue a decent career. Unemployment rates during the great recession have been catastrophic for the uneducated even as graduates have mostly kept their jobs. So students and parents have little choice: pay what colleges choose to charge you, and if you don’t have the money in the bank, take out a loan.
To be sure, some students make bad choices, borrowing too much money to attend second-rate colleges or pursue majors with little value in the job market. But that just points to the folly of building a higher education system that depends on wise financial-decision making by 18-year olds, and makes learning for the sake of learning a luxury that only the wealthy can afford. Colleges that allow students to take such loans and happily cash their checks, meanwhile, deserve a measure of moral condemnation.
There are still low-cost options available such as community colleges, and for some students, two-year institutions can provide a good education and an affordable path to a degree. But the hard truth is that most community college students never manage to ultimately earn a college degree, in part because state governments brutally shortchange the two-year sector, giving them pennies on the dollar compared to flagship universities where the privileged send their children to school. Many community colleges simply don’t have the resources necessary to give a diverse, often under-prepared student population the education and services they need.
To its credit, the Obama administration reformed the federal student loan system in 2010 by moving from a system where private banks were given government subsidies to make government-guaranteed student loans to a system where the federal government makes all the loans directly, cutting out the middleman and saving taxpayers tens of billions of dollars. The administration also cracked down on for-profit colleges that saddle students with unmanageable loans, and pumped a staggering $20 billion in new funding into the Pell Grant program for low-income students, more than doubling the program’s size.
On Wednesday, President Obama will announce several new reforms designed to give student debtors relief. Students who have loans under both the old private bank system and the new government lending system will be able to consolidate those loans at a lower interest rate, further reducing public subsidies to private banks. Those savings will be used to accelerate by two years a program originally scheduled to begin in 2014, whereby lower-income students will be able to limit their monthly loan payments to 10 percent of their income, and have any remaining debt forgiven after 20 years.
These are good ideas. But the administration has thus far failed to take any action to control the root cause of growing student debt: the rapidly escalating price of higher education. Without such reforms, all that new financial aid money will disappear like water tossed into the ocean. Far more must be done to create innovative new low-cost higher education models that can compete with traditional institutions on price and quality at the same time. At the same time, the prestige-obsessed market dynamics of higher education need to be altered by giving students and parents much more information than currently exists about which colleges actually provide a high quality education at a reasonable price.
These kinds of reforms will be resisted fiercely by traditional colleges and universities that are averse to change. Indeed, politicians will only stand up to the higher education lobby and reform the higher education system if they are pressured to do so. If legislators can get away with balancing budgets on the backs of low- and middle-income college students, they will. The only thing that might plausibly alter the status quo of perpetually increasing tuition and debt is a fundamental change in the political dynamics of higher education.
In Chile, for example, student protests have dominated the national conversation, essentially creating an emergency and refusing to end it until the government had responded in satisfactory fashion. In July, President Pinera gave a televised speech outlining a new education agenda, including increased funding, in response to student demands. After the marches continued, he replaced his minister of education. In August, he offered a new proposal that would reform the national system of grants and student loans and enshrine the right to a quality education in the constitution (needless to say, we have no such provision in America). Unhappy that the proposal didn’t ban profit-making in higher education, among other things, the students called for more strikes.
Our country is still a long way from the financial immiseration of college students dominating the political scene. American student organizations currently lack the influence, resources, and organizational capacity of their peers abroad. But the OWS movement and President Obama’s response suggest that’s beginning to change. Students and parents can only borrow so much money for so long. Eventually, the simple mathematics of price, debt, and income will push the system to the political breaking point. The first cracks are opening on Wall Street, and they will only grow wider from here.
Kevin Carey is the policy director of Education Sector, a think tank in Washington, D.C.