This is definitely another bubble that’s due to pop.
20 thoughts on “The College Loan Scam”
One thing they left out of that flowchart. If you’re a government employee you have access to a program that limits your repayment to $100 a month and cancels your debt after ten years regardless of the balance.
As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
It says something about what you think is more important. Concrete monstrosities or getting stuff done? When I was on the UC Davis campus, they didn’t slow construction despite the budget problems. But they did cut back on a lot of department budgets even when (such as hiring cheap grad students) those cutbacks made overall costs higher.
I must admit that incoming students do expect shiny buildings and green lawns, so there is an image that colleges need to maintain. But at some point, when things get tight, they should keep in mind what’s supposed to be important and cut back on the stuff that isn’t.
Karl,
Buildings and infrastructure are generally funded by individuals/alumni donations (tax deductible with often their name on them) or Congressional earmarks, while operating budgets come from the state and tuition. So its not unusual to get a lot of pretty buildings at public schools and then have no money to hire faculty to work in them 🙂
When I was at CSU Sacramento (dear Lord, was that really 30 years ago?) the buildings where I felt most comfortable were probably about 30 years old at the time. Now I’d be hard-pressed to find any of the buildings I remember from back then on that campus.
Not that they aren’t there — I’d just be hard-pressed to find them.
How, exactly, is it going to pop? What’s the mechanism?
Education isn’t like dot.com stocks or real estate. You can’t sell your diploma. You can’t get out of the debts in bankruptcy. You can’t get a job in most large companies or in government without the credential. You can’t compare the educational results of the University of Phoenix vs. the University of Michigan in any sort of apples to apples way. You can’t buy into the alumni network except by going to the school. Unlike home-owning, where you can decide to rent, there’s no alternative to getting an education.
I don’t see this “popping.” More people might opt out of getting an education, but that hardly helps the nation or the people. Until there’s some sort of universal metric for measuring educational output (allowing real competition in the education market) the sheepskin Emperors will keep their clothes.
The obvious metric for quality of education from the perspective of loans is how well they are paid off.
One mechanism, Brock, is a breaking of ranks by one or more top or near-top universities. Suppose, for example, UC Berkeley offered to give degrees to students — regular old UCB degrees — if they took their first two years entirely online, and then came into residence and did all their upper-division courses on campus, the traditional way. Furthermore, they say you can take all those lower-division courses (which the faculty hate teaching anyway) either through any agency that offers them. They charge a nominal “tuition” fee for those first two years, on top of whatever you pay the online provider, but something far below UCs tuition plus room and board.
Now you can get an official UC degree while only paying two full year tuition plus room and board. From UCs point of view, they can teach fewer massive lower-division and freshman courses. They can take a lot of pressure off their dorms, since far fewer freshman and sophomores need to be accomodated. The average age of students on campus rises, which means they’re more mature and less troublesome. Students who are going to flunk out will normally do so in the first two years, which means they worry far less about retention. Any money they collect through the fee is pure gravy.
They don’t even need to worry about providing the online courses: you can be sure that people eager to do it and get the “UC Approved” cachet would jump in and compete for the lowest price that makes the mark.
And once you got that going, and it worked very well, what’s to stop the UC Regents from thinking hmm…I’ll bet there are certain kinds of degrees that could be done with ONE year’s residence…or even zero…boy could we save money, and boost enrollment far past what the dorms would hold…
They can take a lot of pressure off their dorms, since far fewer freshman and sophomores need to be accommodated.
They generally do not want to “take a lot of pressure off their dorms.” The dorms are highly-freaking-profitable. Many colleges push for “mandatory dorms”, at least for freshman, pushing to get as many kids in them as possible. They have tougher fights for sophomore and the other levels as kids and frats start being more organized.
The idea that educating a student and certifying the quality of that education should be performed by the same institution is so obviously corrupt that even normal people ought to see the problem with it one of these decades. The trouble for many universities is that, IF reliable certification is ever available independent of education, the door is opened for educational systems that produce the same quality without the same massive overhead.
I say “IF” – would-be independent certifiers are probably open to a host of legal liabilities that universities (and The College Board, etc) are effectively grandfathered out of.
Brock Says:
How, exactly, is it going to pop? What’s the mechanism?
A lot of law school students are awaking to the conclusion that going $200K or more in debt isn’t worth it from a financial perspective. They’re finding that the job prospects after graduation are pretty bad and except for the top graduates from the top law schools, most of those who do manage to find a job aren’t going to be making the big bucks.
Now, what happens if a lot more people come to the same conclusion about undergraduate education? You have a lot of colleges around the country and they depend on maintaining a certain level of enrollment. Student loans have made it easy for them to keep raising their tuition* but what happens if high school students or their parents decide it just isn’t worth taking on big debt for a degree that might not be worth anything? In the past year, there have been several published articles such as this one about the number of people with degrees who’re working in jobs that don’t require degrees, such as construction, valets, waitresses, etc. (Be sure to go see Table 1 on page 7 and Table 2 on page 8) That evidence strongly suggests that their degrees didn’t help them get better jobs but instead a lot of debt. When enough people decide a degree isn’t worth having, then a lot of colleges are going to be in dire trouble.
*I read an article last year that noted how raising the tuition often resulted in an increase in student applications. It seems people are stupidly assuming that because it costs more, it has to be better. They’re the living enbodiment of the saying, “Knowing the price of everything and the value of nothing.”
Some of the sob stories are pretty disturbing. I read of one person who says they are 45 and owe $300k in student loans. Another person claims to have $150k in loans (and works with a freshly minted lawyer who supposedly has $250k in debt). Neither of the two are keeping up with their debt. It’s possible these aren’t true, but they sound plausible.
Carl,
[[[Suppose, for example, UC Berkeley offered to give degrees to students — regular old UCB degrees — if they took their first two years entirely online, and then came into residence and did all their upper-division courses on campus, the traditional way. Furthermore, they say you can take all those lower-division courses (which the faculty hate teaching anyway) either through any agency that offers them.]]]
Sounds like you just reinvented the Community College model which has been operating that way for decades, minus the online part which only dates to the Internet boom.
But expanding on your idea, transforming the UC system into upper division only might be one way to solve some of the UC systems cost issues, especially by eliminating cost of the graduate assistants who actually do the teaching for those first two years.
Karl,
In the old days there were strict limits on the amount of total debt a student could have. Sounds like its way past time to go back to those limits. Getting the commercial banks out of the process would also be a good thing. I was fortunate in that when I went to school I was able to get my loans through a state run non-profit. Made dealing them, and paying them off, much easier.
But then I was also not so stupid as to go to some big name super expensive elite university. Instead of graduate assistants teaching my classes I had real professors. One who doubled as the President of the school even wrote the Physics textbook we used 🙂
Tom
K says: As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
Hey K, as long as that crappy building is on the same grounds as the metal bending / composite baking / board soldering / engine running parts of the business, I for one can put up with it! (Nothing like being able to walk downstairs and see your creations in actual hardware…)
And I went to a middling state university (not UC, a different state), and like Thomas, had essentially no TA’s teaching my classes, even the huge weed-out classes like Physics 1&2, and Thermogoddamics. My fluid dynamics professor was the dean of the college of Engineering, and a damn good teacher to boot. It’s served me pretty well…
One mechanism, Brock, is a breaking of ranks by one or more top or near-top universities. Suppose, for example, UC Berkeley offered to give degrees to students — regular old UCB degrees — if they took their first two years entirely online…
Wouldn’t happen. Not in a million years. Those 101 course are cash cows. Do you have any idea what sort of profit margins they make on classes to freshman at $2,000 a pop, with 300 students in a lecture hall monitored by a T.A.? Bill Gates himself would kill for that kind of money. The graduation rate for some of these Universities is attrociuous, but who cares when they’ve already extracted two years worth of tuition from them.
The idea that educating a student and certifying the quality of that education should be performed by the same institution is so obviously corrupt that even normal people ought to see the problem with it one of these decades. The trouble for many universities is that, IF reliable certification is ever available independent of education, the door is opened for educational systems that produce the same quality without the same massive overhead.
Bingo! You get a prize!
There’s a deeper problem here, which is that the Accreditors (who accreditate the schools) already are separate institutions. And innovative education start-ups have indeed sought to get accredited. But they can’t.
Here’s the dirty secret of accredidation – they don’t accredidate the quality of education provided by these schools. The only thing they measure are the “signals” of education – lecture halls, professor:student ratio, novel research published by the professors, sports teams, campus life, etc.
It would be like accredidating a rocket program not on whether the rocket flies, but how many engineers were employed there and how much money was spent on blue prints and power point presentations. “Oh, lots of engineers work here. Must be a good rocket program.”
That’s why new competitors can’t break into the market. They can’t get accredited without assuming the exact same cost structure and business model as the existing players. No one University has a monopoly on education, but the business model itself has a regulator-created monopoly on being able to say what an education “is”.
I have to agree with roystgnr’s comment as well.
However, here is the bubble: The true value of a college to any student (customer) is the ability to obtain a higher paying job more readily than not attending the college (either no school or another school). Established universities can weather poor quality by having established networks of former students that can and will vouch for quality whether it exists or not. That’s the bubble.
As employers figure out that the quality isn’t really there, student’s won’t be hired from certain places (or strictly because they went somewhere). When students discover that all the money they spent doesn’t result in higher paying jobs; the bubble pops. This is hurried along by a bad economy that has fewer jobs. And if a cheaper alternative is available, the bubble will certainly go.
Wouldn’t happen.
Well…I am going to disagree with you, Brock. Unfortunately I can’t say exactly why, because this touches on professional discretion. About all I can usefully say is that I actually know people at Berkeley, and I am not entirely speaking speculatively.
Hmm. Another point: essentially the question is whether Berkeley can make a great big pile of money by selling their prestige to someone who will take care of the actual education in a cheaper way. I understand the perverse incentives, yes. And let us never underestimate academical arrogance and pride. But history suggests that when the alternatives are your pride or big piles of money — the latter always wins, eventually.
It’s important to understand that while universities are very costly, they are not very profitable. All the enormous expense gets eaten up by the huge staff of drones they support. (At a typical university a ratio of teaching and research active staff to “support” staff of 1:5 or 1:10 would be typical.)
But there are people in the university system who are quite bright, and who would be pretty happy to make the business far more profitable by cutting out the deadwood and selling an equivalent (or better) product for a lower price to more consumers. The deadwood will resist, yes. We shall see how long it takes.
It’s important to understand that while universities are very costly, they are not very profitable. All the enormous expense gets eaten up by the huge staff of drones they support. (At a typical university a ratio of teaching and research active staff to “support” staff of 1:5 or 1:10 would be typical.)
Most universities are “non-profits” by design and by law. All that means is that they get to spend all available money on things like expanding the admin staff at inflated salaries. This is true of non-profits across the spectrum from NGOs to NPR to universities and charities. If they have extra money, they’ll spend it.
If universities ever were profit-making enterprises, they’d be far more concerned about their efficiency and reputations than they are today. So long as the taxpayers keep the money flowing – be it in the form of direct revenue allocations or government ran student loan programs – then universities have zero incentive to control costs. When the tax revenues are reduced, they have to try to keep enrollment high while raising tuition. It’s rare to hear of actual reductions as in this story.
One thing they left out of that flowchart. If you’re a government employee you have access to a program that limits your repayment to $100 a month and cancels your debt after ten years regardless of the balance.
As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
It says something about what you think is more important. Concrete monstrosities or getting stuff done? When I was on the UC Davis campus, they didn’t slow construction despite the budget problems. But they did cut back on a lot of department budgets even when (such as hiring cheap grad students) those cutbacks made overall costs higher.
I must admit that incoming students do expect shiny buildings and green lawns, so there is an image that colleges need to maintain. But at some point, when things get tight, they should keep in mind what’s supposed to be important and cut back on the stuff that isn’t.
Karl,
Buildings and infrastructure are generally funded by individuals/alumni donations (tax deductible with often their name on them) or Congressional earmarks, while operating budgets come from the state and tuition. So its not unusual to get a lot of pretty buildings at public schools and then have no money to hire faculty to work in them 🙂
When I was at CSU Sacramento (dear Lord, was that really 30 years ago?) the buildings where I felt most comfortable were probably about 30 years old at the time. Now I’d be hard-pressed to find any of the buildings I remember from back then on that campus.
Not that they aren’t there — I’d just be hard-pressed to find them.
How, exactly, is it going to pop? What’s the mechanism?
Education isn’t like dot.com stocks or real estate. You can’t sell your diploma. You can’t get out of the debts in bankruptcy. You can’t get a job in most large companies or in government without the credential. You can’t compare the educational results of the University of Phoenix vs. the University of Michigan in any sort of apples to apples way. You can’t buy into the alumni network except by going to the school. Unlike home-owning, where you can decide to rent, there’s no alternative to getting an education.
I don’t see this “popping.” More people might opt out of getting an education, but that hardly helps the nation or the people. Until there’s some sort of universal metric for measuring educational output (allowing real competition in the education market) the sheepskin Emperors will keep their clothes.
The obvious metric for quality of education from the perspective of loans is how well they are paid off.
One mechanism, Brock, is a breaking of ranks by one or more top or near-top universities. Suppose, for example, UC Berkeley offered to give degrees to students — regular old UCB degrees — if they took their first two years entirely online, and then came into residence and did all their upper-division courses on campus, the traditional way. Furthermore, they say you can take all those lower-division courses (which the faculty hate teaching anyway) either through any agency that offers them. They charge a nominal “tuition” fee for those first two years, on top of whatever you pay the online provider, but something far below UCs tuition plus room and board.
Now you can get an official UC degree while only paying two full year tuition plus room and board. From UCs point of view, they can teach fewer massive lower-division and freshman courses. They can take a lot of pressure off their dorms, since far fewer freshman and sophomores need to be accomodated. The average age of students on campus rises, which means they’re more mature and less troublesome. Students who are going to flunk out will normally do so in the first two years, which means they worry far less about retention. Any money they collect through the fee is pure gravy.
They don’t even need to worry about providing the online courses: you can be sure that people eager to do it and get the “UC Approved” cachet would jump in and compete for the lowest price that makes the mark.
And once you got that going, and it worked very well, what’s to stop the UC Regents from thinking hmm…I’ll bet there are certain kinds of degrees that could be done with ONE year’s residence…or even zero…boy could we save money, and boost enrollment far past what the dorms would hold…
They can take a lot of pressure off their dorms, since far fewer freshman and sophomores need to be accommodated.
They generally do not want to “take a lot of pressure off their dorms.” The dorms are highly-freaking-profitable. Many colleges push for “mandatory dorms”, at least for freshman, pushing to get as many kids in them as possible. They have tougher fights for sophomore and the other levels as kids and frats start being more organized.
The idea that educating a student and certifying the quality of that education should be performed by the same institution is so obviously corrupt that even normal people ought to see the problem with it one of these decades. The trouble for many universities is that, IF reliable certification is ever available independent of education, the door is opened for educational systems that produce the same quality without the same massive overhead.
I say “IF” – would-be independent certifiers are probably open to a host of legal liabilities that universities (and The College Board, etc) are effectively grandfathered out of.
Brock Says:
How, exactly, is it going to pop? What’s the mechanism?
A lot of law school students are awaking to the conclusion that going $200K or more in debt isn’t worth it from a financial perspective. They’re finding that the job prospects after graduation are pretty bad and except for the top graduates from the top law schools, most of those who do manage to find a job aren’t going to be making the big bucks.
Now, what happens if a lot more people come to the same conclusion about undergraduate education? You have a lot of colleges around the country and they depend on maintaining a certain level of enrollment. Student loans have made it easy for them to keep raising their tuition* but what happens if high school students or their parents decide it just isn’t worth taking on big debt for a degree that might not be worth anything? In the past year, there have been several published articles such as this one about the number of people with degrees who’re working in jobs that don’t require degrees, such as construction, valets, waitresses, etc. (Be sure to go see Table 1 on page 7 and Table 2 on page 8) That evidence strongly suggests that their degrees didn’t help them get better jobs but instead a lot of debt. When enough people decide a degree isn’t worth having, then a lot of colleges are going to be in dire trouble.
*I read an article last year that noted how raising the tuition often resulted in an increase in student applications. It seems people are stupidly assuming that because it costs more, it has to be better. They’re the living enbodiment of the saying, “Knowing the price of everything and the value of nothing.”
Some of the sob stories are pretty disturbing. I read of one person who says they are 45 and owe $300k in student loans. Another person claims to have $150k in loans (and works with a freshly minted lawyer who supposedly has $250k in debt). Neither of the two are keeping up with their debt. It’s possible these aren’t true, but they sound plausible.
Carl,
[[[Suppose, for example, UC Berkeley offered to give degrees to students — regular old UCB degrees — if they took their first two years entirely online, and then came into residence and did all their upper-division courses on campus, the traditional way. Furthermore, they say you can take all those lower-division courses (which the faculty hate teaching anyway) either through any agency that offers them.]]]
Sounds like you just reinvented the Community College model which has been operating that way for decades, minus the online part which only dates to the Internet boom.
But expanding on your idea, transforming the UC system into upper division only might be one way to solve some of the UC systems cost issues, especially by eliminating cost of the graduate assistants who actually do the teaching for those first two years.
Karl,
In the old days there were strict limits on the amount of total debt a student could have. Sounds like its way past time to go back to those limits. Getting the commercial banks out of the process would also be a good thing. I was fortunate in that when I went to school I was able to get my loans through a state run non-profit. Made dealing them, and paying them off, much easier.
But then I was also not so stupid as to go to some big name super expensive elite university. Instead of graduate assistants teaching my classes I had real professors. One who doubled as the President of the school even wrote the Physics textbook we used 🙂
Tom
K says: As a UC grad, it’s always kind of bugged me that the university campuses look like something out of OZ while the high tech aerospace job you spent years and all your money preparing for in the private sector is located in a leaking building built 50 years ago in an industrial area.
Hey K, as long as that crappy building is on the same grounds as the metal bending / composite baking / board soldering / engine running parts of the business, I for one can put up with it! (Nothing like being able to walk downstairs and see your creations in actual hardware…)
And I went to a middling state university (not UC, a different state), and like Thomas, had essentially no TA’s teaching my classes, even the huge weed-out classes like Physics 1&2, and Thermogoddamics. My fluid dynamics professor was the dean of the college of Engineering, and a damn good teacher to boot. It’s served me pretty well…
Wouldn’t happen. Not in a million years. Those 101 course are cash cows. Do you have any idea what sort of profit margins they make on classes to freshman at $2,000 a pop, with 300 students in a lecture hall monitored by a T.A.? Bill Gates himself would kill for that kind of money. The graduation rate for some of these Universities is attrociuous, but who cares when they’ve already extracted two years worth of tuition from them.
Bingo! You get a prize!
There’s a deeper problem here, which is that the Accreditors (who accreditate the schools) already are separate institutions. And innovative education start-ups have indeed sought to get accredited. But they can’t.
Here’s the dirty secret of accredidation – they don’t accredidate the quality of education provided by these schools. The only thing they measure are the “signals” of education – lecture halls, professor:student ratio, novel research published by the professors, sports teams, campus life, etc.
It would be like accredidating a rocket program not on whether the rocket flies, but how many engineers were employed there and how much money was spent on blue prints and power point presentations. “Oh, lots of engineers work here. Must be a good rocket program.”
That’s why new competitors can’t break into the market. They can’t get accredited without assuming the exact same cost structure and business model as the existing players. No one University has a monopoly on education, but the business model itself has a regulator-created monopoly on being able to say what an education “is”.
I have to agree with roystgnr’s comment as well.
However, here is the bubble: The true value of a college to any student (customer) is the ability to obtain a higher paying job more readily than not attending the college (either no school or another school). Established universities can weather poor quality by having established networks of former students that can and will vouch for quality whether it exists or not. That’s the bubble.
As employers figure out that the quality isn’t really there, student’s won’t be hired from certain places (or strictly because they went somewhere). When students discover that all the money they spent doesn’t result in higher paying jobs; the bubble pops. This is hurried along by a bad economy that has fewer jobs. And if a cheaper alternative is available, the bubble will certainly go.
Wouldn’t happen.
Well…I am going to disagree with you, Brock. Unfortunately I can’t say exactly why, because this touches on professional discretion. About all I can usefully say is that I actually know people at Berkeley, and I am not entirely speaking speculatively.
Hmm. Another point: essentially the question is whether Berkeley can make a great big pile of money by selling their prestige to someone who will take care of the actual education in a cheaper way. I understand the perverse incentives, yes. And let us never underestimate academical arrogance and pride. But history suggests that when the alternatives are your pride or big piles of money — the latter always wins, eventually.
It’s important to understand that while universities are very costly, they are not very profitable. All the enormous expense gets eaten up by the huge staff of drones they support. (At a typical university a ratio of teaching and research active staff to “support” staff of 1:5 or 1:10 would be typical.)
But there are people in the university system who are quite bright, and who would be pretty happy to make the business far more profitable by cutting out the deadwood and selling an equivalent (or better) product for a lower price to more consumers. The deadwood will resist, yes. We shall see how long it takes.
It’s important to understand that while universities are very costly, they are not very profitable. All the enormous expense gets eaten up by the huge staff of drones they support. (At a typical university a ratio of teaching and research active staff to “support” staff of 1:5 or 1:10 would be typical.)
Most universities are “non-profits” by design and by law. All that means is that they get to spend all available money on things like expanding the admin staff at inflated salaries. This is true of non-profits across the spectrum from NGOs to NPR to universities and charities. If they have extra money, they’ll spend it.
If universities ever were profit-making enterprises, they’d be far more concerned about their efficiency and reputations than they are today. So long as the taxpayers keep the money flowing – be it in the form of direct revenue allocations or government ran student loan programs – then universities have zero incentive to control costs. When the tax revenues are reduced, they have to try to keep enrollment high while raising tuition. It’s rare to hear of actual reductions as in this story.