The Wall Street protesters are providing an important voice in America’s national conversation. They make an interesting contrast with the Tea Party–there is no evidence, so far, of shadowy entities lurking behind the scenes.
Initially, the media focused on the protest’s lack of a clear agenda. If by ‘agenda’ they mean a set of proposals to end the current crises, that is probably unfair. The message seems to have been clear enough, judging from the contributions that have poured in. But recently there is more clarity. The protesters have demanded the forgiveness of school loans. It seems that Obama has been trying to address this demand, whatever the outcome of his public statements may be. However, according to an informal Internet poll the majority of those who voted believe the full amount should be paid, no matter what. It might be helpful to look at this issue in a wider perspective.
To the unemployed college graduates among the protesters, high student loan debt obviously adds insult to injury. However the problem goes back much further than the current economic crisis. In the United States, for example, the debt related to higher education is second only to mortgage debt. In addition the costs of higher education are rising much faster than inflation.
Obama’s proposals for school loan relief
Obama has proposed two strategies that promise some relief:
1. “He will accelerate a measure (already) passed by Congress that reduces the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent.” Under Obama’s proposal this measure would go into effect in 2012, instead of 2014. In addition, the remaining debt would be forgiven after 20 years, instead of 25. This would affect about 1.6 million borrowers.
2. He would also allow loans from the Federal Family Education Loan Program to be consolidated with direct loans from the government. The interest rate on the consolidated loans would be lower by “up to a half percentage point” than before. This could affect 5.8 million borrowers.
To put this into perspective, “today there are 23 million borrowers with $490 billion in loans under the Federal Family Education Loan Program. Last year the Education Department made $102.2 billion in direct loans to 11.5 million recipients.”((Hefling, Kimberly. Obama to offer Student Loan Relief. Boston.com. October 25, 2011. Available: http://articles.boston.com/2011-10-25/news/30321019_1_direct-loan-family-education-loan-program-student-loans))
The underlying problem of rising of costs may be encouraging oversimplification of this debate. The effects of escalating costs are often overlooked because of policies that are intended to increase accessibility to higher education regardless of the total cost.
According to The White House Council of Economic Advisers, increases in Federal aid have helped students deal with tuition increases. “Despite large increases in the published price of college over the past four years, the average student has not seen commensurate increases in the net price of college…” In other words, increases in federal aid have helped students deal with tuition increases.((Obama to outline student loan relief plan. Associated Press. CBS News. Oct. 25, 2011. Available: http://www.cbsnews.com/8301-250_162-20125577/obama-to-outline-student-loan-relief-plan/))
The rising costs of higher education
However, many people are not aware that financial aid consists, for the most part, of loans that must be repaid. To make matters worse, from 1980 to 2004 the cost of higher education rose by 250 percent, although in the same period, inflation only rose 18-20 percent. If discounts and financial aid were truly mitigating rising prices, one would expect student debt to remain stable compared to inflation. However, from 1993 to 2008 average student debt rose from $9,250 to over $19,000–a 50 percent increase after inflation.
Another important point that should be made is that in many countries tuition fee levels are set at the state or provincial level. These countries include Canada, India and the United States. In the U.S. the entities responsible differ from state to state, and may include the governor, legislature, state higher education board, or the individual institution. Therefore, while Obama may have the authority to forgive school loan debt, or at least to change the repayment structure, he would seem to have little control over the underlying cost factors.
There are at least four major factors in the rising costs of higher education, which have little to do with an increase in the quality of that education:
1. The higher education arms race: This is led by elite institutions fighting to be at the
top of the rankings and to attract the best students and the most well-known
professors. This race leads schools to spend money on new facilities, gyms, and
dorms, and on high wages for faculty–in other words, a spend spend spend climate.
2. Student access to too much government subsidized loans: The government gives
students access to ‘tens of thousands’ of dollars in loans every year and is
constantly upping the limit. This gives students the ability to pay rising tuition and
fee prices. Many economists believe that as students’ ability to pay increases,
schools will charge ever higher prices.
3. A complete lack of cost consciousness by the consumer: In a normal environment
fees would be limited by the amount consumers are willing to spend. Costs
consciousness doesn’t exist in higher education because people believe the cost of
education is almost always worth it; also the government keeps intervening and
supplying students with credit.
4. Institutions and prices are fixed to exclude lower income students. Over all,
institutions have no intention of having proportional representation of all income
levels and classes. In higher education there are four terms of affirmative action.
The first three are diversity, athletics and progeny. The fourth is called development,
which means that a certain number of unsatisfactory applicants will be admitted if the
family can donate large sums of money. Also studies have shown that rising tuition
prices tend to discourage poor students from applying.
These things have detrimental effects on the country at large, one of them being that a “business meritocracy turns into a business aristocracy.” Qualified people are priced out of an education, trapping the poor in poverty. Eventually even the middle class is priced out. Finally, it creates a bubble of higher education and may result in the failure of institutions, decreasing the total number of schools.((Morash, Alex. Higher Education Costs Soar while Opportunities Decline. Boston Public Policy Examiner. Oct. 25. 2011. Available: http://www.examiner.com/article/higher-education-costs-soar-while-opportunities-decline<a href="http://www.examiner.com/article/higher-education-costs-soar-while-opportunities-decline" title="Higher education costs soar while opportunities decline"))
School loan policies in international perspective
The rest of this essay is a summary of a paper discussing the issue of tuition fees in an international comparative perspective. The title of the paper is “Tuition Fee Policies in Comparative Perspective: Theoretical and Political Rationales”, and includes further detail about strategies for each country, as well as examples of current loan programs. The parent website lists additional studies regarding tuition fee policies.
Tuition fees are considered to be an important part of a cost-sharing strategy, in which the government shares the costs of higher education with students and their families. The term ‘tuition fee’ refers to “a mandatory charge levied upon all students (and/or their parents) covering some portion of the general underlying costs of instruction.” Cost-sharing strategies are typically combined with accompanying financial assistance policies and programs to ensure access by less advantaged students. Such policies are of critical importance because of the revenue at stake and also because of their impact on accessibility, equity and social justice.
“Historically, the development of many higher education systems (particularly in Western Europe, Central and Eastern Europe, Russia and the nations of the former Soviet Union and Francophone Africa) were developed based on an ideology of free tertiary education for qualified students.” There are several rationales for this policy, although, surprisingly, it has tended to favor the politically powerful middle and upper classes. The rationales for free higher education are:
1. The returns to society from an educated population are high.
2. Education is a fundamental right.
3. Tuition fees may discourage the participation of students from low-income families, rural areas or ethnic minorities with negative impacts in terms of social equality and social benefits.
4. The costs of student maintenance are high and beyond the reach of many families especially when added to the foregone student earnings.
In recent years the trend has been to shift part of the cost burden to students and their parents. The rationales for cost-sharing include:
1. Private returns from higher education are substantial and probably extend to the parents as well as the students.
2. Free higher education goes disproportionately to the children of middle and upper classes, while the costs are paid by taxes that may or may not be proportional and are frequently regressive. Most economists view totally free higher education as a way to redistribute income from the poor to the wealthy.
3. Students and families who pay tuition fees will demand accountability.
4. The costs of higher education, with costs rising in excess of inflation, require high annual increases in revenue. But obviously, there are budgetary and political limits on the increase of taxes.
However, some countries currently have laws prohibiting the charging of tuition fees. At the time this paper was written, (the latest sources cited were from 2005) these countries were in Central and Eastern Europe, Russia and the other countries of the former Soviet Union, Nigeria, and Ireland. Before 2005 the Social Democratic government of Germany also banned tuition fees for the first degree. However, at that time there were already plans to impose fees of about 500 Euros per semester. In Mexico the Constitution is not clear about this policy, although tuition fees have been very low for the past 30 years.
In some countries the central government is responsible for setting tuition fee levels. These include Hong Kong and the United Kingdom. In others, such as Chile and South Korea, the institutions set their own tuition fees. In the UK, a Higher Education Act was passed in 2004, allowing universities to charge “top up” fees over and above the standard governmental fee, up to a maximum of $ 4,846 (in U.S. dollars). By 2005 it was obvious that most universities would charge the maximum allowable tuition fee. In 2005 Australia passed similar legislation allowing universities to increase tuition fees up to 25 percent.
The United States’ tuition fees are the highest of twenty countries listed. U.S. fees are closest to those of South Africa (as of 2004-2005), but there is still quite a difference between the two. The highest-level tuition fee in the U.S. is about $3,000 higher for an academic year than the highest-level tuition fee in South Africa. Further, South Africa’s highest-level tuition fee is about $3,000 higher than the next in line–Hong Kong.[ref]Marccuci, Pamela N. and D. Bruce Johnstone. Tuition fee policies in comparative perspective: theoretical and political rationales. Available: http://gse.buffalo.edu/org/inthigheredfinance/files/Publications/foundation_papers/(2007)_%20Tuition_Policies_in_a_Comparative_Perspective_Theoretical_and_Political_Rationales.pdf%5B/ref%5D
[intlink id=”712″ type=”post”]AMERICAN NOMADS ON WALL STREET[/intlink] AND [intlink id=”802″ type=”post”]THE CONVERSATION WITH OWS[/intlink]