Category Archives: Economy

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A Modern Fable

Or… how low-income, high-achieving students can gain admission to elite colleges

Two recent studies on low-income, high-achieving high school students and the problems they face in gaining admission to elite private schools have attracted considerable attention in both the education and mainstream media.

The first, Expanding College Opportunities for High-Achieving, Low Income Students, by Caroline Hoxby and Sarah Taylor (Stanford Institute for Economic Policy Research, March 29, 2013) received attention from The New York Times (editorial on April 10, following an article by David Leonhardt on March 16 regarding an earlier study by Dr. Hoxby). The second Hoxby study found that customized information packets, costing about $6 each, sent to low-income, high-achieving students significantly increased the percentage of these students who applied to top-tier colleges. Inside Higher Ed covered this study on April 1, 2013.

The second study, Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind (Steven Burd, the New America Foundation, May 8, 2013), examined actual data from the 2010-11 academic year for thousands of public and private colleges to determine the average cost for Pell-eligible students at each college and university. The study found that two-thirds of the private institutions charged families earning less than $30,000 per year a net price of over $15,000 a year. As a consequence, the study called for federal action “to ensure that colleges continue to provide a gateway to opportunity.” The Chronicle of Higher Education covered this study on May 8, and The Boston Globe ran a lengthy story that related to the study on May 28.

These two studies are interesting bookends to the same issue: low-income students, even when they are high-achieving in high school, are much less likely to apply to elite schools, and even when they do, they often face insurmountable costs.

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Is the Student Loan Crisis Really a Crisis?

Or have hyperbole and hysteria created a misperception?

For the past 18 months, the media (and, subsequently, the politicians) have been focused on the rising tide of student debt. Two issues have attracted particular attention: first, the fact that total student debt has (a) exceeded $1 trillion, or, expressed alternatively, (b) exceeded the total of credit card debt; and second, the fact that some individuals have accumulated more than $100,000 in student debt.

News stories have become increasingly frantic. For example:

  • In a March 9 editorial, The New York Times cited a federal analysis from 2009 that “found that 10 percent of borrowers with private loans were spending more than 25 percent of their incomes in monthly payments.” But of the 60 percent of students who borrow, only about one-third (20 percent) have private loans – so the 10 percent of private borrowers who are spending more than 25 percent of their incomes in loan payments represent just 2 percent of all graduates. Those large payments are a huge problem – but only for a very small number of individuals.
     
  • A Bloomberg.com post on May 7 was headlined “Bankers Warn Fed of Farm, Student Loan Bubbles Echoing Subprime.” That’s a pretty scary headline – but the article conflates a meeting of the Federal Advisory Council on February 8, 2013, relating to farmland prices, where the term “bubble” was in fact used, with a meeting of the same group a year earlier (February 3, 2012) relating to student loan debt, where “bubble” was not used.
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The Dreaded Out-of-State Fee

At flagship universities, balancing the budget on the backs of out-of-state students

I read an off-hand reference to a fact that all but knocked me out of my seat: tuition and fees at UCLA for out-of-state students total $35,570 for the current academic year. (Room and board is extra: another $14,232.)

I wondered how many students were paying such a huge sum. In addition to the 7 percent who are international students, only 5 percent of UCLA’s undergraduates are from out-of-state. Still, that’s more than 1,300 students – not an insignificant number. Moreover, at UC Berkeley, with a comparable out-of-state fee, 10 percent of students (about 2,500) are from out-of-state, in addition to the 9 percent who are international students.

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How to Choose the ‘Right’ College

As May 1 approaches, some advice for those students about to become the Class of 2017

We are in the closing weeks of college choice decision time: most institutions have a May 1 date for students to “accept the acceptance.” After that date, some colleges and universities will have a full class for the fall of 2013 and will return deposits postmarked May 2 or later; at many others, the choice (or even the availability) of residence halls, as well as classes, may be severely restricted. So prospective students should be prepared to make their choice of campuses by May 1.

But for many students, cost is a factor that limits choice. In short, can the student (and his or her family) afford the campus that is the student’s first choice?

It is at this point that the expectations of the campus and the student are often at odds. Based on extensive survey data, most students and their families expect to pay substantially less than the institution’s sticker price – and that is often the expectation of the institution as well. But there are enormous differences between and among institutions as to their willingness (or ability) to offer financial support.

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Where Should the Talented Poor Attend College?

Arguments for and against elite schools for high-achieving, low-income students

In his March 17 column (“Better Colleges Failing to Lure Talented Poor”), David Leonhardt of The New York Times wrote about a study that found that only 34 percent of high-achieving students in the bottom quartile of family income enrolled in one of the nation’s 238 most selective colleges, as compared to 78 percent of high-achieving students in the top quartile of family income.

One conclusion is that elite schools, for all their rhetoric, are failing to recruit an economically diverse entering class of students.

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Down the Up Staircase

How about our wealthiest colleges freeze tuition, rather than cut need-blind admissions?

When we tire from worrying about North Korea, Iran, fiscal cliffs and sequestering, we can sit back and luxuriate in the knowledge that our institutions of higher education are still doing their job of opening the door of opportunity to permit successive generations of students to achieve both educational and economic advancement. Regardless of the circumstances of their birth, or of the wealth of their families, talented and ambitious students rest secure in the knowledge that their efforts will be recognized and rewarded by top colleges and universities. Because of their enormous endowments, these institutions now more than ever have the capacity to be need-blind in the admissions process, meaning that students will be admitted without regard to their ability to pay.

Oops! Maybe it’s time to go back to thinking about nuclear weapons and cliffs. Several of the wealthiest campuses have recently announced that they are reducing their aid packages for needy students and are no longer offering need-blind admission.

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The Debt Problem – Part II

Student debt has risen dramatically. But is $26,000 in debt unreasonable if the payoff is $1 million?

Last week, I commented on Charles M. Blow’s March 9 column in The New York Times, which focused on the problem of student debt. I discussed the factors that contributed to the sudden growth of educational debt and steps that are necessary to rectify the problem (or would at least prevent it from becoming worse).

I ran out of room before I could get to the issue of assessing how big a problem student debt really is – hence, Part II this week.

On the one hand, student debt has increased dramatically: roughly $1 trillion in total debt, more than twice what it was just eight years ago, and larger in size than the total of all credit card debt. On an individual level, approximately half of the student population borrows to finance their education, and they graduate owing an average of about $26,000.

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The Debt Problem – Part I

Student debt is no small problem, but colleges can take the first step toward addressing it.

In his column in The New York Times on March 9, Charles M. Blow states: “We are reaching a crisis point in this country’s higher education system” because of “staggering levels of debt.” He notes that student loan debt has more than doubled in the last eight years, to almost $1 trillion, and that, not unexpectedly, student loan debt is hardest on families in the bottom quintile of family income. Mr. Blow ends his column with, “We are on an unsustainable track. This will not end well.”

How is it that this problem has become so large so quickly? How do we fix it? Is this as big a problem as people claim?

I’m glad you asked. This is a problem that resulted from many intersecting forces:

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The Folly of Early Action

Early action pressures colleges to award financial aid without information on student need.

Some years ago, a few of the most prestigious colleges and universities adopted a new model for admitting students. Rather than facing a delay of several months after making application before hearing the university’s decision, a prospective student could choose to apply for “early decision.” The very best applicants would learn much earlier in the admissions cycle that they had been accepted – but the catch was that they then had to commit to attend the university that had accepted them. No longer could they wait and compare offers from other institutions. “Early decision” cut both ways: in return for an early answer, the student was obliged to make an irreversible commitment.

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Moody’s Blues

The time for bold action by university leaders is now, the credit agency says.

On the 16th of January, Moody’s Investors Service issued a report entitled “US Higher Education Outlook Negative in 2013.” Inside Higher Ed followed with an article on the findings in the report the next day. The report, and the article, were sobering reading for university administrators, and, in some quarters, more than a little frightening.

Moody’s, one of the three major credit rating agencies worldwide, has downgraded its outlook for the entire U.S. higher education sector from stable to negative. Based on a careful analysis of data over the past several years, Moody’s concludes that there is “mounting pressure on all key university revenue sources, requiring bolder actions by university leaders to reduce costs and increase operating efficiency.”