Containing the Costs of Higher Education
The president continues to demagogue the issue of interest rates on subsidized Stafford loans for no justifiable reason. His presidential opponent agrees that the rate should be kept low, the Republican-led House has passed legislation to actually keep the rate low, and the House also offset the deficit impact to avoid sticking the taxpayers with the bill.
Interest rates are in the public eye because of the hype about student-loan debt. Large debt burdens are an important personal financial issue. But students and families are borrowing ever-larger amounts for one reason alone: the exploding cost of higher education. However, the administration now seems reluctant to even acknowledge the basic problem.
The facts, as published by the College Board are staggering:
- The average tuition at public two-year college increased by only 5 percent in inflation-adjusted (“constant”) dollars over the entire decade from 1991–92 to 2001–02. In the most recent decade, the average constant-dollar price has increased by 45 percent — far too close to 5 percent annually.
- College tuition and fees at public four-year institutions have skyrocketed 25 percent over the past three years. Published in-state tuition and fees at public four-year institutions averaged $8,244 in 2011–12, up from $6,591 in 2008–2009 — increases of close to 8 percent each year.
While the cost is a difficulty, the value proposition is even worse. What awaits the newly minted college graduate? The Associated Press reports nearly 54 percent of those under the age of 25 who hold bachelor degrees are either unemployed or underemployedWill a one-year extension of past policy errors contain the rising costs of education? Will a one-year retention of the 3.4 percent rate create jobs?
Fortunately, relentless increases in tuition and fees are not a mystery. What sector gets paid every time it does something, and not for the value of what it produces? What sector increasingly puts decisions in the hands of government, and not private-sector individuals? What sector is riddled with federal entitlements and open-ended federal subsidies?
If you said health care, you’d be right. But you’d also be right if you said higher education. Schools collect for every student every semester or quarter, no matter if he or she learns anything of value. They increasingly tailor their budgets to specification of government-loan programs and other federal dictates, not the needs of students and their families. And the federal money is astonishing. Education Sector data suggest that federal aid in the form of grants, loans, and tax credits totaled $64 billion in the year 2000 and by 2010 they had risen to nearly $170 billion. That’s an increase of 166 percent — over 10 percent a year!
It is hard to believe that a massive expansion of federal subsidies is not at least in part fueling higher tuition costs. For that reason, conservatives have pointed out that the rate of tuition increases can be slowed if the federal government would slow down the funding for higher education. Doing so would certainly force the schools to pay more attention to controlling costs. This would reduce the burden on taxpayers, move toward making a college education more affordable for American families, and ease the burden of debt.
At the same time, it makes sense to target that aid more carefully on those who genuinely deserve assistance; improve the transparency of the subsidy process; enhance families’ access to information about fields of study, graduation rates, and employment rates; and thus tighten the link between subsidies and high-quality education outcomes.
There is some inkling of awareness in the Obama administration. In his January 24 State of the Union address the president, said:
Let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down.
Sadly, however, it would seem that his bold statement was little more than foreshadowing for his recent campaign stump speech targeted to the youth vote and focused solely on extending interest rates for a select few. It is time for the Democrats, who often offer grandiose campaign promises of on this very issue but have done little to nothing over the past three years, to step off the soapbox, roll up their sleeves, and work with Republicans on a practical, long-term solution for controlling the cost of a higher education. For in this era where the national debt increases nearly $4 billion a day, continuing to offer federal subsidies for the sake of reelection is foolhardy and will leave the U.S. penniless.
This originally appeared in NRO on 5.8.12
Graduating to What?
Over the next several weeks, thousands of students will graduate from college hopeful that their hard earned college degree will lead to a promising new job and the beginning of a long and prosperous career. Unfortunately, reality will soon kick in once the graduation ceremonies and celebrations are over. In fact, job prospects of recent college graduates are ominous due to the failed economic policies of this administration. While President Obama has crisscrossed the country telling college students that our economy is improving and the job market is recovering, the facts just do not support his rhetoric.
Here are just a few statistics that college students and their parents should know:
Approximately 56.6% of graduates with bachelor’s degrees under the age of 25 were either unemployed or underemployed last year;
The unemployment rate for individuals between the ages of 20-24 is 13.2 percent compared to the national average of 8.2 percent; and,
Salaries for students graduating in 2009 and 2010 were 10% lower than salaries for students graduating a few years earlier in 2006 and 2007.
In addition, more and more college graduates are facing mountains of debt with few job prospects to enable them to pay it back. According to the College Board’s, Trends in Student Aid 2011, approximately 56% of students who earned bachelor's degrees in 2009-10 from public four-year colleges graduated with an average debt of $22,000 up from $19,800 (in 2010 dollars) a decade earlier. Among students beginning their studies in 2003-04, approximately 19% of bachelor's degree completers and 13% of students who last attended a four-year institution but did not complete a bachelor's degree accumulated more than $28,000 in student debt. Finally, this report states that loans available to undergraduate and graduate students have increased in volume from $53.7 billion in 2000-2001 to $111.9 billion in 2010-2011 --- a staggering 108% percent growth over the past decade. In 2009, 320,000 borrowers who entered repayment defaulted by the end of 2010, an increase of 80,000 borrowers or about 10% of borrowers. Is it any wonder that our next financial crisis will be the failure of these college graduates to pay back their loans because they cannot find a job?
Yet the answer to this problem from President Obama and Congressional Democrats is to require all taxpayers to shoulder the burden of the growing student debt crisis. Democrat proposals to forgive student debt after 20 years of repayment capped at just 10% of the student borrower’s discretionary income, allow students to declare bankruptcy if they cannot repay their student loan, and extend the 3.4% interest rate on student loans without paying for its $30 billion price tag are not the solution. Just today the U.S. Senate rejected a Democrat proposal to raise taxes to pay for extension of a lower interest rate on student loans. Such proposals will merely lead to more and more national debt for generations to come as well as send the message that students do not need to take responsibility for their own debt.
Many parents and students are asking was it all worth it? Why should students work hard for a college or graduate degree if they end up working in a minimum wage job outside of their major if they can find a job at all? Experts still agree that a college degree is worthwhile and wages are significantly higher for college graduates versus those who complete only high school or drop out. But with skyrocketing tuition increases, $1 trillion in total outstanding student debt, and only 115,000 new jobs added in April (the worst so far in 2012), such questions are not unreasonable.
Americans can no longer afford the policies of this administration. They haven’t worked and they have hurt thousands of American families trying to make ends meet. Even President Obama admits that “we can’t keep subsidizing skyrocketing tuition or we’ll run out of money.” Mr. President, we already have.
In just three years, President Obama has added more than $5 trillion to our national debt and he continues to insist that more federal spending and higher taxes are the way out of our economic doldrums. If the European elections in France and Greece are any indication, we may be in for more economic troubles because Europeans have no stomach to tighten their belts and live within their means. Under this administration, we have not made the tough choices either to rein in entitlements or reduce government spending and our economy has not turned around.
Young Americans are paying the price for these decisions as we saddle future generations with more and more debt because our policy makers cannot agree on the path toward prosperity. Sadly, few graduation speakers will point out these realities to our students.
Interest Rates and College Student Loans: The Issues
The Interest Rate Policy
- In September of 2007, Congressional Democrats passed a budget bill that included phased-in rate cuts on subsidized Stafford loans to undergraduates.
- This legislation temporarily phased down interest rates for subsidized Stafford Loans made to undergraduate students over four academic years, at which point the rate would revert back to 6.8 percent.
- The phased-in cuts reduced rates to 3.4 percent for only one year – the 2011-2012 school year.
- (The Washington Post’s assertion that Congress halved the interest rate on federally subsidized Stafford loans to 3.4 percent in 2007 is misleading at best.)
- The interest rate for subsidized Stafford will return to 6.8 percent on July 1st, 2012.
- The 6.8 percent fixed rate was established by Congress and supported by advocacy groups in 2002.
The Higher Interest Rate: Who is Affected?
- The nonpartisan Congressional Budget Office estimates that it would cost the federal government over $6 billion to maintain a 3.4 percent interest rate for subsidized Stafford loans for one more year.
- Estimates by the New America Foundation conclude that students’ minimum monthly payments would increase by, at most, $9, with a national average of $7.
- House Democrats misrepresent the effects on borrowers by asserting that the rate increase will cost $1,000 dollars. It is important to note however, that this increase will be spread out over the term of the loan for which the national average is nearly 9 years: 104 months.
Who Really Pays?
- Congressional Democrats have yet to offer specific policies to offset the additional $6 billion cost to taxpayers. This raises the real possibility that the plan is to simply increase the deficit – which already exceeds $1 trillion and represents an unfair and unwise burden on the next generations.
- Setting this precedent raises the specter of repeating this largesse year after year – a “Groundhog Day” approach that would burden the future with over $60 billion in additional debt.
- Equally unappealing, Democrats may be forced to reduce other education funding. In light of the expected $6 billion dollar shortfall in funding for FY 2014 Pell Grants the Democrats are laying the groundwork for a reverse-Robin Hood funding strategy.
Education a Top Concern for 2012 Voters
Recently, the College Board released a bipartisan survey conducted by Hart Research and North Star Opinion in nine swing states identifying education as a top concern for voters, especially women, in the 2012 presidential campaign ranking just behind jobs and the economy. This should come as no surprise since education typically ranks high among issues that concern voters in each election cycle. It is especially important for Republicans to discuss improving the U.S. educational system on the campaign trail this year. How can we expect to create sustainable well-paying jobs that boost our economy if a strong educational system is not part of the equation? The answer is we can’t.
Let’s look at some of the findings from this recent College Board survey:
67% of those surveyed ranked education as extremely important in the 2012 presidential and congressional elections;
Women place a greater emphasis on education than men with 70% of independent women and 63% of Republican women ranking education as a top priority;
77% of voters surveyed stated that “improving education and making sure students have access to a quality education would have a big impact on America’s ability to compete successfully in today’s global economy”;
78% of those surveyed support increased funding for education, and, while democrats (94%) feel more strongly about this than independents (75%) or republicans (62%), a majority across the political spectrum state more money should be spent on education;
52% of voters surveyed place the responsibility of educating students on parents, followed by teachers (31%), elected officials (26%) and society in general (22%);
90% of voters surveyed stated that governors and state legislatures must address education while 76% believe education should be addressed by federal lawmakers. However a majority, 57%, felt there is too much federal involvement in education policy compared with 37% who support more federal control;
49% of voters surveyed ranked their local public school as excellent or good compared to just 27% who thought public schools are excellent or good nationwide;
76% of voters surveyed believe it is “absolutely essential” or “very important” to have a post-secondary degree or credential in order to be “successful in the workplace”; and,
Addressing college affordability ranked the most popular position a candidate can take.
Based on this survey, the pollsters concluded that the topic of education is “up for grabs” for presidential and congressional candidates in 2012 especially among independent voters who will decide the outcome of this crucial presidential election.
Republican candidates and current office holders cannot ignore these facts if they expect to increase their majorities in Congress and win back the White House. Improving our educational system at all levels must be part of any Republican message on jobs and the economy during this election cycle.
Without a quality education system, our economy will stagnate and good jobs will remain elusive. When the most recent National Assessment for Educational Progress tells us that two-thirds of 4th and 8th graders are not reading or solving mathematical problems at a proficient or advanced level and only 75% of our students are graduating from high school, alarms should go off across this country that our educational system is in trouble. According to the College Board survey, a majority of voters are sounding the alarm and our elected officials and presidential candidates better listen.
The College Board survey confirms that increasing the federal role in education is not the answer, with a majority of voters stating there is too much federal involvement in education. Yet ensuring that the billions of federal dollars currently sent to states and local school districts are spent wisely must continue to be a priority for national policymakers. Returning to the policies of the past with no accountability for student academic performance will not be a winning strategy for candidates running for office in 2012. Those who advocate abolishing the Department of Education may appeal to the conservative base but it is an unrealistic promise and will not resonate with independents and women voters.
Policymakers have an opportunity to tap into voter anxiety over education by emphasizing the principles of parental choice, academic and fiscal accountability, transparency, and teacher quality. These standards form the basis of conservative ideals and will resonate with voters across the country. No candidate should be afraid to talk about education issues as we lead up to the November election.
Apart from K-12, the federal government has become deeply invested in higher education. Almost 70% of survey respondents said college affordability was extremely important, and an even greater portion said a postsecondary degree was integral for success in the workplace today. Federal policy towards higher education issues begs for significant modification. Ensuring the affordability of higher education is an economic issue. Survey respondents have recognized that this country needs a highly trained and innovative workforce for the jobs of the future and that students should not begin their careers with massive, unmanageable debts.
Instead of shying away from these challenges, policymakers should welcome the opportunity to campaign on these issues, as voters, particularly women and independents, care a great deal about them. They should offer solutions that increase student academic performance, return decision making to parents, and make college more affordable. Appealing to the majority of voters who believe education is a major concern in this year’s election is a winning strategy. Staying silent on an issue of such critical importance to a vast majority of voters may prove a fatal mistake.
President’s Education Policies Continue to be DOA
Once again it is budget season in our nation’s capitol where each year lawmakers attempt to set priorities and live within their means. Unfortunately they have not been successful in passing a budget resolution over the last several years and have continued to spend billions of taxpayer dollars that we do not have on unnecessary and unproven federal programs. Most Americans would be outraged to hear top Democratic Congressional leaders proclaim that “we don’t need a budget” when they struggle every day to live within their household budget and make ends meet. When it comes to education, President Obama continues to squander taxpayer dollars on new education programs that create far-reaching federal intrusion in our elementary and secondary schools while neglecting to provide sufficient, and in some cases, no funding to programs that have proven to work.
Under his 2013 budget proposal, President Obama increases spending on federal education programs by over 40 percent from the time of his first budget request in 2009. The President proposes a whopping $70 billion for the Department of Education including an additional $5 billion over five years to expand his unproven and unsuccessful Race to the Top program in order to create a new Community College to Career Fund. In addition, he has requested $60 billion over five years in new teacher and school construction programs as part of his floundering American Jobs Act. At the same time, his budget zeros out all federal funding for the successful D.C. Opportunity Scholarship program which has given thousands of disadvantaged children attending failing schools in Washington, D.C. the opportunity to receive a quality education at a private or public charter school. Finally, this president has consistently failed to recommend any increases to the special education Part B program which provides funding to meet the federal mandate to educate children with disabilities. This program is the most expensive and burdensome for states and local school districts and the U.S. government has never come close to providing the federally mandated 40% per pupil expenditure. As Congressman Kline so eloquently pointed out to Secretary Duncan at yesterday’s Education and Workforce hearing,
“It is unacceptable to continue to default on this obligation. We must stop wasting taxpayer dollars on new and ineffective programs, reassess our priorities, and make the tough choices necessary to uphold our commitment to all students.”
As Republicans have pointed out for decades --- if the federal government would fully fund the special education mandate that they promised, states and local school districts would be able to spend vast amounts of their own funds on other educational priorities.
But the President refuses to make those tough choices and instead insists on dramatically increasing the federal education budget to create new federal mandates on states and local school districts to promote a national education curriculum and a federal take-over of our public schools. Nowhere is this more evident than his use of conditional waivers to require states to implement policies outlined in his Race to the Top program including adopting the Common Core Curriculum standards or other Department of Education approved standards in order to receive federal education funding. He continues to tempt states to accept his NCLB waivers while requiring them to meet new federal mandates not approved by Congress. Again Congressman Kline is absolutely correct when he made this point at the hearing:
“I am also troubled by the Department’s new found penchant for advancing programs and initiatives that further expand the federal role in education without any Congressional input or engagement. The conditional waivers plan presents a clear example of this trend. Not only does the plan empower the Secretary of Education to unilaterally dictate federal education policy – with questionable legal standing – but the obscure process for granting the quid pro quo waivers leads me to question whether states are being pressured to adopt the administration’s preferred reforms.”
There is no question about that. These conditional NCLB waivers are a deliberate and arrogant act to circumvent the Congress in order to suborn states to bend to this administration’s will and Congress should stop this abuse of executive power immediately.
In higher education, the President’s budget plays politics with our nation’s college students by pitting them against one another in order to maintain low interest rates on subsidized Stafford loans while increasing the interest rate on Perkins loans. In July of this year, the interest rate on subsidized Stafford loans is set to increase dramatically above the current 3.4 percent rate. The President seeks to extend the current rate for an additional year at a cost of $6 billion and proposes to pay for the continued low rate by converting the Perkins loan program into an unsubsidized direct loan which carries a higher interest rate. Instead of working to develop a long-term proposal to provide low interest loans to all students, President Obama proposes to significantly raise interest rates on our neediest students. Sadly, if this proposal is enacted, many of these students will have to drop out of college and join the ranks of our unemployed.
Fortunately, Congress knew all of this and the President’s budget failed to get a single vote. However, certain policies proposed in presidential budgets are often enacted by the Congress. President Obama’s 2013 education budget proposals should be treated as “dead on arrival” and stay buried as Congress considers better ways to help our students receive a quality education.
Sally Lovejoy
