The Shame Lists

The Department of Education has released it’s annual shame list of the most expensive colleges and universities. The shame lists are a sham. Here is our take on this misleading exercise that really does not provide families with any useful information in determining which schools provide value for money:

Shame on the Shame List

The shame list calculates “net price” only for students receiving aid. This does two things. First it rewards schools that concentrate aid on a small number of students instead of spreading it around. Secondly, it gives schools a strong incentive to change their recruiting patterns to avoid students who qualify for small amounts of need-based aid, i.e. the middle class. What social purpose is served by increasing the incentives of schools to recruit full pay students in a very need-aware manner?

The Tyranny of Misleading Facts: or why I don’t care that college debt exceeds credit card debt

One factoid making the rounds of the punditry is the discovery that the total amount of college debt now exceeds the total amount of credit card debt. This is somehow supposed to demonstrate the dysfunction of higher education while showing us the next financial bubble that will burst in the US.

This little fact is an example of how irrelevant information can be used to reinforce a preconceived set of (and often highly politically charged) ideas about the condition of American higher education.

Let’s begin with this question. Would the US be better off if more people paid their college tuition by credit card? Sounds absurd, doesn’t it. Yet that would surely make the ratio of college debt to credit card debt go down. This points out why that ratio is an irrelevant measure. In general credit card debt is used for one purpose, and higher education loans for quite another. They rise and fall for quite different reasons. Credit card debt has been falling since the great de-leveraging of the US economy began, following the financial crisis of 2008. This reduction in credit card debt is arguably a good thing, since consumer debt is short term, carries very high interest rates, and generally is not used to buy long run productive assets of great private and social value (like an education). But as credit card debt falls, somehow this makes the world look deeply problematic because higher education debt is now higher than credit card debt. Come again?

Student loan debt has been rising over time, but much of this increase is because we have 40% more students trying to earn a degree than we did a decade ago. And many of the new entrants into higher education come precisely from families that are least able to afford the sticker price out of their current income. These are the families who must use credit to buy this lifetime asset. This is not a problem, unless the payoff to that asset does not justify the borrowing.

The asset, however, amply justifies the borrowing. Good evidence of this is here in a recent article in the Journal of Economic Perspectives, written by Sarah Turner and Christopher Avery, titled Do College Students Borrow Too Much — or Not Enough?

Anyone who wants to go beyond silly sound bites about credit card debt should read this article.

There is no evidence that the vast majority of student borrowers are getting into unreasonable and uneconomic debt. Instead, the expected lifetime earnings profile of someone with a degree has improved substantially over time. And there is little evidence that the burden of repayment relative to income has increased over time.

Unfortunately, facts like these get in the way of a good story of bubble and financial collapse.

Newsflash: in the NY Daily News

The New York Daily News ran a piece of mine this morning. I would have preferred a different title, but authors don’t get to choose that.

Newsflash: College is a Bargain

This was stimulated by recent stories about college graduates buried under 120K of debt. A good example is this account in the New York Times. The subtitle of this story is “A Generation Hobbled by Debt.” I guess I just couldn’t take the drumbeat of misleading generalization and overwrought prose. The average student debt of college finishers at private universities is $19,000. At public universities, the figure is $13,000. This is less than the price of an economy car. At two year schools, the median debt is …. zero! More than half of students who receive a two-year associates degree leave debt free.

Yet we are bombarded with anecdotes of students (like the one in the NY Times story at the University of Northern Iowa) who leave school with a 120K mountain of debt weighing them down. Anecdotes of this sort often substitute for real thinking based on real data. It’s a yellow shade of journalism that takes an example that is completely unrepresentative (perhaps one in a thousand) and turns that into a “generation hobbled.”