Ignore the Debt Hype

Sarah Turner and I have an article today on student loan debt on CNN.com. Based on the comments, it appears we have found an audience that needs educating. Juicy bits:

"The central bankers own the media, who in turn convince our students to borrow money from the banks (central bankers) to go to college."

"Ignore the debt hype. College is a great investment,,, Hahahahahhahahhahahahaha. The jobs today are paying 8.00 hour and they want you to have a masters degree and 2 years of brain sugery experience just to flip hamburgers. This post is posting this comment because they're getting kickbacks for the idiots that signs up to pay 50,000 dollars for a BA degree. After graduation you'll be in dept for the rest of your life, they will take any taxes you have coming and any wages you make until it's paid off. COLLEGE IS THE WORST THING YOU CAN DO IN THIS ECONOMY."

Making Student Loan Payments Sting Less

The Obama administration has made it easier for those repaying their student loans to shift into the income-based payment plan. This plan limits payments to a fixed percentage of a borrower's discretionary income (currently 15%, dropping to 10% in 2014). Any remaining debt is forgiven after 25 years.

Income-based payment a good choice for recent graduates who are getting settled into the labor market. In fact, I think it should be the default option, rather than the 10-year payment plan that is currently the standard. The current default makes little sense from an economic perspective - earnings are lowest and most uncertain when a graduate first enters the labor market, so why shove all the loan payments into those years? A college education pays off over a lifetime, so it makes economic sense to pay for that asset over a long horizon.

How different is the income-based repayment from the standard plan? For a graduate coming out of college with $22K in subsidized Stafford loan debt, and earning $30,000 a year, the standard ten-year repayment would be $217 at an interest rate of 3.4% (the current rate) or $253 (if the rate goes up to 6.8% in July, as scheduled). With the income-based plan, the payment would be only $165, no matter what happens to the interest rate. The borrower is free to pay more per month should she find some extra money lying around and wants to knock the debt back more quickly.

Let's Crowd the Colleges More, Making Young People Pay While Seniors Don't?

Hat tip to Sarah Turner, Professor of Education and Economics at University of Virginia (via friend Ragan Roberts). In Turner's words:  

"In a public higher education system facing substantial crowding, why would a state increase the subsidy to the population with the fewest years to recoup an investment in higher education?"

Agreed. I can think of no public policy justification for making college free for elders while making young people pay. It's an investment for the youngest, and it's largely consumption for the older students.

UA waives tuition for Arkansans 60 and older

Trends in Sticker Price vs. Net Price in One Graphic

Nicely done graphic on trends in the sticker price of college and the price net of aid.

The Economics of Journals and Open Access

Terrific article that focuses on valuing stock of Elsevier Publishing but along the way provides a great overview of the economics of traditional academic publishing and the rise of open access. 

How To Read Science News

Terrific article about how to get past the smoke and mirrors in newspaper science writing.

"The Double X Double-Take: What to do when reading science in the news 1. Skip the headline. Headlines are often misleading, at best, and can be wildly inaccurate. Forget about the headline. Pretend you never even saw the headline."

Wall Street Journal on Educational Attainment

The Wall Street Journal has a front-page article today on the slowdown in the growth of educational attainment. The article does an unusually nice job of explaining the nuances of this story - e.g., that it is male attainment that is stagnant and that the sticker price of college is much higher than the net price. I throw in my two cents by noting that students may not know that the net price is as low as it is:

"Governments and colleges have offered more financial aid, but the complexity of the
American system—a dizzying array of grants and loans, tax deductions and scholarships
—confuses and sometimes scares off some potential college-goers, says University of
Michigan economist Susan Dynarski."

No Access is Not Open Access

Santa Monica community college in California has proposed to provide courses at cost, since students are currently being turned away from massively oversubscribed classes that are offered at below cost. The Chancellor is trying to stop them:

The chancellor, Jack Scott, had already made it clear that he was wary of the community college’s plan, saying it could violate state education codes..."The question, of course, is that the price may well rule out low-income students, and does that go against our philosophy of being open to all? That is the heart of the issue."

No, the heart of the issue is that the courses are currently closed to all. It's a fiction to claim that a community college is "open to all" if it won't provide needed courses to students.

Let students make the choice to use their Pell Grant or loans to enroll in the classes if they want to. Otherwise, many will go down the street to the local for-profit and end up much, much deeper in debt.

Ironically, we see in the same issue of the New York Times California regulators have failed to crack down on unauthorized, for-profit colleges that are charging much higher prices than those proposed by Santa Monica Community College. These colleges also have much worse outcomes for students, as measured by employment and certification rates.

Student Aid Simplification: An Update

I have a new paper (with UM doctoral student Mark Wiederspan) on advances, and lack thereof, in simplifying the federal student aid system. Just published in the March 2012 issue of the National Tax Journal:

"There have been some successes. The user experience for the online FAFSA has been improved, with fewer repetitive questions and better skip logic. ... In a major break through a longstanding administrative logjam, some applicants can now transfer their IRS tax data directly into their FAFSA from the IRS servers... On the downside, the basic structure of the aid application process is unchanged. Applicants are still faced with a blizzard of paperwork. The FAFSA is just about as long and complicated as it was in 2006. For every two questions trimmed from the FAFSA, one more question has been added. As a result the FAFSA has shrunk only slightly (from 127 to 116 questions), and is still longer than the tax forms completed by most taxpayers...The IRS-FAFSA link, which has great potential to simplify the aid process, is hobbled by so many restrictions on its use that only 24 percent of applicants actually use it."

Class Size and the White House

A White House report on teacher cuts cites our work on class size and postsecondary outcomes. Neato!

"The most convincing scholarly research on class sizes, based on experimental evidence from the Tennessee Student Teacher Achievement Ratio (STAR) project, shows that smaller class sizes in the early primary years not only produce short term gains in student achievement (Dynarski et al., 2011) but also raise the likelihood that students will attend and graduate from college and study STEM subjects (Dynarski et al, 2011)."

Upward Bound, Science and Advocacy

The same advocacy group that successfully pushed through a congressional ban on any further randomized control trial (RCT) of Upward Bound now protests that the quality of the one existing RCT is unacceptable. Not coincidentally, this RCT found Upward Bound to be ineffective.

The first and only RCT of Upward Bound did find suggestive evidence that the program helped students who had the lowest college aspirations. The follow-up RCT, which was strangled in its cradle, would have investigated this finding further.

Disclaimer: I was on the Technical Working Group for the second Upward Bound RCT, which met exactly once before it was killed. I didn't know this at the time; when I was never called for a second meeting I thought maybe I had been expelled for talking too much.