Student Debt is a Continous Drain on College Students

We've gotten dosed this past week with some prime time smugness about how we don't need to do anything much to help higher education.  First was one of my favorite data journalists, David Leonhardt, rejecting loan forgiveness in the New York Times. He wrote,  "The fatal flaw of universal student-debt cancellation is that it’s not, in fact, progressive. It mostly benefits the upper middle class. 'Education debt,' as Sandy Baum and Victoria Lee of the Urban Institute have written, 'is disproportionately concentrated among the well-off.' The highest-earning quarter of the population holds about half of all student debt, according to Baum and Lee. Which means that universal student debt cancellation would be a giant welfare program for the bourgeoisie."

Actually by American standards student debt isn't very concentrated.   And Leonhardt misses some major problems with "manageable" student debt that forgiveness would fix.

I drafted the list of problems that Leonhardt misses (below), and then stopped to meet with a UCSB senior whom I didn't know.  We talked about a book in my Detective Fiction course, Black Widow Wardrobe, and this student's account of the book was really good.  At the end of her analysis of the ambiguity of a key Mexican national mythology the novel uses, I said, "that's a great summary of this issue, and," I half-joked, "it's something you could continue to work on when you go to grad school."

"I want to teach," she said, "nothing is more important to me.  I don't think I can go to grad school though. I don't have the grades."

"Why?" I asked, surprised.  She seemed to learn completely and to forget nothing. "What's your GPA?"

"In the English major I have about a 2.4."

"That's ridiculous," I said, "that's obviously not the right GPA for you."

"Well," she said,  "I'm off academic probation at least.  I've been on it four times.  I have to work a lot to stay in school.  I had some help from family my first year, but they couldn't keep it up and told me my education was mine to pay for now.  I work 12 hours a week minimum, and then when there's a break in midterms or finals I work 20.  My father also has a new baby and I spent weekends this term helping his wife, who couldn't get around. I'm first generation college--my father and mother only finished middle school and are so happy I'm at UCSB.  It's really important that I give back to them.  I need to take care of them."

"It's none of my business," I said, "but you also need to take care of yourself in school. You need to get through this with the grades and the learning that will help you go on."

"I'm excited about what I'm learning," she replied.

"Does your GPA bother you?"

"It bothers me a lot.  I think about it all the time."

"Then how can we help you to work less? You don't want to because it means loans?"

"Yes.   That's what the probation advisors said to me --take loans so you can work less.  But I can't have any debt.  I see the job market and it isn't reliable enough for me to be sure that I can pay it back."

This went on for a while, with me trying to figure out how to save her GPA from her justified fear of debt, with a family that can at most send her $20 a month for groceries.  I failed.

"Well you have to do well in my class," I said cheerily.

"I want to.  But I couldn't turn in the midterm paper-- I had to go home."

She'd worked a lower-points alternative out with the TA, but that means she's heading for something like a 3.0 or less for my class too, where she has obviously mastered the key concepts.  I offered to advise a senior thesis so if she does well I can write her a good letter for the next phase.  She's thinking about it.

In spite of constant wishful thinking, there's no escape from the fact that student debt--in this case its desperate avoidance--is a major cause of "limited learning" and narrowed future possibilities.

The #RealCollege movement has shone a spotlight on the fact that a third of US college students face food and housing security issues.  Organizations like Temple University's Hope Center are working to fix that.  So why are policymakers and journalists as informed as Leonhardt so complacent about the educational damage done by our financial aid system?

Here's my short list of the problems that Leonhardt omits.

• Fear of debt causes undermatching, in which lower-income students go to cheaper--and poorer--colleges than they are qualified for.  This reduces their chances of graduation and probably their learning. 
• Students manage future debt by working more than they should while studying.  As the case of my smart 2.4 GPA student illustrates, this is a structural source of the "limited learning" that Arum and Roksa documented in 2011 (which, it must always be said, was largely limited to  "vocational" fields).
• Loan repayment pushes students toward disciplines with higher future salaries, whether they want to study them or will do well in them.  Moving someone who loves history into computer science is inefficient as well as undemocratic, and yet debt makes this more likely.
• Much of this "reasonable" debt is held by low-income students who have no family resources to help pay it back.  (Low income students borrow on average as much as middle-class students do.)

There's so much stubborn inertness about student debt because of a philosophical mistake made as much by Democrats like Leonhardt as by Republicans:

• Means-tested loan forgiveness contradicts the public-good status of education.  With means-testing, the baseline norm is for everyone to pay for college out of their own pocket.  This treats college as a private good.  Then, since most people can't pay for college on their own, various kinds of state and private charity kick in--which maintain the private-good status.  Means-testing makes everyone focus on the income effects of college--as does income contingent repayment in the UK. It makes them forget the nonmarket, indirect, and social benefits of higher ed.  This in turn completely changes the psychological experience and effects of college.  Democrats supposedly don't think everything is about money, and yet they've set up a financial aid system that is only about money.  This is the system Leonhardt supports.

These market-ruled aid programs continue the Clinton-era suppression of the value of public goods. In reality, goods like clean air, sanitation systems, mass transit, vaccination, and education should be distributed according to individual need and general benefit, not according to ability to pay.  With these goods price signals don't work.  They give an oversupply to rich people and an undersupply--or much lower quality--to the poor.  This is why the Clinton-Obama market model of health and education has lost so much support.

In addition, the market-driven allocation of high-quality college is a main reason why US attainment has fallen steadily over the last 4 decades from first to about sixteenth in the world. It is also why college racial inequality persists.

Most of us feel somewhat badly about this unjust, unequal allocation and try to patch it with our high-tuition-high aid system, stuffed like a Thanksgiving turkey with loans (2:1 loans over grants vs. the reverse 30 years ago).  We know it doesn't provide equal outcomes by race or class, or actually equal opportunity (for roughly similar educational quality).  Rather than putting financial aid on a market system, we should have put it on a public good allocation system.  Having contributed to the market mistake, Democrats should now stand for the public good correction.

Market failure is what the democratic socialist wing of the Democrats understands, and what the Clinton-Pelosi wing does not--yet.  In practice it would mean that society would set a goal of all students graduating debt-free, and then buy out my smart 2.4 GPA student's 20 hours a week of work so she can actually learn as much as she can and have the record that reflects her capabilities.   Debt-free college is economics that sets socio-cultural goals rather than isolating itself from them--substantively equal access, and outcomes that reflect individual labor and preferences, not grossly unequal prior conditions.

The crisis of financial aid appeared in the biggest higher ed story this week--Michael Bloomberg's $1.8 billion gift for student financial aid.  Unfortunately, it all went to one university.  The recipient was his alma mater Johns Hopkins, and the money will do the useful thing of converting all loans to grants that need not be repaid--for Hopkins students.  It's the right idea, but obviously needs to be applied to the 99.93 percent of U.S. postsecondary students who don't go to Johns Hopkins.

I don't need to point out the problems here: many commentators blasted the elitism of this version of affordability, from Sara Goldrick-Rab to Dylan Matthews, who called the gift a tragedy.  My Twitter feed was strongly bearish.  I don't think senior administrators realize how these megagifts make the university sector seem entitled, greedy, and cut off from the lives of regular people trying to get a good education.  Why pay taxes for these billionaires' BFFs?  A clear warning sign should have been Malcolm Gladwell's trashing of a hedge fund billionaire's $400 million gift to Harvard in mid-2015--followed by his celebration of obscure giving that helps advance everyday students (and takedown of the Knight-Hennessey scholarships at Stanford).

Bloomberg was unable to avoid lecturing the nation on the need for everyone to support financial aid at public universities as he was not.  I prefer my governments actually egalitarian, my tax brackets steeply progressive, and my billionaires plutocratic.