Student Loans: A Disturbing Trend
July 30th, 2008Last night I read an article about the difficulty students are having borrowing money to fund their education (see No Funds to Lend to 40,000 Students). This is not a new story. Bernanke testified on the topic back in February (see Bernanke on Student Loans). There have even been ongoing conversations on the topic at my institution for the better part of eight months now. But this is the first I’ve heard of the crunch putting students at immediate risk for the upcoming semester (which starts in as little as 5 weeks).
According to the Boston Globe article:
The Massachusetts Educational Financing Authority yesterday said it will not be able to provide student loans this fall for the first time in its 26-year history, leaving more than 40,000 families without an important source of tuition funds just weeks before college classes begin.
“As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year,” said Thomas M. Graf, the authority’s executive director.
Across the country, more than 50 lenders have stopped making federal or private student loans this year, largely because of the turmoil in the nation’s credit markets that began with the subprime mortgage crisis last summer.
This news saddens me. I am saddened that the financial crisis has had such extensive a reach that financial institutions are not able to fund one of our nation’s most valuable investments – education. I am also saddened that otherwise qualified students, who might not be able to afford the substantial costs of tuition on their own, may be forced to accept uncompetitive loans at very high rates, or in the extreme, forced to sit out of school until the economy improves.
I have one proposal.
Since many universities have amassed fantastic endowments (see Wikipedia on Endowments), now might be the time for them to tap those endowments to make loans on a temporary basis (until conditions improve) to their own students. Now there are obviously large disparities across universities in their endowments; however, I suspect that many universities are in a position to support such programs. After all, it would not represent a pure expense for the school (in the form of a non-repayable grant), but rather, an investment with a potentially healthy return.
July 30th, 2008 at 10:11 am
I hereby volunteer Rob, and all other academics (but not me, since I came up with the idea), to provide their educational services for free for the next three years, until we come through this downturn (hopefully).
But seriously folks, this is a problem. I don’t see any push in the US to have the government fully finance higher ed. So without ample loans, what could be done?
I was having an e-mail conversation with a friend who is an English professor at a public university in the Midwest regarding access to college. I was trying to make the point that the undergrad degree has become the old high school diploma. He saw that as making the case that everyone should have access to college. I saw that as making the case that we should demand more of students before allowing them into college.
What’s the difference? I think a reasonable chunk of the population should be able to get the skills they need to be successful in the job market while in high school, and not feel obligated to ramble through 4-6 (or more) years of (expensive) undergrad in order to have access to jobs that really don’t require what they should be getting in an undergrad.
To my friend, that sounded elitist. Is it? I believe in equality of opportunity, and I like to think of myself as what I might call a pragmatic populist — certainly not an elitist. I think maybe this comes down to what qualifies as college. Should everyone have access to a private university education, like NYU? It’s expensive as hell. Should everyone have access to a top state school? What about community college? How do we distinguish who gets access to what?
If it’s money, that’s a problem. If it’s intelligence, then that’s probably alright with me, but I think my friend would say, we have an obligation to help people rise up to the level that they could go through college . . . But then you get into grad school . . . shouldn’t everyone then be provided access to grad school, on the same grounds? PhD? Law degree? Medicine?
Anyone have any perspective on this rambling mess I’ve tried to present? Economics is all about allocation of scarce resources. Higher education is, either by choice or design, a scarce resource. If the current system of allocating it is flawed, what’s a better way? What are the tradeoffs in the proposed way?
Best,
Mike
http://www.coba.usf.edu/barnett