Education Aid Mythology

The idea that the only thing standing between at-risk youth and a college education is a mere several thousand dollars apiece is a nostrum repeated ad nauseum by politicians and professors alike. As notions go, it may have considerably less weight to it than the average cosmetic counter notion.

“The facts are not in dispute,” Robert L. Borosage writes on tompaine.com. “Faced with rising costs and tight budgets, states across the country are cutting back on support for public universities and colleges.”

“Colleges pass the costs onto students—tuitions are up an average of 40 percent since George W. Bush took office in 2000.” Borosage heads the Campaign for America’s Future. He is an adjunct professor at American University’s Washington School of Law.

“College aid hasn’t kept up,” Borosage insists. “The president has broken his campaign pledge to increase the size of Pell Grants, the basic federal scholarship program.”

“More and more students are forced to go into debt to pay for college.” Borosage has served as an advisor to a number of political candidates over the years, including Jesse Jackson. Indeed, his basic themes are echoed in Democratic talking points that, in turn, are largely left unanswered by Republicans.

“Graduates of four-year schools this year will be burdened by an average of $23,600 in student loans and $2,000 in credit card debt,” Borosage writes. “Yet, the conservative majority in Congress voted to cut $12 billion out of the student loan program this year, even as Congress hiked interest rates on college loans to students and parents.”

“Costs are going up, even as hundreds of thousands of students are forced to forego college or drop out because they cannot afford the education that they need and have earned.” As it turns out, many of these assertions were belied by information supplied by researchers, some even from academia, no less, who appeared recently in a symposium at the American Enterprise Institute.

For one thing, “Demand for Student Loans is not limited by income group,” Harvard’s Bridget Terry Long pointed out. “Twenty-nine to thirty-one percent of high income students take out loans to go to college.” An Associate Professor of Education and Economics at the Harvard Graduate School of Education, Long asked two intriguing questions about students, particularly wealthy ones, who take out loans:

• “Were they borrowing because they need it or because they don’t want to deplete other sources of cash?” and

• “Were people taking out loans for pizza and vacations or families and children?”

The answer to such questions, Long notes, is not immediately apparent from available data.

Also at AEI, consultant Christopher Mazzeo laid out some interesting data from the Institute for Higher Education Policy:

• 52% of students max out on Stafford student loans.

• 47% of students either don’t max out or do not take out the loans.

• 37% of private borrowers work.

• 63% don’t.

Several of the speakers at the event noted that only one-third of students are working their way through college in addition to borrowing, a puzzle when the stated reason for the loan is need. In days of old, students borrowed and worked their way through college.

In fact, Mazzeo, who has worked as a professor at Baruch College, noted that “A surprisingly large number of low-income students do not max out on Stafford loans.” At the other end of the transaction is a multi-billion dollar industry, mostly fueled by tax dollars.

As we noted in previous dispatches, dissident economist Richard Vedder drew mostly grunts and groans when he tried to include references to the $80 billion student loan industry in the final report of the federal commission on higher education that he serves on.

Ironically, at the AEI event, Joseph Keeney, who works in that industry, virtually confirmed Dr. Vedder’s figures. There are $63 billion worth of federal loans extended annually and $13 billion in private lending, Keeney calculates.

As Keeney, of the firm School Choice Investments, notes, both feds and private banks make a 10-20 percent premium on top of that amount. Moreover, “there is some level of recovery even on loans that are completely lost,” Keeney says, and “Any cash from the student can be moved into securities.”

Meanwhile, Dickinson College professor Andrew Rudalevige offers an analysis of the industry that you don’t hear often and that Borosage and his ilk should consider:
“Student loan rates are set by law and not by the market and that’s a problem.”

Malcolm A. Kline is the executive director of Accuracy in Academia.