Monday, July 14, 2008

Your Personal Clipping Service

I thought that some of my readers, in light of another tuition increase at Penn State, would find this Kevin Carey piece in today's Inside Higher Education interesting. Here's a sample.
The consequences of these bad actions have largely been hidden from public view. Student loan default rates have been a non-issue since the early 1990s, when federal policymakers cracked down on unscrupulous fly-by-night colleges that were abusing the system. But the most commonly-used measures — the institutional two-year default rates that were established after the scandals — are seriously flawed. As my colleague Erin Dillon recently noted, the average time to default is four years. While widely-reported 2-year default rates hover below 5 percent, the 10-year default rate for low-income students is more than 15 percent. For students who borrow more than $15,000, it’s more than 20 percent. For black students, it’s nearly 40 percent. These numbers, moreover, are for students who graduated from a four-year college. Default rates for drop-outs, of which there are many in higher education, are substantially worse. But since colleges get paid up front, and the federal government guarantees most lenders’ loans, there are few incentives for those institutions to care.

The tectonic shift toward debt-financed higher education reinforces the notion that college is a fundamentally private good — exactly the wrong message in a time when the nation’s collective prosperity is increasingly tied to competition for information-age jobs that can cross national borders with ease. It has embroiled college financial aid offices in embarrassing scandals. It limits the life choices of debt-burdened graduates, and can devastate the financial futures of those who default. It fuels inefficiency, price escalation and public disinvestment in higher education while transferring scarce resources from families and students to financial giants’ bottom line. Debt in moderation is the right choice for some students, some of the time. But it’s no substitute for efficiently-run universities supported by real aid policies for students in need. Higher education debt has grown into far too much of a good thing.

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