"Dad, Stanford's over."
- Nina, In The Heights
What sets the drama (and music, so much music!) in motion in the new film of Lin-Manuel Miranda’s In The Heights? It’s Nina dropping out of Stanford and returning home to Washington Heights because: (1) Stanford has no Latino community; (2) Stanford students (and their parents) are racist; and (3) it’s too expensive. So the past few weeks have seen thundering defenses from Stanford apologists and presumably little in the way of productive work at Stanford’s Office of University Communications.
While I don’t have firsthand knowledge of Stanford’s Latino community or the prejudices of its students and parents, it’s worth pondering whether Stanford is, in fact, too expensive. Never afraid to weigh in on a controversy, Matt Yglesias defended Stanford, arguing In The Heights “perpetuates misinformation about financial aid policies at elite universities like Stanford in a way that deters low-income applicants who would in fact get a great deal despite sky-high headline tuition… it’s genuinely harmful when pop culture disseminates misinformation about it.”
While Yglesias happens to be right about this specific point, which might impact a few thousand young Americans, Nina’s right in a broader sense. Except as a font of devices both dramatic and electronic, Stanford is pretty much over; with their unpatriotic refusal to scale enrollment to meet national needs, Stanford and its highly rejective (I mean selective) compadres serve so few students that over 90% of Americans have never met anyone from these schools. No, what’s genuinely harmful is that, for decades, headline tuition at elite universities has established a ceiling that justifies eye-watering list prices for the entire sector, thereby harming millions. After all, a degree is a degree. So if Stanford is charging $55,573 per year for a four-year degree, Barely Accredited U. can easily justify charging $20,000.
And that’s just tuition. Stanford total annual cost – including fees, books and supplies, and on-campus room and board – is over $75,000. College “cost of living” has increased even more rapidly than tuition, which explains why in-state Colorado State University students will pay $11,000 for tuition next year, but about $30,000 for the whole megillah. Meanwhile, financial “aid” at schools safely under Stanford’s ceiling is neither need-blind nor need-based, but pretty much as capricious as airline pricing. Students are sacrificed daily at the altar of yield management and, if they make it through the door, experience radical uncertainty as to what it will really cost to attend.
Fortunately for Stanford, its In The Heights controversy was subsumed by a tempest over whether the film showcased a representative number of Afro-Latino players. But the thought of Nina taking decades to pay off Stanford debt brings to mind an Afro-Latino player from The Bronx, just across the Harlem River.
Next Thursday July 1 is Bobby Bonilla Day – the day the New York Mets pay their former third baseman $1.19 million. Bonilla last played for the Mets in 1999. But at the time of his release, he was still owed $5.9 million on his contract. Mets owner Fred Wilpon offered Bonilla a deferred payment plan of $1.19 million per year starting in 2011 and ending in 2035. Bonilla gladly accepted. And so next week – 22 years after retiring – Bonilla will collect another $1.19 million, as he’ll continue to do for another 14 years.
Fred Wilpon’s seemingly insane offer was another casualty of late fraudster Bernie Madoff. As Madoff’s Ponzi scheme promised 10% returns forever, Wilpon figured that rather than paying Bonilla $5.9 million in 1999, he’d be better off investing with Madoff: when Bonilla’s payments start in 12 years, the $5.9 million becomes $18 million, at which point the continued 10% return comfortably exceeds Bonilla’s annual payout (and the Mets have $18 million).
When students like Nina – whether at Stanford or Colorado State – borrow tens or even hundreds of thousands of dollars to pursue a degree – they’re making a similar bet: income will skyrocket in the near term, making loan payments affordable in the long term. But due to dramatic changes in the labor market and the less dramatic failure of colleges and universities to keep pace, outside of schools like Stanford, few students are achieving 10% annual returns out of the gate, as demonstrated by projected student loan defaults of close to 40% and – for those already enrolled in income-based repayment plans – repayment rates of 51% at an estimated cost to taxpayers of $500 billion. Moreover, while Covid has meant a 1.5 year deferral, no one is offering to defer payments for 12 years. One recent survey of current students found 88% “stressed due to their overwhelming loans” and 1 in 20 requiring medical treatment “after reckoning with payment expectations for their student loans.”
For some former students, payment periods are now Bonilla-esque. There are nearly 9 million Americans over age 50 still paying off student loans – a category of student loan debt that has grown by 50% in just the past 3 years. The Department of Education is increasingly resorting to garnishing social security benefits. Much of this is due to the Federal Predatory Loan Program – I mean Parent PLUS loans – which now account for nearly 25% of new borrowing for undergraduates. These high-interest loans are uncapped and doled out without regard to ability to repay. And if borrowers can’t afford to repay, their only option is an income-driven repayment plan requiring payment of 20% of discretionary income for up to 25 years.
Bill Maher just called college a Ponzi scheme and happens to be right about this specific point: for far too many students, betting on college has become uncomfortably like betting on Bernie Madoff.
As the Wall Street Journal’s Josh Mitchell points out in his upcoming book The Debt Trap: How Student Loans Became a National Catastrophe, back in the 1950s when college was considered cheap, President Eisenhower convened a panel of experts to figure out how to finance the additional capacity baby boomers would require. One so-called expert, an investment banker with the fancy name of Devereux Josephs, advised a system of student loans because: (1) loans promote responsibility; and (2) college is an investment in future earnings. Devereaux Josephs should go down in history as the LeBron James of being wrong about student loans. Because most of us with boomer parents recognize that Devereaux Josephs was long ago proven wrong on #1. And proposition #2 has clearly broken in the face of the six-figure degree.
In the ensuing 60 years, American colleges and universities have built cost structures necessitating this level of student loan debt. Besides Lazy River headlines (mea culpa), it may not be obvious. But between 1975 and 2005, colleges and universities nearly doubled the number of administrators and grew non-instructional staff by 240 percent. From 2000 to 2012, the ratio of instructional to non-instructional staff declined an additional 40 percent. At University of Michigan, there are 53% more administrators than faculty. The bloated expense base at thousands of colleges and universities (including Stanford’s Office of University Communications – note to self, expect e-mail from Stanford Office of University Communications) isn’t the result of some evil genius plan, but rather a series of decisions, each an obstensibly rational response to perceived student or other demands. Note: responses to “other” demands may include (1) hiring employees to manage transcript ransom programs (i.e., no transcript until all outstanding balances are paid in full, leading to this education-employment conundrum: how can students earn the money to pay off the debt if they can’t get a job because they can’t prove they have a degree?) and (2) hiring lobbyists to maintain the legality of said transcript ransom programs.
The ultimate legacy of America’s student loan debacle is college and university hiring and spending plans that benefit the quadrangle set who work there more than students. With the overdue recognition of Juneteenth, we’re back in the business of enacting new federal holidays. Recognizing that most students find themselves in the position of the hapless New York Mets, colleges and universities should put their lobbyists to work establishing a federal higher education holiday: Bobby Bonilla Day.
There are three options for getting out of this mess. First, the federal government could take action. But as the Manchin-ization of the Democratic Party makes both free college and any broad-based student loan forgiveness increasingly unlikely, it seems like the plan is to normalize unconscionable levels of student loan debt. Last week the Federal Housing Administration relaxed its mortgage insurance standards for student loan debt, abandoning the assumption that prospective homebuyers were paying down their loans at a rate of 1% per month (limiting available cash to pay mortgages) in favor of what borrowers are actually (not) paying.
Second, we can hope for higher education to reform itself. Sadly, I count on one hand the number of colleges and universities that have fundamentally changed pricing in order to address student debt. Following distribution of nearly $63 billion in federal Covid relief funds, not a single school stood up structural changes. It’s now clear to me that our few swaggering higher ed reformers will only take us so far. If we could rewind 60 years, what would we build to be most helpful to talented, motivated, but at-risk young Americans like Nina?
"You still ain’t got no skills!”
- Benny, In The Heights
Let’s take a trip from The Heights to Down Under. Rather than reacting to Covid by subsidizing college and university cost structures to the tune of $63 billion (or the equivalent in silly Australian dollars), Prime Minister Scott Morrison announced Australia would invest an additional $900 million (USD) in 100,000 new apprenticeships. The ambition of Boosting Apprenticeships Commencement is impressive: the U.S. economy is about 15x larger, so Australia’s initiative works out to about $13.5 billion and 1.5 million apprenticeships. But rather than throwing money at institutions (or in the case of apprenticeships, at unions) and hoping for the best, it’s the structure of Australia’s initiative that really stands out. The funding goes directly to employers to subsidize 50% of the wages for new apprentices – up to $21,000 annually – with no limit on number of apprentices per employer other than the 100,000 cap.
Australian employers responded smartly to the direct subsidy, which imposed strict training requirements and reporting thereon. The 100,000 goal was quickly oversubscribed (it’s now about 140,000), and last month Australia removed the cap and invested an additional $1.2 billion to extend the program to next year. But it wasn’t just employers. The Australian government also made the subsidy available to Group Training Organizations: intermediaries that hire, train, and place apprentices with employers. Australian GTOs recruit apprentices, pay them as full-time employees (including benefits), train on specific skills demanded by their employer clients, and provide the “care and support” apprentices need to make the transition to full-time employment at clients. As the government notes, GTOs are “particularly helpful to small and medium sized busineses that find commiting to an apprenticeship difficult, lack the resources to manage an apprentice, [or] are unable to provide the full on the job training required for an apprenticeship.”
The fact that a program like this hasn’t been considered in America – during Covid, or at all since the days of Devereaux Josephs – may be due to the fact that, unlike Australia, we don’t have a Jamie Merisotis-inspired “Department of Education, Skills and Employment.” It also may be due to the fact that progressives have developed an acute allergy to allowing the private sector – which employs over 70% of American workers – to tap government education or workforce funding. But I can’t help think it’s mainly because the bloated cost structures engendered by the student loan industrial complex incorporate thousands of offices of university communications and lobbyists who continue to successfully hoodwink policy makers and well-meaning philanthropists like MacKenzie Scott. College will continue to play a key – if not the primary – role in launching careers. But as emerging American GTOs in software development, healthcare IT, and other sectors are beginning to demonstrate, college is no longer the only game in town. And given that loans have further distanced it from the fierce urgency of what students need now, it could use the competition.
American students and families are victims of a student loan Stockholm Syndrome. So next Thursday, commemorate Bobby Bonilla Day by thinking about the millions of young Americans taking on new student loans this summer, then think creatively about what you can do in your own work to truly Build Back Better. And don’t believe everything you hear from Stanford’s Office of University Communications: Stanford is too expensive, and we need new thinking to bounce back from the depths of Madoff-like financial bets to The Heights of the American Dream.