TRNN Debate: How Can We Fix the Student Debt Crisis?
After Senate votes down Sen. Warren’s student debt bill, Ronald Ehrenberg and IPS’s Marjorie Wood discuss ways to attack the roots of student debt, which is now over $1 trillion
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
College graduation celebrations are in full swing this time of year, but the party may be coming to an end as seven out of ten American students will have graduated with student debt. Students are well over $1 trillion in debt, and according to the Institute for College Access & Success, in the class of 2012 the average amount of debt per student was almost $30,000.
But students won’t be getting any relief soon, after the Senate voted down Massachusetts Democratic senator Elizabeth Warren’s bill, which would have enabled millions of Americans to refinance their loans to take advantage of today’s low interest rate.
But how did Senator Warren propose the government make up for the lost interest? It would come through increasing taxes–on closing tax loopholes for wealthy households. Here’s what she had to say.
SEN. ELIZABETH WARREN (D-MA): Or they can block this bill from being considered, they can refuse to even debate this idea, in order to protect tax loopholes for millionaires and billionaires. That’s it. Billionaires or students, people who have already made it big or people who are working to build their futures.
DESVARIEUX: This news comes on the heels of President Obama issuing an executive order that would cap a borrower’s payments at 10 percent of his or her income.
Now here to discuss their take on President Obama’s executive order and how to solve the student debt crisis are our two guests.
Ronald Ehrenberg is the director of the Cornell Higher Education Research Institute.
And Marjorie Wood is an economic policy associate for the Program on Inequality and the Common Good for Institute for Policy Studies.
Thank you both for joining us.
So, Marjorie, I’m going to start off with you. What’s your take on President Obama’s executive order? And do you think it goes far enough in terms of solving the student debt crisis?
MARJORIE WOOD, ECONOMIC POLICY ASSOC., INSTITUTE FOR POLICY STUDIES: Well, first of all, I think President Obama’s decision to announce this executive order indicates just how much this has become a crisis.
So we believe that this is a good step in the right direction. It will allow, they estimate, 5 million more student loan borrowers to lower their monthly payments. So anything that helps student loan borrowers to manage this tremendous amount of debt that they have been burdened with is good thing, Something that I think is in the right direction.
However, managing the debt is only one way to approach this crisis, as you stated in your intro, that we have in this country with $1.2 trillion in student debt nationally, and much more is going to have to be done. So this executive order–step in the right direction, yes. But is more needed? Absolutely, to really go at the root causes and ask ourselves why do we have this crisis of student debt in America, why are tuition and fees increasing so much that have–that has made this debt necessary in order for young people just to attend college and get a college degree. I think that there are deeper questions that we have to ask.
DESVARIEUX: Ronald, I want to get your take on this. I mean, Marjorie asked those deeper questions about why students are in this situation. And I want to actually expand a little bit. Could the president be doing more in order to help these students that find themselves that find themselves shackled by debt?
RONALD EHRENBERG, DIRECTOR, CORNELL HIGHER EDUCATION RESEARCH INSTITUTE: Well, the president has taken lots of different actions. One thing that he’s doing and Congress has actually done is they’ve required institutions to have net price calculators on their websites so that students can understand what the true cost of attending any institution will be after they receive institutional grant aid and aid from the federal and state governments.
But even more important than that, the president is going to announce or is his administration will announce sometime within the next few months a type of rating or ranking scheme in which institutions will be required to provide not only information on what their costs are, but information on what the debt levels are of their graduates, what proportion of the students actually do graduate, and what type of earnings do graduates of each institution receive. And, hopefully, this type of information will be useful to potential students in deciding where to attend college.
But that’s only a start. I mean, the federal government can help in policies to get both private and public universities to rein in tuition in public higher education. And tuition increases in public higher education have largely been driven by the failure of state support to keep up with growing numbers of students that are enrolling at their institutions. The federal government could set up programs in which those states that increase their support for their own higher education institutions will get matching money from the federal government either for financial aid or more general things. And for all institutions, it can think about policies which look at what the success of graduates are. And if lots of your students are defaulting, then maybe the government should not allow that those institutions to be eligible for federal loan policies, so-called gainful employment type of roles. So those are some suggestions.
DESVARIEUX: Okay. I want to get Marjorie’s take on things. So let’s address the first one, setting up a program to increase higher education funds to those states, maybe doing a matching program that Ronald suggested. What is your take on that? And what are you proposing in ways that we could fight this debt crisis that we have for students?
WOOD: Yeah, I think with something as staggering as our national student debt crisis that we do need to take [multiple?] approaches. We need sort of an all-of-the-above approach. And [snip] that, you know, measures that provide more information for students, more awareness about how to handle their debt. We’re seeing a lot of research now showing that a lot of young people do need more information. They don’t necessarily know all the different routes that are available to them for repayment options.
And I definitely agree that accountability is important for state universities, which is what my research focuses on. But all universities need to be held accountable, particularly when they are receiving federal dollars.
The only thing that I would add to the mix: a recent report that we did here at the Institute for Policy Studies looked at executive compensation at state universities in the country. And what we found is at the 25 state universities where presidents had the highest pay, we saw that student debt was actually rising faster at those universities than the national average. So I think that we need to look at that as well. So while state funds have been declining (there’s no doubt about it), this is putting pressure on state institutions, and it’s a key reason that we’re seeing these increased tuition costs for students.
We’re also seeing an allocation of resources problem. So, for example, non-administrative spending has been increasing at state universities. And what that means is administrative spending that doesn’t have a clear and direct benefit for students, such as executive planning and direction, public relations departments, legal and fiscal services. This type of spending has been increasing along with increasing salaries for administrators and presidents. So that needs to be looked at as well. So there’s a big–.
DESVARIEUX: I want to get Ronald’s take on that. Is that were the focus should be, on executive compensation? What your take?
EHRENBERG: Well, let me treat this a little bit more broadly, that ever since the financial meltdown, both public and private institutions have been drastically trying to slash their administrative costs. At my own university, we’ve taken sort of 7 percent out of our base budget by reducing administrative costs. At the State University of New York, where I am a trustee, the chancellor has been working dramatically through a shared service initiative, both across institutions and for the system as a whole, to try to reduce administrative costs. And so reducing administrative costs is part of the game in terms of succeeding in higher education. So those actions are underway.
The administrative salary thing is a little bit more complicated, because the public higher education institutions compete with much more highly paid private university presidents, and to attract strong leaders sometimes high salaries are necessary. In addition it’s complicated because in many states there are limitations on the amount that the president can get paid out of state funds, and a large share of the president’s compensation may come from affiliated foundations, so not from state money. So it’s not clear to me that there are great savings in slashing presidents’ salaries in terms of reducing the debt crisis.
DESVARIEUX: So, Marjorie, what you make of Ronald’s point that higher salaries are sometimes necessary to be competitive?
WOOD: Yeah, I actually don’t think so. You know, when we’re talking about state universities, these are special institutions that have a very special mission: to serve poor and middle-class students of their state, who otherwise would not be able to afford to attend college.
So I think it’s just pretty striking and surprising to look at just how much some of the executive compensation numbers have soared at state universities. For example, we looked at the 25 state universities with the highest executive compensation–and by that I mean the university president–and we found that by 2012 the average executive compensation for these presidents was $1 million. And it rose very quickly from the period that we looked at, from 2005 two 2012, far outpacing the rate of inflation.
And I guess I would just say in response to Ron’s point that if they are going to make these salaries, then I would like to see them do a really good job of keeping costs down for students. So why is student debt getting worse at these particular schools?
And another thing we looked at was the use of low-wage adjunct faculty labor increasing at the same time, meaning that the quality of instruction at these institutions that had the highest-paid presidents is also going down.
And just one more thing I’d like to add, if I could, is that when I say executive compensation, I’m not suggesting something as simplistic as if we simply lower the salaries of these presidents, then this will somehow have a direct causal effect on student debt. What we’re looking at more specifically is how executive compensation tends to be an indicator of allocation of resources at these universities, so the tip of a very large iceberg that tends to include a lot of other kinds of administrative bloat and administrative spending.
DESVARIEUX: Ronald, what’s your response?
EHRENBERG: Well, I don’t disagree with the importance of reducing administrative costs, and I’ve written a lot on that. But I do want to point out that these high salaries are concentrated at research universities, and if you look at where most students attending public higher education institutions are educated–our community colleges, our two-year colleges, and our public comprehensive institutions–the president- salaries of the presidents there are relatively modest.
And so we should be concerned–and Marjorie is certainly right–we should be concerned about debt burdens of students at research universities. But I’m equally or more concerned about the debt burdens of the students at community colleges and public comprehensives, because there is a very pernicious set of facts which goes something like the following. In most estates, the share of students who are coming from low-income families is higher at the community colleges than it is at the comprehensives, and it’s higher in the comprehensives than it is at the research universities. And conversely, the amount of funding that these institutions get from their states is higher at the research universities than it is at the comprehensives and higher at the comprehensives than it is at the two-year colleges. So if we’re really concerned about students from families with relatively modest means, we should realize that they’re the ones who are getting the least public resources thrown at them by their state governments.
DESVARIEUX: Alright. Marjorie and Ronald Ehrenberg, thank you both for joining us.
EHRENBERG: Thank you for having us.
DESVARIEUX: And thank you for joining us on The Real News Network.
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