There's no Cure for Student Loans

August 3, 2011 6:41 AM

Since 2005, it has been nearly impossible to discharge student loans in bankruptcy. HR 2028 and S.1102 aim to make private student loans again dischargeable in bankruptcy.

"In the past, some privately funded student loans could be discharged in a Chapter 7 bankruptcy. However, the law changed with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Now, any education loan that qualifies for a tax deduction is non-dischargeable, unless you show 'undue hardship.'
"It's almost impossible to show undue hardship unless you're physically unable to work and your situation isn't likely to improve in the future. So, if your student loans make up most of your debt, it probably isn't wise to attempt this unless you're disabled."
Student loans have, of course, made it possible for many to pursue their aspirations, but there is a growing consensus that higher education is a bubble fixing to burst.
Previously,
previously,
previously,
previously,
previously, on the blue.

posted by gauche (64 comments total)

Any idea if this would grandfather-in existing private loans, or only apply to new loans? Not that I think this has any chance in hell of ever making it into law, of course.
posted by Thorzdad at 6:48 AM on August 3, 2011

A bill that is detrimental to the financial interests of big banks? Yeah, that is not going anyway in this Congress.
posted by COD at 6:48 AM on August 3, 2011 [10 favorites]

The easier it is to discharge a huge unsecured loan, the hard it will be to get one.
posted by smackfu at 6:48 AM on August 3, 2011 [7 favorites]

Demagoguery.
posted by resurrexit at 6:49 AM on August 3, 2011

The easier it is to discharge a huge unsecured loan, the hard it will be to get one.

Why is that a bad thing?
posted by enn at 6:51 AM on August 3, 2011 [20 favorites]

The easier it is to discharge a huge unsecured loan, the hard it will be to get one.

Note in a federally backed student loan, it's not the bank that would be taking the hit. So, why exactly would this change the bank's willingness to loan?

The chance of this getting passed isn't close to zero, it is zero.
posted by eriko at 6:51 AM on August 3, 2011 [1 favorite]

enn -- I was also going to go on a long rant about how easily accessed student loans have only made university costs skyrocket, which is, of course, making student loans not a conduit to success, but a trap.
posted by eriko at 6:53 AM on August 3, 2011 [7 favorites]

This whole situation is made more problematic by government abandonment of higher education. The whole point of state colleges/universities was to provide an affordable education to state residents, often with the second goal of building research centers that serve as points of pride and potential economic engines for the state. Increasingly, though, states have cut back their support until most state systems are supported far more by tuition (and grants) than they are by tax dollars. This means that what was once a shared burden for the benefit of the state is turning into a burden supported largely by the students who are trapped into beginning their careers with crippling debt. Furthermore, with state appropriations now often falling below the difference between the tuition paid by in-state students and what would be paid if those same slots were filled by out-of-state students, state schools are increasingly caught in a trap where there theoretical primary purpose is a financial liability. The whole situation is maddening. If states were actually supporting their schools, tuition would be lower and loan debt would be less, too.
posted by GenjiandProust at 6:57 AM on August 3, 2011 [40 favorites]

The easier it is to discharge a huge unsecured loan, the hard it will be to get one.

Good.
posted by gagglezoomer at 7:04 AM on August 3, 2011 [3 favorites]

Speaking as someone who had the unbelievably good blessing of being born about 10 years earlier than kids who have been graduating college these past few years, and as one who worked hard for a full decade of my young life to pay off my student loans independently and in full - thanks to a mostly positive job market:

This doesn't fuck the banks and their fed oversight nearly as hard as it should for what they've done.
posted by allkindsoftime at 7:07 AM on August 3, 2011 [13 favorites]

Any idea if this would grandfather-in existing private loans, or only apply to new loans?

It would be a really terrible idea to let it apply to existing loans. The ability to have debt discharged is one of the things that drives the decision to lend out money in the first place. The loans made between 2005 and now have factored into them, and presumably their interest rates, assumptions about the non-dischargeability of the debt. Somebody, and I suspect it would be the Federal government, would end up taking a huge hit if you changed the rules now.

What you could do without messing anything up would be to not grandfather in existing loans, but allow old loans to be refinanced or otherwise rolled into new loans that would follow the new rules, at prevailing current interest rates. Those would be higher, of course, owing to the increased default risk. I think this is how it has been handled in the past when states went from recourse to non-recourse mortgages or vice versa.

I would hope that under the new rules it's the lending bank that takes the hit rather than the government in the case of a default leading to discharge, since they are the ones in the position to decide who to write the loans to in the first place. However, I'm sure if the banks have had any input into the legislation that won't be the case.
posted by Kadin2048 at 7:08 AM on August 3, 2011

I agree with eriko's assessment. I just celebrated paying off my Sallie Mae loan from 10 years ago. I paid for graduate school with cash.

The links are interesting. Thank you.
posted by BuffaloChickenWing at 7:09 AM on August 3, 2011

Unlikely to get out of committee much less enacted into law.

There are a lot of problems with Higher Education and student loans but I don't think ready access to student loans is the entirety of the problem.

The costs of educating students are increasing dramatically while contributions by government are going down. This creates a system where students are being asked to share a larger and larger share of the costs through tuition and fee hikes. Student loans help bridge the gap between what a student can pay and what the institution costs to attend. Without them you are talking about a system where only those individuals with the financial wherewithal to pay can attend university. This in effect excludes a lot of individuals from lower socioeconomic status for whom a college education is a tool for seeking economic and social advancement.

Sure the are problems, especially in regards to for profit universities which engage in practice again to predatory lending but I think those problems can be solved by enforcing tighter regulation on a student loans through those for profit institutions.

Even if the costs of higher education are getting to the point where the return on investment vis a vis lifetime earnings is no longer the great deal it used to be it still seems unlikely that we are going to return to a system where a high school diploma is going to be enough to provide lifetime financial security. As long as people with a college education enjoy higher lifetime earnings and lower risk of extended unemployment you will have people seeking out the degree as a credential if nothing else.
posted by vuron at 7:11 AM on August 3, 2011 [2 favorites]

Why do lawmakers bother with this shit? Empty gestures, even with the best sentiment, become demagoguery when elected officials make them.

Banks have lobbyists and the money to buy votes. Impoverished people have neither. Money always wins in this country. This has less chance of passing than a bill that would put Pedro Martinez on the five cent piece.
posted by Mayor Curley at 7:11 AM on August 3, 2011 [2 favorites]

State school tuition around here still seems reasonable for in-state students. Charging $6000 for 10 months of a shared bedroom and $5000 for meals is fairly ridiculous though. Easy student loans means people pay that without even thinking about how crazy it is.
posted by smackfu at 7:12 AM on August 3, 2011 [2 favorites]

These loans aren't federally backed. That's why they're called private loans. The bank would be taking the hit.

Sometimes people do need big private loans for school so no, it's not an obvious good thing should those loans become unavailable.
posted by the young rope-rider at 7:13 AM on August 3, 2011

If dischargeability only applies to private student loans, that gives federal student loans an extremely unfair advantage. It would practically eliminate private competition for student lending, and would give the federal government an effective monopoly. It does nothing to control increasing costs of higher education.
posted by overeducated_alligator at 7:15 AM on August 3, 2011

Those of you who are dismissing this as demagoguery--what do you want legislators to do instead?
posted by Vibrissa at 7:15 AM on August 3, 2011 [1 favorite]

"Why do lawmakers bother with this shit? Empty gestures, even with the best sentiment, become demagoguery when elected officials make them.

Banks have lobbyists and the money to buy votes. Impoverished people have neither. Money always wins in this country. This has less chance of passing than a bill that would put Pedro Martinez on the five cent piece."

Sometimes even "meaningless" gestures that are unlikely to be passed can still shine a light on a variety of social problems. You can have hearings, get testimony from experts, and keep a problem in the public's eye.

Congress isn't exclusively about passing legislation it can also be used to build support for a variety of reforms of existing systems.
posted by vuron at 7:17 AM on August 3, 2011 [3 favorites]

This Congress couldn't be used to build support for a measure to make sure our economy doesn't go down the tubes. Why should it be able to be used to build support for anything else?
posted by blucevalo at 7:20 AM on August 3, 2011 [1 favorite]

Sometimes people do need big private loans for school so no, it's not an obvious good thing should those loans become unavailable.

The thing is, right now, basically everyone need big private loans for certain types of schooling. I don't know a single person that didn't use big private loans to go through law school. Making those loans unavailable will bring down the price of law school, because without them the schools will have no students.

Admittedly, I'm a basically unemployed lawyer with $160,000 of debt, so student loans put me in a very "kill them all and let God sort them out" sort of mood, but I think making student lending less available would be a profoundly good thing.
posted by Bulgaroktonos at 7:20 AM on August 3, 2011 [12 favorites]

These loans aren't federally backed. That's why they're called private loans. The bank would be taking the hit.

Sometimes people do need big private loans for school so no, it's not an obvious good thing should those loans become unavailable.

For what it's worth, the proposal merely repeals one aspect of a 2005 law. Prior to 2005, there were private student loans. I still have some.
posted by gauche at 7:21 AM on August 3, 2011 [1 favorite]

Those of you who are dismissing this as demagoguery--what do you want legislators to do instead?

Well...how about, if a private college/university wants to accept federal student loans, it must abide by specific cost-controlling regulations. I.e., caps on the total amount students can be charged, including tuition, fees, etc.

Control your costs, or watch a huge portion of your applicants go elsewhere because they can't use their federal loans at your school.
posted by overeducated_alligator at 7:23 AM on August 3, 2011 [3 favorites]

But...but... other kinds of loans can already be discharged through bankruptcy, and up until the changes in law made just a few years ago, student loans could be, too. So all the concern about unintended consequences (like a lack of availability of loans) seem misplaced to me.

This wouldn't be a change so much as a return to the norm, and I think it would be a good one, because it's unfair to saddle some of our most vulnerable borrowers--college students who may come from economically disadvantaged backgrounds--with unforgivable debt before they've even had a chance to establish themselves on a financially sound footing.

Maybe it is unlikely to pass, but that's no reason not to support it. In fact, not supporting something just because it seems unlikely to pass smacks of defeatism.
posted by saulgoodman at 7:25 AM on August 3, 2011 [13 favorites]

If dischargeability only applies to private student loans, that gives federal student loans an extremely unfair advantage. It would practically eliminate private competition for student lending, and would give the federal government an effective monopoly.

The Federal government already does have an unfair advantage: it can lend, if it chooses, at sub-market rates. This already leads to an effective monopoly, insofar as the government loan programs choose to have it.

Most people try for Federal loans first and only go to private loans if they can't get Federal ones for everything they need/want. There's no real direct competition; the private loans are definitely perceived as the worse deal. The private lenders exist to serve market demands that the Federal programs, for whatever reason, don't.
posted by Kadin2048 at 7:30 AM on August 3, 2011

Given all the talk about the bubble in education etc: Where is the money going ? Colleges collect all that tuition, and as best I can tell, don't pay profs that much. In earlier threads, folks bemoan colleges hiring adjuncts or lecturers to teach rather than full time profs..

So, really, where's the money going ? Sure, there is a whinge about how some college prez is making $500k (while the football coach gets 1.2mill, but tuition doesn't pay the coach's salary) ..

So, yeah, where's the money go ?
posted by k5.user at 7:34 AM on August 3, 2011 [3 favorites]

The old law was that private student loans were dischargeable in bankruptcy if they were in repayment (not deferred) for at least seven years. So it was never exactly easy to discharge them.
posted by smackfu at 7:34 AM on August 3, 2011

k5.user, one thing I've read is that there are a great many more administrators at colleges and universities these days. Also lots of non-teaching staff in things like diversity centers, which have multiplied in the last couple of decades. Administrators also make more now, both in absolute terms and compared to faculty salaries.
posted by not that girl at 7:39 AM on August 3, 2011 [4 favorites]

not that girl has it. The money goes to pay the salaries of eight thousand deans.
posted by Faint of Butt at 7:44 AM on August 3, 2011 [3 favorites]

So, really, where's the money going ? Sure, there is a whinge about how some college prez is making $500k (while the football coach gets 1.2mill, but tuition doesn't pay the coach's salary) ..

There's two theories floating around (The Chronicle of Higher Education is a good source for this kind of thing):
-Theory One says that it's going to unnecessary capital improvements (that new big Wellness Center, the brand spanking new Intercultural Dorm, the lovely upgrade to the English building, that kind of thing)
-Theory Two says that it's the burgeoning salaries of an increasing number of mid to high level administrators. As the academy moves away from the Professor as Leader to the MBA who comes from the business world as Leader, the salaries go up as the competition for good leaders increases.

I'm not sure that I agree with either one (I think it's both plus some combination of other things, like trying to lure superstar Nobel Prize winners to nice lab set ups and business professors to endowed chairs and their own research centers).

In any case, the cost to attend university keeps going up, and the loans keep racing to catch up. I think we need to break that cycle, for federal and private loans, and bring the costs back down to earth. And I work at a university.

(Don't ask me what portion of the dough we're getting--every year we go hat in hand begging to the Provost and we're chronically underfunded compared to our peers.)

So yes, I think bringing private loans back into the bankruptcy fold is a great idea. I can only hope it goes through at some point, though probably not now.
posted by librarylis at 7:44 AM on August 3, 2011 [6 favorites]

How about just restoring the old consolidation system, where you could get consolidation loans at the current market rate rather than forcing people who consolidate to accept the weighted average of the loans they already have? That would reduce defaults, surely.
posted by 1adam12 at 7:46 AM on August 3, 2011

I'll be following this with interest (no pun intended) because my husband is about to start a (non-academic/work-oriented) grad program and we may end up taking some loans to finance it. Fortunately his employer will pay for a significant plurality, if not a majority, of tuition and fees, and we have access to other money for it. Still, the idea of taking on any student loans, even though I know we'll pay most of them off before my husband graduates, gives me mild hives.
posted by immlass at 7:56 AM on August 3, 2011

Also of note in this discussion is that due to the debt ceiling deal, grad students no longer qualify for Federal subsidized loans. This means that grad students will not be able to defer interest while they are in school.
posted by zsazsa at 8:03 AM on August 3, 2011 [5 favorites]

Bulgaroktonos: I don't know a single person that didn't use big private loans to go through law school. Making those loans unavailable will bring down the price of law school, because without them the schools will have no students.

*raises hand tentatively*

Of course, since we don't know each other, or at least only know each other in the context of MeFi, your statement is not incorrect. But FWIW*, I was lucky enough to pay for law school (including living expenses) entirely through Stafford/Ford and graduate PLUS loans.

*Yeah, I should know by now what happens when I offer up a straight line like that around here. I deserve whatever follows.
posted by bakerina at 8:04 AM on August 3, 2011

Increasingly, though, states have cut back their support until most state systems are supported far more by tuition (and grants) than they are by tax dollars.

I am faculty at a state institution, and since 2007, the state has reduced funding every year, for a cumulative reduction of about $42million, representing a 34% decrease in funding. Also, the tuition, which is set by the state, not by the school, is increasing 11% this year, and I think was raised maybe 5 or 6% last year. 34% of our revenue will now come from tuition and fees, and only 28% from the state appropriation.

But of course, the state expects us to do more with less--their big line is about how we have a fairly low percentage of the population with college degrees, and we need a more highly-educated workforce to attract more employers to the state. So we should recruit more and boost our enrollments.

Oh, BUT, the state is also changing the funding formula this year to be founded mainly on *retention and graduation* rates, not enrollment. So basically the message is: bring as many people as possible in the door, cause you're not getting any more money from us, but hey, if they don't stay and graduate, you will lose what little money we did give you.

Are there any funding initiatives to help the university (which serves a large minority population and generally very poor region of the state) provide support services for retention and graduation? No. Of course not.

We are supposed to offer more online courses, for which the state charges higher tuition and fees, in order to enhance retention and graduation rates.

?

Honestly, I don't know what people want from higher education anymore.
posted by DiscourseMarker at 8:06 AM on August 3, 2011 [8 favorites]

Sometimes people do need big private loans for school so no, it's not an obvious good thing should those loans become unavailable.

I think it's pretty obviously better for people not to go to school than to come out of school with inescapable debt loads far beyond what they will ever be able to afford and consequently to spend the rest of their lives living in relative poverty to service those debts, as many, many students are now doing. For the people to whom you're referring, those are essentially their only two options.
posted by enn at 8:12 AM on August 3, 2011 [2 favorites]

Naive question: What if I want to see things that I conceived, painstakingly researched, argued about, imagined, dialogued about, and argued about on http://www.govtrack.us/.

What are all my options? Seriously.
posted by zeek321 at 8:13 AM on August 3, 2011

Anyone who dislikes this should first read up on the for-profit university scam. We've lenders paying for students attending utterly worthless degree programs, such lenders need a serious haircut.

There is a separate harder problem that administrative expenses have grown unwieldy at many real universities. You should however realize that bureaucrats cut services before themselves, meaning any "supply side" fix would require a sustained period of debilitating austerity in both education and research, a very bad thing. You might pass some federal law limiting the administrative overhead taken from grants, tuition, fees, housing, etc. I'd imagine some bureaucracies would retaliate by admitting under-qualified students rather than laying off their own. Oy!
posted by jeffburdges at 8:13 AM on August 3, 2011 [2 favorites]

Honestly, I don't know what people want from higher education anymore.

Most people want higher salaries and/or better job prospects. Period.

It's arguable that this is not really the purpose of traditional higher education, and really ought to be the domain of secondary schools, and thus the failure of our educational system is really in the 9-12 Grade level, and may be itself be due to failures at even earlier levels than that.

But that doesn't really change the fact that what the market really seems to want is trade school by another name, or trade school without that blue collar odor.
posted by Kadin2048 at 8:29 AM on August 3, 2011 [8 favorites]

Out of curiosity, what section of population actually looks down on trade schools? Is it anywhere near enough to the majority to affect "market demand" for college education?

I'd think it's more that there aren't really office job trade schools, and that we now have a lot more office work than trade work.
posted by Zalzidrax at 8:50 AM on August 3, 2011 [1 favorite]

Also, the tuition, which is set by the state, not by the school, is increasing 11% this year, and I think was raised maybe 5 or 6% last year. 34% of our revenue will now come from tuition and fees, and only 28% from the state appropriation.

A fun example of this is UMass. Their tuition is capped by statute or something, so to get around that, tuition is $857 per semester and there is a $4400 "curriculum fee".
posted by smackfu at 8:53 AM on August 3, 2011

There's two theories floating around (The Chronicle of Higher Education is a good source for this kind of thing):

I think it's a bunch of things (you suggest this further down in you comment, to be fair):

Some is higher salaries to "attract quality administrators." It is certainly true that there are more administrators in Higher Ed than there were 20 years ago. On the other hand, there is a lot more for administrators to keep track of and multiple layers of oversight (state and federal government, accrediting agencies, more accrediting agencies for professional programs, etc) leads to a lot of reports, all of which have to match different specs and metrics. So there are more administrators, but there don't seem to be enough a lot of the time.

Some is for extra services/facilities to attract the students we need for tuition -- wellness centers, new dorms, new dining halls, etc -- is this "waste?" I dunno. Most of it isn't desperately needed, but a pleasant campus is a good thing. I do not want our students to be crammed four to a room in Cold-War era dorms. I once helped move students out of a 1950s dorm into a newer facility. The smell of unwashed socks had permeated the cinder block construction. Really, our students deserved better.

Some is just that everything costs more. Library subscriptions increase at an average of 10% a year. Salaries increase (one hopes) to keep pace with inflation. Energy costs go up a few % points a year, sometimes spiking sharply. Building and maintenance costs go up steadily. There are insurance costs and legal costs and food costs and so on, and this is just to maintain what already exists -- just sitting still, the university probably increases a significant portion of its budget by 3-5% each year just standing still.

I could go on and on. But the idea of running a university like a business just makes the situation worse, and costs that are not paid by the government are going to fall on the individual student until the Magical Finance Ponies come back from their celestial pasture and sort it all out. As seems to be the plan.
posted by GenjiandProust at 8:58 AM on August 3, 2011 [1 favorite]

I have student loans and I've been paying them for a long time. One thing that really pisses me off is that there is a cap of around $2,500. on the amount of student loan interest that can be deducted (or whatever the term is) on my federal income taxes. Somehow our tax system rewards people who have mortgages on expensive homes and vacation homes by giving them a tax break for all of the interest they pay on those but will not give those of us who've borrowed money for education a similar break.

And then there's the bankruptcy issue which treats student loans like no other form of debt.
posted by mareli at 8:59 AM on August 3, 2011 [4 favorites]

Bulgaroktonos: "Admittedly, I'm a basically unemployed lawyer with $160,000 of debt, so student loans put me in a very "kill them all and let God sort them out" sort of mood, but I think making student lending less available would be a profoundly good thing."

Fundamentally, this is about how well markets work. If loans trigger an increase in demand, prices will rise until enough suppliers meet demand. If you you take away demand, you'll expect that supply will fall, in the form of schools closing. I can see all kinds of arguments for why prices will rise faster than supply, but few for why schools might shutter doors as prices fall. If that happens lockstep, I imagine prices would remain high. NotAnEconomist.
posted by pwnguin at 9:10 AM on August 3, 2011

Kadin2048 : It's arguable that this is not really the purpose of traditional higher education, and really ought to be the domain of secondary schools, and thus the failure of our educational system is really in the 9-12 Grade level, and may be itself be due to failures at even earlier levels than that.

I wouldn't say failure, but more credential creep. If you told someone 30 years ago that they would have to spend many thousands of dollars just to be considered for an entry-level paper pushing job, they'd laugh at you.

A high school diploma used to be good enough. Once too many people got those, the bar raised to bachelors degrees. Now the bar raises toward masters. At this rate, you'll need a phd to work at Taco Bell.
posted by dr_dank at 9:12 AM on August 3, 2011 [1 favorite]

I have student loans and I've been paying them for a long time. One thing that really pisses me off is that there is a cap of around $2,500. on the amount of student loan interest that can be deducted (or whatever the term is) on my federal income taxes. Somehow our tax system rewards people who have mortgages on expensive homes and vacation homes by giving them a tax break for all of the interest they pay on those but will not give those of us who've borrowed money for education a similar break

You'll be happy to know that there's an income cap, where deductibility is phased out, and then completely eliminated:

http://taxes.about.com/od/deductionscredits/qt/studentloanint.htm

"If your income is over $60,000 but under $75,000 ($120,000 to $150,000 for married people filing jointly), then your deduction for student loan interest will be prorated.

If your income is over $75,000 ($150,000 MFJ), then your student loan interest is not deductible at all." I believe by income, they mean AGI.
posted by etherist at 9:12 AM on August 3, 2011

The "why does college keep getting so goddamn expensive" question is well answered here.

One fun bit of discovery: the "administrative bloat" argument as usually presented is incorrect. A recent study showed that the growth in administration has not, in fact, been in people in high-level or supervisory roles. The growth is elsewhere. The confusion arises because anyone not "faculty" is lumped into "administration." The IT department? Administration. Offices mandated by the government that didn't exist twenty years ago? Administration. Grant directors, because so many grants require their own directors? Administration. Tons and tons of costs have arisen in the last few decades that didn't exist before.

Oh, and new tech? It's a sunk cost for a college. You don't get increased efficiencies and return on investment. That money's just gone. Computer and software upgrades? New packages? New science equipment? Money's gotta come from somewhere.
posted by Harvey Jerkwater at 9:18 AM on August 3, 2011 [2 favorites]

Other bills doomed to die in comittee:

S. 91 would declare that life begins at conception.
H.R. 25 would abolish the IRS.
S. 803 would deploy the National Guard on to the US boarder full-time.
H.R. 676 would extend Medicare coverage to all citizens.
H.R. 2252 would extend Texas style right to 'defend a man's castle' with deadly force nationwide.
H.R. 1489 would reinstate Glass-Stegal.

Call me when there's a floor vote.
posted by T.D. Strange at 9:31 AM on August 3, 2011 [1 favorite]

State school tuition around here still seems reasonable for in-state students. Charging $6000 for 10 months of a shared bedroom and $5000 for meals is fairly ridiculous though. Easy student loans means people pay that without even thinking about how crazy it is.

Exactly right. A close analogy, I think, is when you use chips at a casino. Once they start piling up, there's something about the process that makes you lose some sense of the real-life cash value of the chips, as it's not money that is being used tangibly in a context of real living. I think students loans, which is almost entirely a process of electronic transactions, rarely gives a genuine, tangible impression to people who have more limited real life experience regarding the real-life value of that money. You can try to explain it on paper, but at the end of the day, it's hard to internalize why $48,000 is actually quite a bit more than $40,000, as they seem to be in the same ballpark. The numbers look similar, whereas the initial loan of $8000 may actually have carried more initial weight, in terms of a tangible real-life comparison. I think this encourages students to rack up additional loans in the long run, as once you get that ball rolling and get past the initial barrier to entry, it's hard to see why adding a bit extra would hurt. Rinse and repeat each year.
posted by SpacemanStix at 9:37 AM on August 3, 2011 [1 favorite]

not that girl: "Administrators also make more now, both in absolute terms and compared to faculty salaries."

I used to work at a community college, and they published a salary study in the basement of the library (next to the sign that says "beware of tiger"). Ok really it was just in a binder you had to present ID to reserve. It's a gigantic list of name, title, years of experience, educational attainment and salary range. At least in my data, senior faculty earn the same or more as administration. It's only the CIO & President, etc that pull in slightly more. Of course, they're unionized, yet operate with a huge fleet of underpaid adjunct. And I don't have historical data to say how things have changed. But tenure track professors aren't living in poverty by any stretch of imagination.

I haven't gone digging through the uni I work for now, but the data is online at least.
posted by pwnguin at 9:52 AM on August 3, 2011

There's two theories floating around (The Chronicle of Higher Education is a good source for this kind of thing):
-Theory One says that it's going to unnecessary capital improvements (that new big Wellness Center, the brand spanking new Intercultural Dorm, the lovely upgrade to the English building, that kind of thing)
-Theory Two says that it's the burgeoning salaries of an increasing number of mid to high level administrators. As the academy moves away from the Professor as Leader to the MBA who comes from the business world as Leader, the salaries go up as the competition for good leaders increases.

Or, it's the fact that, unlike most of the rest of the economy, education isn't really poised/allowed to take advantage of the kind of productivity gains enjoyed by much of the rest of the economy.

On the whole, we like it when people's salaries grow faster than inflation when measured across the upswing of their career (it means that they gain purchasing power as they grow in responsibility and experience). In most industries, that growth in per-head labor cost is offset by productivity gains that allow the industry to 'do more' without increasing (or possibly even decreasing) the number of people involved. The 'per unit' cost of the industry then grows at a rate below that of the growth rate of its per-head labor cost. In some industries, this productivity gain is such that the growth rate of the per-unit cost is even driven below the inflation rate (for example, consumer electronics, which have had incredible productivity gains to the point where per-unit costs actually decrease over time).

At the university, salary costs trend upwards faster than inflation, just like in most industries. But, how would a productivity increase manifest itself in a university? By more students being taught by fewer faculty. However, any time student-to-faculty ratios start to creep up, parents, students, and society-as-a-whole scream bloody murder and vote with their wallet by going somewhere else. Because although head-count goes up, effectiveness goes way down. People aren't widgets, and there's a limit to how much 'productivity gain' you can actually see when you start dealing with human-to-human information transfer.

What's the answer? I don't know. Online and distance learning approaches that try to get the student to faculty ratio way up seem to suffer from the same lack of effectiveness of big lecture sessions.

The upshot is that we shouldn't be surprised that education costs are growing faster than inflation. (And the costs at the university truly are dominated by faculty costs. At the major state university that I'm at, labor costs are 90% of the university budget, and faculty salaries are 75% of that).

Similar effects are likely at play in healthcare as well. We don't want our doctors to see 1000 patients a day. We really don't like treating people like widgets.
posted by BlueDuke at 9:52 AM on August 3, 2011 [1 favorite]

Honestly, I don't know what people want from higher education anymore.

Reasonable complaint. People want their money's worth? People see their education as their personal possession - and having nothing to do with the health of the country?

I'm personally still envious of the people I meet who have higher degrees that were paid for by their governments. My latest encounter was with a woman from Iran - she got all her education, up to a Masters degree, paid for by the government of Iran.

Is there a list of countries that provide free higher education? I want to carry it around with me and talk about it to everyone I meet.
posted by Surfurrus at 9:54 AM on August 3, 2011

Educating students at a university level is expensive, doing it at a major research institution is extremely expensive. It's not getting cheaper despite efforts at improving efficiency and driving down costs.

Building and upgrading facilities is a major cost. Pretty much invariably the money used to fund capital improvements at a university level is being paid with future tuition revenues. If you don't continually build and upgrade facilities you can't compete with other institutions for grant money, for better professors, for better students, etc.

IT and Libraries are incredible cost centers. Researchers and professors need access to the incredibly expensive online journals, they need network connectivity, the need servers and compute nodes, etc. Add on the costs of maintaining a Student Information Services product or some sort of learning management system for distance ed, etc. Sure educational institutions get pretty good discounts from Cisco, Dell, Oracle and Blackboard but those are still enormous expenses that many schools struggle with.

In addition students definitely make decisions based upon amenities. New campus rec facilities, new dorms with private suites, plenty of food options, athletic departments, etc.

Yes there has been an increase in the number of administrators at the university level but honestly does it serve the purposes of a university to have a professor need to take time from his academic career to manage budgets and capital improvement projects?

Now arguably the increased costs of educating students is exceeding the financial ability of people to pay for those school absent loans and the actual return on investment can be low but at least in my experience the state university system tends to be moderately efficient. I certainly know that my skill set demands a far higher salary in the private sector than it does in the academy.
posted by vuron at 10:14 AM on August 3, 2011

I'd imagine your list includes most European¹, South American, and Asian countries, Surfurrus, but obviously admission might still get pretty competitive, or even political, think China. There are often less competitive but higher price options for students who're rejected by their country's top tier institutions, which're invariably the free public ones.<sup>2

1</sup> Afaik, the only European country with substantial student fees is England, recently raised to £6k -- £9k from £3k. German student fees run roughly 500 €, but aid must surely be available. French Grandes Écoles (ENS, EP/X, etc.) students are paid for their studies, but entrance is extremely competitive. France doesn't pay ordinary university students.

² I believe the only country in the world with any top tier private educational institutions is the United States, usually the public schools beat out the private ones. There are always students rejected by their country's top institutions who instead opt for either the expense of studying in a public school abroad, or select a private school.

In Europe, there is a stereotype that private school students are rich and connected but lazy and stupid, meaning students denied admission often choose studying abroad over dropping down to their country's middle tier schools. There are some non-European countries like Turkey that offer private schools that beat out their middle tier public institutions. I'd imagine the institutions labeled the American University in [city] usually fit this category.
posted by jeffburdges at 11:04 AM on August 3, 2011 [1 favorite]

Also of note in this discussion is that due to the debt ceiling deal, grad students no longer qualify for Federal subsidized loans.

Debt Deal Would End Subsidized Loans To Grad Students, Produce Savings Equal To Only Three Months In Afghanistan
posted by homunculus at 11:37 AM on August 3, 2011 [2 favorites]

Any idea if this would grandfather-in existing private loans, or only apply to new loans?

It would be a really terrible idea to let it apply to existing loans.

Anybody happen to know whether the BAPCPA reforms of 2005 applied to existing loans?
posted by gauche at 11:50 AM on August 3, 2011

The easier it is to discharge a huge unsecured loan, the hard it will be to get one.

I have this suspicion that, in fact, fees might *as though by magic* align themselves with whatever the new maximum lending profile looks like.
posted by rodgerd at 12:04 PM on August 3, 2011

Anybody happen to know whether the BAPCPA reforms of 2005 applied to existing loans?

Both this new law and the 2005 one just alter the definition of what debts are dischargeable in a bankruptcy. Neither has any grandfathering.
posted by smackfu at 12:19 PM on August 3, 2011

This seems less necessary with the new income-based repayment plan now acailabe that caps your monthly payment based on your adjusted gross income and then discharges tour debt after ten years of repayment. Your payment may even be calculated as zero, and your debt discharged after ten year of monthly $0.00 payments.
posted by Grundlebug at 3:10 PM on August 3, 2011

we like it when people's salaries grow faster than inflation when measured across the upswing of their career [...] What's the answer? I don't know.

Well, one solution that allows you to maintain an upward real-salary trend with increasing experience, yet keep overall salaries constant, is to adopt an "up or out" model where you only allow a small number of incoming employees to progress to those high salary levels.

E.g., for every year of experience you fire some percentage of the staff at that level, and redistribute their salaries to the remaining staff. Call it the "Survivor" model of human resources management.

It's not nice, but it works, and it's pretty much the dominant model across a whole lot of industries. Sometimes explicit (military officers), sometimes implicit (many aggressive corporate management jobs). But it's almost totally incompatible with the tenure system.

It might be that increasing salaries over a career aren't sustainable with tenured employees, outside of an infinite-growth economic model. This might not have been apparent over the last few decades because all the growth hid it. But now that growth is slowing down, it's one of many structural problems that are starting to crop up.
posted by Kadin2048 at 3:27 PM on August 3, 2011

Well, one solution that allows you to maintain an upward real-salary trend with increasing experience, yet keep overall salaries constant, is to adopt an "up or out" model where you only allow a small number of incoming employees to progress to those high salary levels.

E.g., for every year of experience you fire some percentage of the staff at that level, and redistribute their salaries to the remaining staff. Call it the "Survivor" model of human resources management.

It's not nice, but it works, and it's pretty much the dominant model across a whole lot of industries. Sometimes explicit (military officers), sometimes implicit (many aggressive corporate management jobs). But it's almost totally incompatible with the tenure system.

And it doesn't really fix the problem. Unless you can get people to sign up for reduced purchasing power over the course of their career, the absolute *best* you can do is for salary costs to grow at the inflation rate. Without productivity gains to offset that, you've just shown that the lower bound on the growth rate is the inflation rate. That is, the slightest bit of non-ideal behavior and you're still stuck with costs growing faster than inflation. The military and corporate models get to take advantage of the productivity gains that education doesn't. Tenure is largely a red herring.
posted by BlueDuke at 3:40 PM on August 3, 2011 [1 favorite]

To clarify a bit:

Say you fire everyone and replace them all with freshly minted Ph.D.'s. And further, that you do this every year so that you never have to give raises. The salary you offer will still have to rise at roughly the inflation rate over time. So you've dropped your salary cost growth rate to the inflation rate. But of course you can't really fire your entire faculty every year (not and maintain any kind of quality, let alone possibly move your institution up in 'the rankings'), so your labor costs still grow faster than inflation. And they dominate your overall costs, so your overall costs still rise faster than inflation. All in a system without any tenure whatsoever.
posted by BlueDuke at 3:56 PM on August 3, 2011

This seems less necessary with the new income-based repayment plan...

I think the income-based repayment plans are only available for federal student loans. If you have private loans, you're still screwed.
posted by Vibrissa at 4:49 PM on August 3, 2011 [1 favorite]

Well, yes, if you want to maintain constant purchasing power across time, given positive inflation, then you have to constantly increase salaries at the inflation rate. That's true regardless of the number of employees or turnover.

[As a sidebar, I'd argue that in reality that's pretty unlikely; at anything except very low inflation rates salaries -- at least of most people I know who lived through high-inflation periods -- generally don't keep up (which makes sense; salaries are in many cases stickier than prices), so purchasing power drops slowly over time, everyone gets poorer, etc. This is why so many people despise inflation despite the fact that generally lowers unemployment, and why the U.S. has a de facto low-inflation policy. We've apparently decided that inflation is worse than unemployment.]

But if we stipulate that an employer wants to keep real (inflation-adjusted) salaries constant, then they have a lower bound to their salary budget which is the inflation rate. Granted. As a result, they'll probably want to raise prices (which is to say, tuition) at the same rate. So everything goes up at the inflation rate every year in order to stay constant in real terms. That strikes me as pretty uncontroversial, at least in theory.

What I was suggesting earlier is that it's possible to achieve a steady-state in real dollar terms by reducing headcount with increased experience. E.g., assume you have a salary budget of 1 million dollars in an inflation-proof currency. The average career lifespan in your industry is 10 years (just to use round numbers), and you have 10 pay bands. You have a fixed number of slots in each pay band; 1 in Band 1, 2 in Band 2, 3 in Band 3, etc, for 55 employees total. Each band has a total budget of $100k to spread around its members, so Band 10 employees get $10k each, band 9s get $11,100, band 8s get $12.5k, etc. (This is a pretty ridiculous pay scale because it's so nonlinear, but you could easily make it linear if you wanted to by changing the number of available slots.) But anyway, you can pretty quickly see where we're going: there's a steady-state solution where your salary budget is fixed, in real terms. I don't think this is very controversial, either, it's just ugly in practice.

Attempting to get around this, to basically give real-dollar pay raises with increasing experience absent any increasing productivity that comes with that experience, just leads directly to Baumol's cost disease. If that's your point as well, I agree completely.

I don't think there's really any way to get around this in education, if you accept on premise that productivity increases are basically impossible. If you look at other labor-centric industries, they solve the issue by valuing the time of senior employees much more highly than the time of junior ones. E.g., in a law firm, someone with ten years of experience has a much higher bill rate than someone fresh out of law school. This allows them to draw a higher salary, and it's based on the (perhaps debatable) premise that they are somehow more efficient or productive in terms of the work done per unit time.

Pretty much any time you give raises based on time-in-grade rather than actual productivity, I suspect you are going to run into this problem.
posted by Kadin2048 at 11:50 AM on August 4, 2011