The Continuing Debate Over Student Debt

Monday, December 6, 2021 - Authors Beth Akers and Josh Mitchell join the podcast to talk about what's next for student loans as the Covid-19 pause in payments is lifted in January.

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Transcript

Jeff Selingo:

So, Michael, the average student debt at graduation in 2020 ranged from a little over $18,000 in Utah to nearly $40,000 in New Hampshire, that's according to a recent report from The Institute for College Access & Success, which found in 19 states, average debt was more than $30,000, and it was over $35,000 in six states.

Michael Horn:

Now, Jeff, we've had an almost two-year pause on federal student loan payments because of the pandemic, but with that ending on January 31st, it's time to talk again about the state of student debt. So today in Future U, we have the authors of two recent books on how Americans pay for college and finance the cost, Beth Akers, and Josh Mitchell.

Sponsor:

This episode of Future U was made possible by the Bill and Melinda Gates Foundation, which is proud to support the work of the Postsecondary Value Commission. Because the question, what is college worth deserves answers. Learn more at postsecondaryvalue.org. Subscribe to Future U wherever you get your podcasts and follow us on Twitter at the handle @futureupodcast. And if you enjoy the podcast, please leave us a five-star rating so others can discover the conversations we're having about higher education.

Jeff Selingo:

I'm Jeff Selingo.

Michael Horn:

And I'm Michael Horn. Americans carry more than $1.6 trillion in overall student debt. The dollar amount of outstanding student loans in the United States is second only to mortgage debt, which is a headline that draws a lot of clicks, Jeff?

Jeff Selingo:

Yes, Michael, that's why there's been so much talk this past year of canceling student debt. As you might remember, as a candidate, President Biden said he'd erased $10,000 in federal student loan debt for each borrower, although that idea has been kind of lost in the debate over what to do about inflation here in DC, and, of course, the Build Back Better bill that's in Congress right now.

Michael Horn:

So to dig into this topic, today, we're joined by Beth Akers and Josh Mitchell, both authors and experts on student debt. Beth is a senior fellow at the American Enterprise Institute where she focuses on the economics of higher education. She's also a past guest on Future U and the author or co-author of several books on the subject, the most recent one published this past spring titled Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education. Also, with us is Josh Mitchell, who covers the U.S. economy as well as higher education for the Wall Street Journal, Jeff.

Jeff Selingo:

Yeah, Michael. And I got to read Josh's book The Debt Trap in advance last spring, as I call the book in a blurb, it's pretty jaw dropping in parts. It's really a damning examination of the greed in politics, which fueled the current state of student debt. So I'm really excited to have them with us. Josh, Beth, welcome to Future U.

Josh Mitchell:

Thank you.

Beth Akers:

Thanks so much for having us.

Michael Horn:

So let's start with your books. There's been a ton written about student debt over the years, when you started thinking about what to write in a book, what gaps did you see? And Beth, let's start with you, and then Josh, you can take it next.

Beth Akers:

I've been trying to convince policy makers for about a decade now to think about student debt like an economist would, meaning that it's a financing of an investment. But the real hope was always to help students. And so eventually I guess I got frustrated of trying to go through politicians and eventually just wrote this book, speaking directly to students and their families to say, "Hey, here's another way of thinking about borrowing and paying for college in general that uses this cost benefit analysis way of thinking about the problem. And, hey, also guess what? When you think about it this way, it's not so scary, at least not in the ways that people are often talking about, but here's some additional nuances to think about." So that was kind of my thought process in getting this book to press.

Michael Horn:

Josh?

Josh Mitchell:

I thought that there were probably two gaps that I saw that led me to write this book. The first was, I never really understood how we got here, spending a number of years covering student debt. It just kind of seemed like our society and policy makers took for granted that student debt is the best way to provide higher education to people in the United States. And so I wanted to question that and understand how we actually arrived at that point. So I went back 60 years to Sputnik, to unfold this long story of how we got here.

And I guess the second thing is being in DC when I started writing about this, there is voluminous reports from think tanks and experts like Beth and policy wonks about what is the ROI on higher education and what's driving costs and all that. And I did feel a lot of what was missing from this discussion were like human stories. And by human stories, obviously, you could pick up any newspaper any day of the week and you can find a student being quoted saying that they're really resentful of their student debt. But I wanted to go really deep into the backgrounds of a small group of people who got into student debt to really understand what was their motivation? What was their story? How did they get into student debt? What were their schools telling them? I wanted to do a really deep dive that did not just explore data, but went into the human aspect of it.

Jeff Selingo:

So there's so much to unpack in the student loan debate that we probably need several episodes to discuss this topic. I want to slow us down a bit, but do it quickly with a little bit of a lightning round here and talk about some of the basics with both of you. So let's start here, the debate over student loan forgiveness made it seem that all student loan debt is bad debt, is it? Josh, let's start with you.

Josh Mitchell:

No, I don't conclude that, I think there are big problems, but not all student debt.

Jeff Selingo:

Beth.

Beth Akers:

Absolutely not, there are a lot of good investments that were made using federal student debt.

Jeff Selingo:

Okay. So on the good/bad scale, let's talk about a couple of other differences. In your opinion, difference between federal loan debt and private loan debt. Good? Bad? Let's start with you, Beth.

Beth Akers:

There are instances in which borrowing federal student loans are okay, but I'd advise against it in most cases, so bad-ish. How about that?

Jeff Selingo:

And, Josh?

Josh Mitchell:

I think federal loan debt is where the problem areas are, I think the federal government is essentially playing the role of a predatory lender.

Jeff Selingo:

Wow. Okay. Student loan debt versus parent loan debt? There's been a lot of discussion about the parent plus loans in recent years. So differences between those good and bad scale? Josh will start with you.

Josh Mitchell:

I think it depends on how much the borrowing and the background of the person who who's taking on the debt. I think there increasingly a lot of parents who are taking on way too much that they can't repay.

Jeff Selingo:

Beth.

Beth Akers:

I hate parent debt, I think it's kind of like a credit card debt and that it's not paired with a future increase in ability to repay. So bad.

Jeff Selingo:

And then undergraduate versus graduate debt? Because there's been a huge grow growth and graduate debt, of course. So good? Bad? Undergrad better than grad? Both bad? Give us a sense of it? Let's start with you, Beth.

Beth Akers:

Depends how much you're borrowing, we have to do a cost benefit analysis in each case and I cannot say one is good and one is bad.

Jeff Selingo:

Josh.

Josh Mitchell:

I think the biggest problem areas right now are coming on the graduate school side in terms how much people are taking on to go to grad school.

Jeff Selingo:

So Beth, you brought up a good point about the amount, so how much is too much to borrow for college? Let's start with you, Beth.

Beth Akers:

Oh, let me say something really ugly, I don't think college is always too expensive and that's because sometimes the returns are huge. If you're getting into a program where the return is going to be tremendous, you can borrow a lot, if you're getting into a program that does not offer a pathway to huge wages then you should only be borrowing a little, no one size fits all recommendation.

Jeff Selingo:

And Josh, do you want to jump in there?

Josh Mitchell:

I agree. I think the most bizarre aspect of this student loan program, the comparison I use is imagine if the government gave you a blank check to spend a million dollars on a house in Selma, Alabama, or a million dollars on a house in Hollywood Hills. That is our policy of higher education, it doesn't matter what the value is you're buying, the government gives you the blank check and you can do whatever you want with it. And you have a lot of people buying houses in Selma, Alabama for a million dollars that they'll never be able to repay the house will never be worth, that is the problem. You can't just look at how much you're taking on, you have to look at the value that you're getting for that.

Jeff Selingo:

And now all of our listeners in Selma are going to be writing in. But so bottom line, is it right for many in the media, the think tanks and policy makers to call this a student debt crisis? Let's start with you, Josh.

Josh Mitchell:

Yes. If you look at how many people are in default, there's anywhere between five million to eight million people in default on their student loans, that's not that far off from how many people lost their homes to foreclosure in the housing crisis, which we all agree was a crisis, I think. If you look at how much the price of college and grad school has risen, it's a triple the rate of inflation, and it's becoming more and more expensive from a taxpayer perspective. If you look at how many loans are non-performing, people who are either delinquent, in default. or who owe more than they are originally owed because their balances are rising, that is a huge part of the portfolio, probably at least half. And if you look at the delinquency rate, according to the New York Fed it's 20 to 25%, that's double what the rate was for people who were falling behind on their mortgages in the housing crisis, and again, we call that a housing crisis. So if we're going to call that a crisis, I think we have to call this a crisis.

Jeff Selingo:

Beth, is it a crisis?

Beth Akers:

Look, there is no technical definition of a crisis that we have all agreed upon to use in the popular media, but I hate that we call this a crisis. And the reason is because I think it has sent the wrong message to policymakers, to families and to students about what's going on with federal lending. Policy makers are creating solutions to this problem that doesn't really exist, which is that every dollar of debt is a bad dollar of debt. We're scaring people away from borrowing when it could actually be in their interest to do so. We know that education opens economic opportunities to already disadvantaged people, and by scaring people away from debt, we're taking that off the table for them and same for families. So I wish we had a way of talking about debt in a more nuanced way, though I know that is not the specialty of the popular media.

Jeff Selingo:

So, Josh, you said something interesting just a minute ago about the housing crisis, comparing this to the housing crisis. And as you say, we had a 12% delinquency rate then, and what is happening now in student debt is much more than that, twice that. You call this a default crisis that if this were in the private sector, banks would be bailed out. What exactly does defaulting on federal student loans look like when we say that someone is defaulted on a federal student loan? And how does that differ from perhaps other places where borrowers might default say with houses or cars, but in those instances, of course it's secured quite differently then with the actual asset itself?

Josh Mitchell:

The technical definition of default when it comes to federal student loans is when you go 360 days without making a payment. Now, most people who default on their loans are pretty small amounts, $5,000 to $10,000, a lot of them went to a community college or for-profit certificate program. They often dropped out and so they didn't accumulate a lot of debt, but they are very often not getting well-paying jobs after they drop out. And so this is a very big cohort of people, a lot of them never make a payment. So they borrow $5,000 $7,000 drop out, and then they just never, the government can't reach them, they don't answer phone calls or emails. That is a very big group of people who are defaulting on in their loans.

What I find very troubling about people who fall behind on student loans is often it just accumulates, it gets worse. I wrote a story earlier this year about this report that Betsy DeVos ordered up to look at just how bad a shape the student loan portfolio was. And there was a line in it that said increasingly a lot of student debt is interest that accumulates and that the people who are most affected by accumulating interest charges are borrowers who make $0, essentially you're unemployed, or who make under 30,000. So I don't think people realize just how regressive some of these policies are. Essentially, you fall behind your loans and then the government's like, okay, well, let's just add on some interest if you can't afford it.

And with the private sector, at some point, banks have to say like this debt is not going to get repaid, let's just take it off our books. The federal program does not do that. Bad loans stay on the books years and years and years and years, and the government just sort of pretends that it's eventually going to get this money back, and I think increasingly it looks like they're not.

Michael Horn:

Let's shift a little bit because you all have done a good job outlining some of the problems and challenges in some of the early tensions in this debate, but I want to shift to solutions. And let's start with free community college, because I know you disagree on this. And, Josh, I believe in your book, you backed the idea of free community college, writing that millions of Americans attend K through 12 school without receiving an adequate education. High schools need to be improved and community college should provide a second chance for those who grew up with an educational disadvantage. Can you tell us more about why you see free community college as part of the solution?

Josh Mitchell:

Most community college students don't borrow, but there's a significant amount who do, and they are disproportionately dropping out and defaulting on their loans. And so here's my question for anyone who wants to continue to enable community college students to borrow money. The government has data knowing who is a very high risk defaulting on their loans. And if a private bank made loans, knowing that default rates were going to be 50%, 60%, 70%, we would call that predatory lending. You are setting students up to default on their loans and spend years suffering negative consequences, that's what the government does, and it knows that it's doing it. So, my question, and for anyone, Beth, or whoever, who is against free community college, if you want to continue providing access to students who grow up with disadvantage, if you want to provide them access to higher education, why would you give them a loan that you know, they're going to fail on?

Michael Horn:

So, Beth, Josh just alluded to it, you're not as enthusiastic about this idea, writing recently that community colleges are almost the worst performing segment of the higher education industry surpassing only for-profit colleges who charged a higher price for the same dismal outcomes. So give us a little bit more, why do you disagree with Josh on that point?

Beth Akers:

So I'm the resident fellow at AEI here, which means I'm the evil conservative in the conversation, which means most people would presume I'm opposed to free community college because I don't want to spend any more money or give people anything. Now let me kind of blow your mind here and say, what if in fact we spent that same money, but we spent it differently instead of creating a socialized system of higher education to match what we have in K-12, which I don't think anybody is singing the praises of as being the most successful system in our society. But instead we double down on the system that we have already created, which is a voucher based system?

So if you want to spend the money, and I'm not saying I do, or I don't, I'm saying if one wishes to spend more money on higher education, I'm very opposed to doing it through creating a socialized system of community colleges and would much prefer to see that money spent on an expansion of Pell Grants. What that does is it maintains the competitive of structure of the marketplace in higher education so that students who are better served by institutions that are not community colleges, maybe it's a two-year certificate training program that happens to be a for-profit or it's a nonprofit, that they can use those resources there.

We've seen dismal outcomes at community colleges, students start and don't finish, that's not all on the community colleges. And they're trying to serve a population that is not being well served by other institution types, but it's still the reality. And there's a potential that they could be better served if we allowed other sectors of the higher education industry to serve them with those same federal resources that come from taxpayers. So I'm not going to be the stingy conservative that just doesn't want to spend money here, I'm just going to say that I think this is a poor way to do it.

Jeff Selingo:

So let's shift the conversation to student loan forgiveness, which I have to admit as somebody who paid off his student loans after college got me and, and I think a lot of my Gen X counterparts, a bit agitated during the presidential campaign last year. Josh, you proposed some fixes for student debt, one of which is forgiving interest on student loans and Beth you've called for a one-time tax credit. Tell us why student loan forgiveness isn't the solution and what should be done instead? Beth, let's start with you on that.

Beth Akers:

So I think what desperately needs to happen is that we repair the safety net that has been put in place to ensure that people who are really struggling with their student loans don't have to struggle with them indefinitely. I hate the idea of widespread student loan cancellation for two reasons. One, it gives huge benefits to people who are already among the most well-off and privileged in our economy, and two, it creates a distortion of incentives. So that going forward, we will only create a bigger problem with student lending that will have to be addressed in the coming years.

So I've proposed a tax credit as an alternative. The idea there is that essentially it's me playing politician and saying, "Hey, look, if we need something to go out there, to get legislation passed, to fix the broken income-driven repayment program then let's put a tax credit on the table so that it's not a function of how much someone is borrowing. And at the same time, get people who need help enrolled in income-driven repayment and make it so that borrowers are defaulted into an income-driven repayment program rather than having to opt into that system when they need help." So my giveaway is more of a political carrot to get what I really want, which is the fix of the safety net program.

Jeff Selingo:

Josh.

Josh Mitchell:

I proposed forgiving interest or suggested this as one option for two reasons, I think. One is that I've talked to countless people who owe student debt, who say, if I could see light at the end of the tunnel, if I knew that I had some type of chance to actually finally pay down the balance, at some point I would do it, but I owe $100,000 now and $30,000 or $50,000 of that is interest, I'm just throwing out numbers. But there's a lot of people who owe a ton of interest charges and they say, I'm never going to pay this off, why would I give the government a dime? If there's no hope of paying it off ever, then I'm just going to send them paychecks every month for the rest of my life, whereas if the government would work with me and forgive some of this in interest, then I would start paying again.

And there was a program after the housing crash where it essentially did that, it forgave some of the balances that people owed on their mortgages so that they were no longer underwater, and that apparently got a lot of people back into repaying and made borrowers better off. So I think that if you can look at those type of policies and apply them to student loans, it might actually just be a practical, effective way to get more people to repay their loans. I think the second thing is I don't think people realize how arbitrary some of these policy decisions were. The way the government charges interest, it's like congressional aides who are just trying to figure out a way to make those CBO budget numbers look good. And these are congressional aides who are in their late 20s and early 30s.

They tinker around, they think all these loans are going to repaid so let's just charge graduate students a higher amount because they've traditionally been successful repaying their interests, let's charge parents a higher amount than undergraduates. And they shot themselves in the foot because a lot of people now are refinancing with SoFi, you know private lenders, to get a lower interest rate, and so the government isn't getting paid back that interest anyway. And those decisions were often made in sort of these arbitrary ways. And so I think if you forgive interest, you sidestep the whole debate of whether it's fair or not who's getting this subsidy or that subsidy.

Michael Horn:

As we wrap up, let's do one more idea, that's long been proposed, which is making schools have skin in the game. There's broad bipartisan consensus that if you want schools to rein prices in and not make loans that fail, schools should have to suffer some of the consequences if they fail to do that, and right now that's really not the case. So, Josh, you've expressed support for this, which maybe seems at odds with the idea of free community college, where schools don't have skin in the game. I'm curious, one, if we're missing the nuance there, but two, what would skin in the game look like practically speaking in your ideal?

Josh Mitchell:

Before the government got into student lending, there was actually a private sector funded national student loan program called USA Funds, that was back in 1960. And it involved schools putting money into a pot of money that was an insurance fund and default rates were pretty low. And one of the reasons why default rates were pretty low is because they didn't give loans to freshmen, freshmen were a high dropout-risk. And so if we as a society want to provide access to higher education to anyone who wants to go to college, then I think community college can play that role. And again, I think it should be free if you want to prevent a default crisis.

Now, once you have established that you can handle college level work after one or two years, then student loans can be a good idea as long as the risk is balanced between the student and the school. And again, history can be a guide here before the government got involved, there were schools, including the University of Minnesota that made loans themselves to students, and if the student defaulted, Minnesota would have to eat the losses. Again default rates were really low. And my theory is because Minnesota would not make reckless loans that they knew people were going to default on if they knew they were going to have to suffer consequences.

Michael Horn:

Super interesting. And without getting into the transfer question around that, I want to shift to you, Beth, for the last question, which is, you've talked about students having some different kind of skin in the game by considering their intended major in terms of determining the value of the education and ultimately how much debt to take on. So the implication of that, right? Is should schools be allowed to limit debt by major?

Beth Akers:

Something that bugs me about our current loan system and grant system is that it's agnostic to program of study. So when you think about the point of our higher education system, I'm inclined to believe that we're trying to create a mechanism for social mobility. When the system of finance is agnostic towards what students study, we are not necessarily promoting higher education to function as a mechanism for mobility. What that means is I'm a young person, I want to go to college, but I want to go because I want to advance myself financially. The government says here, just as Josh said before, here's this money. You can take it and spend it however you want in education, right? Or you can use these Pell Grants and spend the dollars studying whatever, wherever you would like. That's not sending the message to the students that whether or not they get a return on their investment depends critically on what they study and where they study.

And so I'm the bad guy in saying that I think that institutions should not have to lend the same amount to students who are in their fine arts programs as to students who are in their chemical engineering programs. And I think that we have restricted institutions from doing so, and at the same time prevented people from having the information that would help them make better decisions for themselves. So it's a tricky subject because there's a lots of implications about, well, does mean everybody's going to become a chemical engineer? And the answer to that one is no, they won't. People have preferences outside of money. It turns out. But yeah, I think we need to either put it into policy or allow institutions to have that sort of discretion. I talk to financial aid officers all the time. And one of the things that seems to upset them continuously is that they're having to issue loans to students that they know are unaffordable to those students, but they don't have the ability to do anything about it, and they hate that. So something's got to give there.

Michael Horn:

Beth, Josh, super insightful, you've given us a lot to think about. Really appreciate you, both being on Future U and we'll be right back.

Sponsor:

Support for this podcast is provided by the Bill and Melinda Gates foundation, which is proud to support the work of the Postsecondary Value Commission. Because the question, what is college worth deserves answers. Learn more at postsecondaryvalue.org. Subscribe to Future U wherever you get your podcasts and follow us on Twitter at the handle @futureupodcast. And if you enjoy the podcast, please leave us a five-star rating so others can discover the conversations we're having about higher education.

Michael Horn:

Welcome back to Future U. After that conversation with Beth and Josh, you clearly have spent considerable time focused on an issue that has moved to the political forefront in recent years. And I want to start there with you, Jeff, because we talked a lot about solutions, but what we didn't dig as deep into are the political calculations and the public sentiment on student loans. What's your take on the appetite for change right now out in the public?

Jeff Selingo:

Michael, it's kind of interesting. I've been reading a lot of polling and I think it's like most things in the country right now there's a huge split, which is why student loan forgiveness, I think got a lot of press during the campaign last year, but has since moved to the back burner. Most of the major polls show a 50/50 split nationally in terms of whether we should do student loan forgiveness, but the idea really varies among voters based on age and other characteristics. It's not surprising, for example, that those with high debt or young voters like the idea, others like it when there's a cap on it, or when it comes with a requirement for public service.

Jeff Selingo:

Perhaps student loan forgiveness is just an idea that needs some time. Personally, I'm not in favor of it, and I'm sure I'll get a lot of notes from listeners on this. But I do think something does need to be done because the current path is really not sustainable as we heard from both Josh and Beth. So, okay, maybe student loans, aren't a crisis, but a college education really is a ticket to the middle class and a healthy life. A college education just isn't a luxury anymore, that's what David Stockman, who was Ronald Reagan's budget director described it as in 1981, it's really a necessity now.

Jeff Selingo:

So I don't think we need to prevent borrowing, but we do need to prevent excessive borrowing by students, especially at the undergraduate level and particularly at the graduate level. What's more, I think we really do need to tackle the cost side of higher education instead of always just trying to figure out how to pay for it. In my opinion, there seemed to be a lot more appetite for the federal government taking a strong role in the cost side of higher ed in the last couple of decades than there is right now. We had the Spellings Commission, and before that the College Cost Commission.

Jeff Selingo:

We probably don't need another commission, but in the years ahead, it's clear that we definitely need some controls on prices and reform of student loans at the federal level. Now, of course, beyond student loan forgiveness, the other major policy question is whether community colleges should be free. Again, this is now something else that's on the back burner or off the table for now. And there was some disagreement in our show there with Josh and Beth on that policy, anyway, as a solution. Josh felt it would be a second chance for students whose free K through 12 education failed them, he was in favor of it. But Beth felt that if we wanted to spend that money, let's put it into Pell Grants for example, and give students some choice about what they want to do with it.

Jeff Selingo:

So, Michael, I'm curious on your take. We know, as Beth mentioned that the outcomes of community colleges vary widely depending on where you go and what you study. One often used stat, of course, is that 80% of college students say they want to earn a bachelor's degree when they first arrive at a community college, but only 13% do that six years later. Part of the problem is that only 30% of community college students actually transfer to a four-year institution. So if the ultimate goal of most community college students is to transfer, it seems debt-free community college might help a little bit, but ultimately they're going to have to borrow, right?

Michael Horn:

Yeah. Jeff, I think you're spot on all of what you just said, and it's not only that. But so let's say they do transfer, many of the credits they've earned at a community college might not even count or transfer into that four-year program. So this supposedly two-year free bargain that encourages enrollment in a sector that as Beth said, writ-large has underperformed significantly could be selling a false promise that it's a staging ground in effect to a bachelor's degree.

Michael Horn:

Let me just offer a few stats to explain further why. So to this day, first time students who transfer lose 43% of their credits on average across all of higher ed. So let's imagine that you're able to graduate from a two-year community college, Jeff, and I should say that the track record at large on that isn't so great with a mere 28% of first time and full-time students in community college is earning an associate's degree within three years. But let's imagine that you're one of the 3 in 10 who do. Now you have that associate's degree, most of which are not worth that much in the labor market by themselves.

Michael Horn:

And when you seek to transfer to a four-year school, sure, you're going to incur some debt there for the next two years, but worse, you're actually going to end up redoing a lot of your education and credits that aren't accepted and you're going to incur debt for that as well. And this is not a simple problem to fix in the present system because there's academic jealousy and protection concerns around what is a major and such, there's legitimate academic equivalency concerns. And then there's business model reasons where traditional schools continue to believe that they're not sure they want all your credits to transfer because they get to charge you less money.

Michael Horn:

And so this transfer problem has bedeviled policy makers for decades, and you just can't mandate your way to fixing this, basically. So to me, if you're debating between increasing Pell or making community college free, this is a no brainer that Beth's argument carries more weight. Now I will say, I think Josh's rationale is more clever than the standard ones I've heard for free community college, but in my mind, it still doesn't add up. And what's more, we're seeing models right now, like the rise of hybrid colleges that combine an online competency-based degree from a place like Southern New Hampshire University with on-ground support that has a no excuses mindset from K-12. These are programs like Duet or Peloton that are educating similar students as community colleges, but getting significantly better results.

Michael Horn:

According to a study from Harvard, hybrid colleges, Jeff, seem to be achieving graduation rates more than twice the average of community colleges, they're cutting the cost of that college education in half. And what's really interesting is they're eliminating the race-based college completion disparities.

Jeff Selingo:

Yeah, Michael, I'm also curious that during that lightning round, they both said that the problem right now is in the federal loan program, not private loans, which was interesting to me because at the beginning of this century, private loans had quadrupled. And then there is this scandal with financial aid directors at colleges who were accused of sitting on advisory boards of student loan companies or being wined and dined by them to get those companies on preferred lender lists at their institutions, that were then given to students who needed to find a private loan. And then there was this crackdown on such loans. But this is really the issue that frustrates me over this entire debate over loans, it's kind of whackamole, right? We keep focusing on the solution with lending, but not with the underlying problem of cost. What are your thoughts?

Michael Horn:

I couldn't agree more with you, Jeff. It really is a whackamole problem when you're just going from financing to financing solution. And I was struck by their answers on this question as well. But your question around costs, I think is spot on because as a country, in my mind, we continue to debate how to allow people to afford what is an increasingly expensive education, and this isn't just a four-year conversation, right? The conversation around increasing Pell, for example, is still part of the how to afford conversation yet even list tuition and net tuition at community colleges has far outpaced inflation for years. So 5.9% compound annual growth rate in list tuition, community colleges compared to 2.9% for inflation since 1980, for example. And what we instead really need to do, I think is shift to a more concerted conversation on how do we make higher education fundamentally affordable?

Michael Horn:

And it's why I'm so intrigued Jeff about solutions like the hybrid college movement or like competency-based and online learning at places like a Western Governor's University. Or even we had Paul LeBlanc on the show where he talked about Southern New Hampshire's University's more recent experiment to lower the price of tuition for their on-ground, four-year experience to $15,000 by using its online competency-based solutions paired with that coming-of-age on campus experience. But I'm also intrigued by stackable degrees and more modular solutions, as well as the risk sharing that Beth and Josh talked about where schools actually would have some skin in the game when they're financing students' education, as well as the ability to limit what people take out in debt to pay for their education.

Michael Horn:

Because, look, I don't think this is going to be managed through price controls per se, on tuition, but I do think we ought to create the incentives to reward schools that give students great experiences and outcomes for less money. And that's probably also going to frankly involve opening this spigot to new types of accredited institutions as well, which we know that's a whole another conversation on accreditation. But Jeff, I'm curious your thoughts on the solution, you clearly think we're missing the bigger picture of the college cost question here as well, but I'm also interested in what you thought of Josh's analogy to housing that were essentially giving people a million dollar loan to live in Selma, Alabama.

Jeff Selingo:

Yeah, I'm not quite sure why he picked Selma, Alabama, because I know we'll probably get complaints about that from some of our readers and our listeners in Alabama. But it's clear that we need to give colleges and universities, and this is where I will defend colleges and universities in terms of giving them more tools to help students around borrowing and specifically to limit their ability to borrow, perhaps based on major, perhaps based on tuition price. Because without such caps, some students can really cash out at lower cost institutions and borrow well above the price of tuition in some cases, and so we really need to give students some real limits on that.

Jeff Selingo:

Now many colleges will also say, but then the problem is we're making that judgment on students about their ability to borrow, we're also, if we do it by major, we may limit their ability to borrow for majors that we don't perceive as paying off in the job market, such as English or things that cost less money, for example, but maybe have better payoffs in the job market. There are obviously a lot of regulations that we would have to put in place here. But I think the overall idea that could we give college and university leaders in financial aid who are closest to students and see how they are struggling or whether they're struggling with borrowing, give them some more latitude to put limits on that, I think that's going to be really, really important.

Michael Horn:

I agree, Jeff, and I think that's the key point, right? Let's have the schools limit the borrowing, not make a blanket policy from the policy makers that might unintentionally cut off the humanities major that's actually really important in a particular area. So Jeff, as we wrap up here, I do want to look at the media angle of this because I think it drives a lot of the politics around this issue. And as Beth says, student loans are a nuanced issue, they can't simply be explained in a headline, but often we read stories about students who are 100,000-plus dollars in debt and you wonder how could that possibly have happened? So I'm glad that Josh decided to write a book to, as he said, give more context to those stories. But Jeff, not every reporter is going to write a book nor is everyone going to read a book on student loans and really invest themselves in this topic. So although we highly recommend reading those books that Josh and Beth wrote, is there a better way in your mind for the media to cover this issue?

Jeff Selingo:

Yeah, I think we really kind of almost need Student Loans 101 for folks in the media. When we cover more complicated financial aspects in the media, whether it's the housing market or the job market. We had Ben Castleman recently on the podcast from the New York Times, they're much deeper into the finances of these programs then I think most education reporters are about higher education loans. And I think there was one issue in particular that Josh brought up around defaults that it's mostly people with small balances who don't finish school. And we rarely read that story, I think in the mainstream press. We're much more likely to read that story about somebody who took out $100,000 to $200,000 or more in debt. And I wish that we would read fewer of those stories and tell us a little bit more about these people who are in default who have small balances, but just can't seem to get out of it. And that to me would be a more interesting story than these outliers because we know they are outliers who are taking on huge amounts of debt.

Jeff Selingo:

So, Michael, with that, we're going to wrap up this episode, it was a great one, thanks to Beth and Josh. And again, highly encourage you to get their books, it's a great time to read books, because we're going to be taking a break during the holidays here and the new year. We're going to be back in 2022 with the rest of this season of Future U including our hundredth episode, which will be coming up near the end of this season. We're also going to be taking Future U on the road with a tour, which we'll be telling you a little bit about in the new year. Please don't forget to send us those questions. In the meantime, either email us or DM us on social media. You can also send a message to futureupodcast@gmail.com. So on behalf of Future U, we want to wish you the best of holidays this month and a great new year, and we'll see you on the other side.

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