麻豆淫院

Student Loan Crisis Highlighted at 2014 Boulder Summer Conference on Consumer Financial Decision Making 听-- by John Lynch, Leeds School of Business*

Keynote Speaker and Panelists
Richard Cordray, the inaugural director of the U.S. Consumer Financial Protection Bureau

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Sara Goldrick-Rab 鈥� Senior Scholar at the Wisconsin Center for the Advancement of Postsecondary Education at the University of Wisconsin-Madison

Michael Dannenberg 鈥� Director of Higher Education and Education Finance Policy, The Education Trust

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Zakiya Smith 鈥� Strategy Director, Lumina Foundation

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Consumers make some of their most important financial decisions about higher education.听 Should I go to college? If so, where should I go?听 How should I pay for it?听 What should I study to produce sustainable lifetime income?听 Should I finish school or drop out?听 Should I pursue post-graduate education?听 These issues were explored at the fifth annual Boulder Summer Conference on Consumer Financial Decision Making, hosted this May by the Leeds School of Business and the Center for Research on Consumer Financial Decision Making. This is a signature academic event for the Leeds School 鈥� the foremost interdisciplinary academic conference in the world on the topic.听

This year鈥檚 conference was highlighted by the keynote session on the student loan crisis.听 The keynote speaker was Richard Cordray, the inaugural director of the U.S. Consumer Financial Protection Bureau.[1]听 Cordray noted that the student loan crisis is having broad effects on the economy and on the lives of individual consumers. 鈥淲e have reached $1.2 trillion of student loan debt, second only to mortgage debt as a category of consumer finance ... the consumers we hear from tell us how their debt burden has stopped them from buying a home, opening a small business, or starting a family.鈥� Cordray backed this up with plenty of statistics based on research by the CFPB and other organizations.

About 40% of households headed by someone under age 40 have student loan debt.

Is this a new phenomenon? The answer is yes.听 Student load debt has increased by 70% in less than a decade. Decreased public funding for higher education has led colleges and universities to raise tuition faster than the rate of inflation. The weak job market has added to the problem, as students do not necessarily wind up in jobs that allow them to pay back that student loan debt quickly.

Does it pay to go to college? Cordray noted that, 鈥淒espite all the financial challenges people face, the numbers still show that it pays to go to college.鈥澨� Recent college graduates earn about 70% more than those of the same age who have not graduated from college. But the wage premium comes mostly from declining wages for those lacking a college degree than from any increases in earnings over time for those with a degree.听 Cordray noted, 鈥淩eal wages for young college graduates have fallen by more than 7% since 2000鈥� real wages for young people with no college have fallen an alarming 11%. The unemployment rate for workers in their early 20s is twice as high for those without a college degree as it is for college graduates.鈥澨� In short, 鈥渁 college degree is an increasingly expensive necessity necessary to stay afloat.鈥�

Cordray described efforts at the Consumer Financial Protection Bureau to help prospective students make savvier decisions about the financial investment in higher education, including 鈥渢he 鈥楩inancial Aid Shopping Sheet鈥� that gives college-bound students hard numbers in a common-sense format.鈥� The sheet helps prospective students understand for each school they consider how much debt they will have after graduation-- before they commit to a particular school.

The student loan crisis is changing the traditional role of higher education as an economic leveler. Cordray concluded: 鈥淚n the end, we need to recognize as a nation that we cannot afford to put higher education on an unsustainable basis for people whose ambitions and abilities should mark them out as our future leaders. It is also profoundly discordant with basic notions of equal opportunity if young people with merit, and who lack only the means, are unable to advance or end up crushed under student loan debt for much of their lives.鈥澨�听

A panel of leading experts on higher education financial decisions followed Cordray鈥檚 remarks.

• Sara Goldrick-Rab 鈥� Senior Scholar at the Wisconsin Center for the Advancement of Postsecondary Education at the University of Wisconsin-Madison
• Michael Dannenberg 鈥� Director of Higher Education and Education Finance Policy, The Education Trust
• Zakiya Smith 鈥� Strategy Director, Lumina Foundation

The panel described in bleak terms how much has changed in the last decade. Higher education is less and less playing the role of a great leveler, providing opportunity for bright students willing to work hard, no matter what their financial means.听

For-profit colleges. One large cause of the recent growth in student loan debt has been the rise of the for-profit colleges.听 The panel noted that many of these schools have very low graduation rates, with students exiting with high levels of debt.[2]听 Work by Rachel Dwyer at Ohio State University makes the point that, while it is clearly true that it is better to graduate college with no debt than to graduate college with debt, the real calamity is to rack up high levels of student loans and then fail to graduate.听 听The for-profit colleges get most of their revenue from federal student aid, unlike not-for-profit research and teaching universities like CU.听 Zakiya Smith argued that schools should have to meet minimum criteria for graduation rates and student loan debt burdens to be eligible for federal support. The CFPB has recently taken action against for-profit colleges that appear to market to low income students to take out student loans to fund degrees that they are unlikely to complete.

Large differences in graduation rates for apparently similar colleges. Panelist Michael Dannenberg noted that even among non-profit colleges, there are huge differences in completion rates, even among colleges of similar selectivity and similar target markets.听 麻豆淫院 choosing a college tend to ignore these differences, in part because these statistics are not particularly transparent.听 For example, Syracuse University and Hofstra have similar median SATs and senior GPAs, similar percentage of Pell Grant recipients, and similar prices. Yet Syracuse graduates 80.2% of entering freshmen, and Hofstra only 57.9%. Among historically black colleges, Winston-Salem and Albany State graduate 41% of those entering as freshmen, while Coppin State graduates only 15%.听

Moreover, at some schools, there are much larger differences than others in the graduation rates of minority and non-minority students and between first-generation college attendees and students from families where college is the norm.听 For example, Dannenberg noted that between 2002 and 2011, there was a dramatic widening of the gap in graduation rates of black and white students at the University of Akron. Perhaps this is because of changes over time in the split of need-based versus merit aid.听 Merit aid tends to go to students from middle class families whose parents also went to college. 听Panelist Sara Goldrick-Rab described how universities have, over the last decade, increased the allocation of merit-based financial aid at the expense of need-based financial aid.听 This is an attempt by the more elite schools to manage their rankings.听 As fewer low-income students can pay, schools compete more for students with higher ability to pay.

Different markets for high-income and low-income students. 听Zakiya Smith noted that high-income and low-income students are really in very different markets. High income students tend to choose based on rankings, and they show very low price sensitivity because they assume that a higher-ranked school is clearly better than one ranked slightly lower. This lack of price sensitivity allows colleges to continue to raise tuition, adversely affecting access by lower income students.听 On the other hand, low-income students are much less likely to choose a college based on rankings. Low-income students seem to treat any college as equally good, and so they are more likely to choose based on being close to home and based on marketing.听 The for-profit colleges have been particularly active here.

The panel discussion included sharp disagreements among the panelists about whether it was a duty of colleges to graduate most of the students they recruit or whether tying federal aid to graduation rates will lead to a loosening of grading standards.听 The panelists also disagreed about what research-based policy interventions will help.

All in all, it was a fascinating session, illustrating what makes the conference special. It is 鈥渉yper-interdisciplinary鈥� -- featuring cutting edge academic research on consumer financial decision making by scholars from economics, psychology, sociology, anthropology, marketing, finance, law, and consumer sciences. The conference attendees and presenters are a unique mix of academics and experts from industry, government, foundations, and consumer advocacy.听 The research presented is rigorous and relevant. 听It is not a forum for people to advocate a pet policy based on political persuasion.听 The discussion is highly research-based.听 This same combination of rigor and relevance carries through to the rest of the conference.听 听Each session pairs cutting edge papers from two different disciplinary perspectives, and the conference features a very high level of interaction between speakers and attendees, covering topics from getting young adults off to a good financial start, to increasing low-income savings, to improving mortgage decision making, to what to do about efforts by marketers of complex financial products to lessen the transparency of markets by making comparisons more difficult, thus softening competition. Faculty and doctoral students from across CU have played a pivotal role since the inception of the conference in 2010.

Next year鈥檚 conference will again be at the St. Julien Hotel in Boulder, May 31st through June 2nd 2015.听听 (1531 words)

*听 John Lynch is the Ted Anderson Professor of Free Enterprise at the Leeds School of Business and Director of the Center for Research on Consumer Financial Decision Making. Along with Leeds Marketing Professor Donald Lichtenstein, he co-chairs the annual Boulder Summer Conference on Consumer Financial Decision Making.