Student Loans Enable Sky-High Tuitions

A few years ago, the chiropractor who was working on my back confided in me that she'd never be able to own a home because she had racked up a massive amount of student debt. She explained that she had taken out student loans to pay for chiropractic school expecting a big payoff, but then health insurance companies had essentially stopped paying for chiropractic visits. So she had gone back to school to become a licensed acupuncturist. That additional skill had not paid off either.

Now she had debt approaching $100,000 and saw no possibility of ever paying it off.

So I naively suggested that she declare bankruptcy to get out from under. I was incredulous when she told me that bankruptcy was not allowed under the laws regulating student loans.

But I quickly learned she was right.

Now, as Occupy Wall Street has morphed on campuses into the Occupy Student Debt Campaign, students facing a bleak job future are demanding relief from tuition increases. Meanwhile, an on-line effort to start a boycott of making debt payments has begun, and everyone involved in higher education is talking about ways to contain costs and give graduates some measure of relief from their debts--although not through bankruptcy.

Left out of this discussion is the elephant in the room: the role that the student loan program itself has played as colleges and universities ratcheted up the price of tuition by 50 percent in the past decade. Patrick M. Callan, president of the Higher Education Policy Institute, indirectly pointed it out recently when he said that huge federal funding increases in Pell grants under Presidents Clinton, Bush and Obama had "been absorbed by tuition increases."

He went on: "And with all that we've invested, we have a less affordable system than we had a decade ago. We're on a national treadmill."

Imagine how different the situation would have been if prospective college students and their parents had had to pay tuition out of current income or from loans whose repayment was not deferred until after graduation. Top administrators at colleges and universities wouldn't have been able to raise their salaries to astronomic heights. They couldn't have engaged in a luxuries arms race with other institutions, building campuses gilded with state-of-the art fitness centers, elaborate theaters and stadiums, ski areas, golf courses, arboretums and dorms that, in the case of Princeton, have been described as "a billionaire's mansion in the form of a dorm."

They were able to raise their prices knowing that students would simply borrow more to compensate. No one questioned whether the pay the students should expect after graduation had gone up enough to cover the added amounts. It's not substantially different from giving new home buyers mortgages that could never be supported by their income, except that with student loans the banks don't even have to repossess anything. In fact, they face virtually no risks.  Thanks to laws passed by Congress, student debtors become indentured servants, obligated to a lifetime of payments--or maybe 20 years of them under new proposals--since they can't relieve themselves of the debt by going bankrupt.  Worse still, students who miss payments can easily end up in a cycle of punitive fees that makes their debt balloon even bigger. 

The high pay of university administrators and the luxury facilities, of course, have little or nothing to do with education. Most colleges and universities save on the actual cost of teaching by making heavy use of adjunct professors instead of hiring more full-time. As one myself, I can tell you that they haven't invested those tuition increases in higher adjunct pay although adjuncts teach so many of the required courses at the core of a college education. In fact, anyone who wants to live on the pay of an adjunct becomes an itinerant, driving from one campus to another trying to cobble together a big enough load to make a meager income.

Seen from this perspective, student loans have enabled spending sprees by the administrators of our colleges and universities who didn't have to worry--until very recently--about making their schools unaffordable.

Now, with so much money sunk into facilities, administrations have little room to maneuver. Perhaps it's time to take a hard look at cutting those top salaries, as some have done, at eliminating top-heavy staffs, and pulling back to a focus on the core mission of education. In 2008, 23 university presidents earned more than $1 million. The NY Times reported that the median pay for presidents of the 419 private colleges and universities surveyed by the Chronicle of Higher Education was $358,746, a 6.5 percent increase over 2007. Over the five years previous years, the median presidential pay grew by 14 percent, and that is adjusted for inflation.

And lest you think this applies only to private institutions, consider that the median total compensation for public college presidents in 2009-10 was $375,442, according to the Chronicle of Higher Education.  E. Gordon Gee, the president of football power house, Ohio State, topped the list, earning more than $1.3-million in total compensation. 

Not incidentally, sports programs at public and private schools more often lose money than make it. Overall, only 12% of college athletic programs are profitable, according to the NCAA. Even most football programs--57%--lose money. 

Funneling more money into loan programs won't help stop spiraling tuition prices. Unfortunately, that will just continue to enable the spending sprees that have created the crisis we're in. NYU professor Andrew Ross, who has started the campaign for a boycott of loan payments, is, among other things, calling for private and for-profit colleges to open their books so the public can see just where all that tuition is going. The books of public colleges should be open, and citizens should demand to know which aspects of spending have priority.

Ross has also recognized, as he told the NYU student newspaper blog, "that my own salary is debt-financed. … There’s an element of complicity. It’s an incredible burden for faculty to bear.”

Now we need to hear that same sentiment coming from university presidents, along with some serious rethinking of spending priorities. When we do, we might begin getting back to a realistic balance between the cost of a higher education and the income students can expect after graduation.