Public-Hearings-for-Tuition-Increase Bill Still Alive

Student loans are morphing from a social catastrophe for indebted students into a fiscal disaster affecting taxpayers. For years, U.S. government officials insisted that the student loan portfolio, which now exceeds $1.4 trillion, would remain profitable. But the feds now project that debt repayments will fall $36 billion short of what’s needed to cover outstanding debt and accrued interest.

There are multiple causes of the emerging deficit, which the U.S. Department of Education is acknowledging in the wake of a 2016 Government Accounting Office study, according to the Wall Street Journal. Nearly five million direct-loan borrowers have defaulted (defined as going at least a year without making payments). Other borrowers are going to private lenders to refinance at lower interest rates, eliminating an income stream the government had been counting on. Yet others are being relieved of debt obligations contracted from schools deemed to have defrauded them with deceptive recruiting. Finally, thousands of students are enrolling in repayment plans that cap repayments at a percentage of their income.

Two years ago, the government expected to run a surplus. Last year, the bean counters projected an $8.4 billion shortfall. This year projected losses stand at $36 billion. If student repayment rates continue to worsen, the projected deficit could well grow.

Meanwhile, back on the ranch…. As the federal just-lend-’em-more-money model for dealing with the tuition crisis sputters and wheezes toward a breakdown, what is happening in here in Virginia? Legislators have submitted several bills in the General Assembly this session designed to rein in runaway tuition increases. Only one of them has gained traction.

HB1473 submitted by Del. Jason Miyaris, R-Virginia Beach, would require colleges and universities to allow public notice and public comment on proposals to raise undergraduate tuition and fees. To members of the House of Delegates that modest proposal seemed uncontroversial. The Appropriations Committee passed it 22 to 0.

But the companion bill in the state Senate, SB824, submitted by Sen. Chap Petersen, D-Fairfax, hit an obstacle in an Education subcommittee. Three legislators — including Sen. Richard L. Saslaw, D-Springfield, Sen. John A. Cosgrove, Jr., R-Chesapeake, and (voting by proxy) Richard H. Black, R-Leesburg — voted to recommend killing the bill.

That vote came as a surprise to more than one observer attending the subcommittee meeting. When Petersen walked into the subcommittee hearing to discuss his bill, he said, “We have peace in the valley.” One lobbyist took that as a reference to Petersen’s discussions with higher-ed institutions that had differing views on the bill. “He believed that he was presenting a bill that the institutions were OK with,” said the lobbyist.

But in the hearing Saslaw and Cosgrove proceeded to pick apart the bill, the lobbyist said. Saslaw observed that requiring public input amounted to “micromanaging,” and noted that only a handful of other states imposed such a requirement. Cosgrove asked questions insinuating that the requirement would impose a hardship on higher-ed governing bodies.

No higher-ed lobbyist was willing to oppose the bill openly. But Peter Blake, executive director of the State Council of Higher Education for Virginia (SCHEV) confirmed that the higher-ed community was divided on the issue. “Different institutions are looking at this differently,” he said. ‘Some are saying they don’t like it — they don’t want to have the public comment period. Others are saying, ‘Why not?’ Opinion is not uniform.”

Another lobbyist attending the subcommittee hearing suggested that the University of Virginia and the College of William & Mary worked the legislators behind the scenes. The University of Virginia Board of Visitors has a long history of being anti-open government, he said. He sarcastically described the colleges’ unwillingness to state their opposition publicly as “real profiles in courage.”

Lobbyists for the University of Virginia and the College of William & Mary declined to return Bacon’s Rebellion phone calls.

Petersen’s bill is still alive. He amended it — and Miyaris made a similar amendment to his House bill — to give higher-ed institutions a bit more flexibility in how to go about holding the public hearings. The House Education and Health Committee went on to pass the bill.

Bacon’s bottom line: One of the most important decisions that boards of visitors make every year is to set tuition, fees, room and board. Students and parents have zero input into that decision-making process, and board members are insulated from the impact of their decisions as a result. While board members are fully versed in the dreams and schemes of college presidents to grow the institutions, they get no feel for the hardships of those who pay the bills. Thus, the practice of excluding the public biases the system toward higher tuition & fees.

Opening up the process may not change much — boards likely will continue to rubber stamp tuition increases. Students will continue to pay higher tuition and take out bigger loans, and Uncle Sam will continue to write off billions of dollars in bad loans. But giving higher-ed’s customers a voice — a voice that potentially could be magnified by news reporters covering the hearings — could create enough push-back to slow the tuition increases. And that would be a very good thing.

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16 responses to “Public-Hearings-for-Tuition-Increase Bill Still Alive

  1. A premise where debt and defaulting on debt is the fault of whoever sold the product as “too expensive” .. therefore the reason for the debt and default…

    geeze.

    If you can’t afford the debt – don’t take the loan. I’m quite sure that’s what the pay day loan guys would say when they come to take your stuff!

    come on.. geeze… if something is not “affordable”.. no matter the reason why.. it does NOT absolve you of your financial responsibility.. if you bought it.

    I’m not buying the connection..

    • This is the same as the housing crisis 10 years ago. The banks made loans they shouldn’t have made because they were effectively insured by the government since they were “too big to fail”. Borrowers went into hock in a gamble to flip houses and live beyond their means. At the end of the day at least there was a tangible asset behind the loan that could be foreclosed.

      Once again, lenders are lending to poor credit risks. Once again our mindless, hapless, hopeless and useless government is indemnifying these reckless lenders. Yes, the borrowers should feel a moral obligation to repay the loan but if people would abandon their houses in order to avoid debt do you really think they will cling to their half-finished college degree as a basis to feel compelled to repay.

      Jim Bacon makes a good point about good credit risks (like engineering majors) refinancing their loans with private lenders (like SoFi). This erodes the risk level of the government guaranteed portfolio further making a fiasco a matter of when rather than if.

      Of course it’s easy to see how snowflake logic will deal with this looming catastrophe. Garnish the borrowers’ wages? Oh no. That would trigger the snowflakes who borrowed small fortunes in pursuit of their degrees in East Asian Anthropology. Refuse to honor the guarantee of the loans? Oh no. Those banks that were too big to fail under the Bush Administration are even bigger now thanks to 8 years of negligence on the part of the Obama Administration. Plus, who would pay ex-presidents $400,000 to make one hour speeches if not for big banks?

      No, you can bet on Felonia von Pantsuit, Fauxcohontas, Bernie the millionaire socialist, Nancy “Bush is still president, I just know it” Pelosi and all the rest of the limousine liberals will want to bail out those poor students. Oh the children! I can hear the wailing from here. Higher taxes to pay off the loans! It’s the only answer to stump stupid student borrowers, incompetent government officials and corrupt banksters. What’s new?

  2. Bacon,
    While some connection between tuition increases and defaults is obvious, aren’t these in reality two very different issues–I.e. in a regression analysis wouldn’t tuition increases be a minor percent of the whole, or not?

    You have authored some good postings and hosted some good commentary discussion on tuition increases; but have you published or is there any good analysis of the causes of the enormous miscalculations you cite above combined with economically and socially palatable solutions.?

    • While tuition increases are perhaps not the most important factor in the looming student debt crisis I think they are one of the top three issues. The primary issue is the government’s willingness to make loan guarantees to lenders who extend debt to students who are terrible credit risks. From this primary mistake all other mistakes flow. The second biggest issue is the unrealistic expectation of many students regarding what they can expect from a college education. These expectations are buoyed by the availability of debt that would never be extended if prudent rules of lending were followed. The final issue is the cost of tuition increasing faster than median wages year after year for decades. If rational economics were in force these colleges would soon price themselves out of business as the high percentage of students who represent poor credit risks would not be able to get loans or, at least, would not be able to borrow the large sums required as the tuition increases rise without the normal supply / demand / price constraints.

      The government loan guarantees inoculate the college and university administrations from their own incompetence and indifference to the actual outcomes many of their students are experiencing.

  3. I would submit that the ongoing angst about “affordable tuition” is ..in fact “snowflake” where the complainers are basically asserting that the govt and it’s powers should be used to “force” Higher Ed to stop increasing the price of tuition (for one particular option for post-secondary ed) because doing so makes it less “affordable”.

    The govt already screwed up by providing all-you-can-eat loans for college for any and all fools who would undertake mountains of debt to benefit their own wants. Ironically.. now that the govt has provided the loans and funding for higher ed – it’s apparently the responsibility to now control the prices.

    As said before – there are LOTS of OPTIONS for getting post-secondary education at a reasonable price these days. The responsibility for choosing the option that is best financially for you – is YOU!

    All this wailing and gnashing of teeth about the mountains of debt that folks had “no choice” but to endure is really no different than people who go out and buy a 50K car or a 500K house then have a zillion excuses why they defaulted. For some reason, some folks think that because the loan was for higher ed that it’s somehow more noble and running to the govt to do something about the price is more justifiable.

    So yes.. the whole narrative about Higher Ed affordability and the govt doing something about it – is Snowflake Central ESPECIALLY when it comes from folks who say they are “Conservative”!!!!!

    • The government is higher ed and higher ed is the government – at least to the extent of public colleges and universities. The University of Virginia is a public institution in the same way that The Virginia Department of Transportation is a public institution. When VDOT couldn’t complete projects on schedule, on budget or on an economically sane basis our politicians demanded reform. Why shouldn’t those same politicians demand reform when another state owned entity proves, over the decades, that it is no longer acting in the best interests of the citizens of Virginia. And please don’t simply reflect the disingenuous commentary of the fops and dandies who run our public colleges and universities – the General Assembly doesn’t provide as much financial support as they used used to provide. Guess what? Users, called drivers, provide the vast majority of support for VDOT’s budgets in much that same way that users, called college students, provide the vast majority of support for public colleges and universities. So what?

    • “For some reason, some folks think that because the loan was for higher ed that it’s somehow more noble and running to the govt to do something about the price is more justifiable.”

      The government doesn’t guarantee car loans. They government does guarantee a lot of student loans. However, as usual, the government does an absolutely horrible job of making loan guarantee decisions. These guarantees embolden lenders. Lending money to students where the government will pay if there is a default is almost free money – especially in a low interest rate environment where better returns are hard to find.

      If the government made sensible decisions on their loan guarantees based on the credit risk of the borrower we wouldn’t have this problem. The demand for four year college education would fall forcing some students to pursue alternate educational paths. Colleges wouldn’t be able to mindlessly raise tuition on the back of widespread government guaranteed debt. They would have to be more efficient making college more affordable for everybody. Government wouldn’t be able to pile up a mountain of looming bad debt.

      It all starts with an ineffective government making loan guarantees it shouldn’t be making.

  4. It is quite clear just from this thread that the phenomenon of growing defaults on student debt is not caused by tuition increases — however merited or not–but the underwriting practices.

    Assuming that “accurate” underwriting would result in far fewer loans and thereby far fewer students with access to higher education (presumably even with lower tuitions), this appears to raise the question as to what level of national commitment we should make as a country in public investment and, to the extent we believe in education as pillars of democracy and economic success, what alternative funding mechanisms we might devise to educate our youth. Of course, the answer may be to continue on the current path which is apparently de facto if not de jure policy to fund the educational objective with debt forgiveness.

    Conflating university financial management outcomes with student loans — in effect hostaging loans to manipulate educational institutions — is a disservice to both objectives of better management and the most universal education possible.

    • No conflation. Just a problem with multiple factors.

      “In 1971 the tuition for a public 4-year college was $428 ($2,499 adjusted for inflation) per year. By 2015 tuition had risen to $9,420 per year, a 3,698% (276% for inflation-adjusted numbers) increase. Meanwhile, the median income in 1971 for men was $6,903 ($36,036 adjusted for inflation) and for women was $2,408 ($12,571 adjusted for inflation), making tuition 7% of men’s median income and 20% of women’s median income per year. In 2015, the median income for men was $37,138 and $23,769 for women, making tuition 25% of men’s median income and 39% of women’s median income per year. ”

      https://college-education.procon.org/view.resource.php?resourceID=005532

      The unchecked rise in college tuition has two major compounding effects on the student loan debt problem:

      1. The odds of a student needing to borrow money (rather than being financed by his or her parents) increased substantially between 1971 and 2015 as annual tuition went from 7% of a man’s wages to 25% of a man’s wages.

      2. The amount borrowed directly influences the odds of default. As the cost of college grew beyond median wage growth or inflation the amount a student had to borrow to go to college increased. This increase causes a larger percentage of students with debt to go into default.

      While the primary cause of the looming debt crisis is the incompetence of government student loan guarantees the secondary cause is college administrators who realize that they can raise prices indefinitely without dampening demand and do so without any concern as to the consequences. When health care costs escalate faster than wages or inflation there is a hue and cry from the left as to how this is destroying America. When oil prices escalate the left is always ready with a diatribe against “Big Oil”. However, when college tuition escalates faster than wages of inflation for decades the left will say, “Nothing to see here. Just move along.”

      “Of course, the answer may be to continue on the current path which is apparently de facto if not de jure policy to fund the educational objective with debt forgiveness.”

      Ah yes, American politicians at their best. Allow an easily observable crisis to build up over decades without doing anything. Then, when the whole shebang goes BOOM! run around trying to pin the blame on somebody other than yourself, cry some crocodile tears and solve the fiasco by further emptying the middle classes’ pocketbooks. And the asses in Congress wonder why they have a 15% approval rate.

  5. re: equating higher ed to VDOT…. eh… maybe not so much….

    better to compare to things that are PARTIALLY funded by the state taxpayers not fully funded.

    maybe airports.. where the govt helps to pay for the infrastructure and the air traffic controllers.. and you’d have the govt telling the airlines that their fares are not “affordable” and they want to see their financials to make sure they are being run efficiently and don’t have to many employees or “benefits”, etc.

    If UVA or VCU were chargning an arm and a leg MORE than most other higher ed across the US.. I might go along with some govt snooping .. but they’re pretty much like the rest of higher ed and for the last 20-30 years.. across the country – people have been bitching about the “high cost” of higher ed.

    And so you have this group of folks… some of whom claim to be “conservatives” who want the govt to .. essentially.. after all is said and done about “transparency” and “accountability” to force higher ed to offer more affordable higher ed… and it’s not like any higher ed.. of which there are many more affordable options to folks – it’s the 4yr on-campus “experience” that they want to be price controlled.

    People need to take personal responsibility for their choices. If 4yr on campus is too expensive.. then pursue other paths to higher ed. The govt does not owe you an “affordable” higher ed “experience” ESPECIALLY when we are talking about folks who have 100K family incomes .. 500K homes and a second house at the beach!

    Back in the day.. if you were not the son or daughter of a well off family.. you worked your way through school.. sometimes you’d have to take year off to build up enough money to go back.. .. some folks joined the armed services.. just so they could get some on-the-job experience and some VA benefits.

    You make your way in this world. We already have too many folks with their hands out wanting “help”…

    geeze..

  6. remember.. I’m the “snowflake liberal”. here.. 😉

  7. re: ” When health care costs escalate faster than wages or inflation there is a hue and cry from the left as to how this is destroying America.”

    Nope.. the hue and cry is about the fact that so many do not have basic health insurance.. There is no big advocacy from the left for the govt to price control …. just not…

    “When oil prices escalate the left is always ready with a diatribe against “Big Oil”. ”
    yep… and just as dumb as those who say education costs are because of “Big Higher Ed”.

    “However, when college tuition escalates faster than wages of inflation for decades the left will say, “Nothing to see here. Just move along.”

    it’s not ALL higher ed…. it’s a particular highly valued option that the providers of .. are pricing according to demand and they’re using the “profits” to make their institution bigger and stronger and to offer competitive amenities such that demand for their product remains high.

    Notice that the private colleges are not offering lower costs either… you would think that would be the perfect opportunity to peel off the disaffected from the higher priced institutions.

    Expecting the govt to directly intervene to essentially control prices is a really bad idea… I don’t believe for a minute folks REALLY only want more “transparency”.. what they want is ammunition …to justify the govt intervening…and the heck of it is .. some of this is coming from so-called Conservatives!

  8. here’s an interesting chart from collegeboard_dot_org

    it seems to contradict the inflation numbers that have been posted.

  9. to be fair.. a cursory look brings up many other sites showing charts that look like this:

    • Larry,

      I don’t understand why you interpret the first chart as contradicting the tuition “inflation” numbers. It shows, normalized for 2017 dollars, that public four-year institution tuition is 3.1X higher in 2017 than in 1987. Using the same measure, household income is only about 0.12X higher in the same time period. Tuition, to djrippert’s point, is growing significantly compared to income. Anyone who looks at costs objectively can see that this is true.

      “Expecting the govt to directly intervene to essentially control prices is a really bad idea… I don’t believe for a minute folks REALLY only want more “transparency”.. what they want is ammunition …to justify the govt intervening…and the heck of it is .. some of this is coming from so-called Conservatives!”

      I think you are shotgunning and conflating. I oppose price controls and support “transparency”, which is needed for market efficiency. You don’t leave any room for those views.

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