Day: 2011/07/12

Speed Link: Law Professor Wants Taxpayers to Shovel More Money to Universities

The folks from Kratola Films, producer of Default: The Student Loan Documentary sent me this surprisingly poorly thought out piece scholarship.

Jonathan Glater, “The Other Big Test: Why Congress Should Allow Students to Borrow More Through Federal Aid Programs,” the Journal of Legislation and Public Policy

Glater, a visiting law professor at the recently provisionally credited UC-Irvine School of Law, spares his readers with some concise writing, summarizing his assumption in one paragraph.

This article contends that, if we accept at face value the normative claim that widespread higher education benefits and protects democracy, and that the government’s efforts to promote access to higher education are appropriate, then we should also endorse more complete government intervention in credit markets, in order to preserve the public benefits flowing from the education of more students. (16-17; pdf 6-7)

I do not accept at face value the normative claim that widespread higher education benefits and protects democracy because higher education is not a sacrosanct institution immune from accountability. Nor do I accept at face value the normative claim that the government’s efforts to promote access to higher education are appropriate when higher education is transmitted the same way it was in the 1950s before the digital age and costs more nonetheless. In fact, scholars are not supposed to accept anything at face value unless they’re fundamental and irreducible like the real number system, nor should they be basing 63-page articles off such broad ideological assumptions such as:

Higher education generates unique returns. It produces a citizenry better able to make enlightened judgments and resist tyranny, and it develops wiser leaders. (13; pdf 3)

Certainly such a bold claim emerges from a careful review of empirical research into higher education’s outcomes? Nope, it’s just one source, that renowned expert on 21st century higher education, Thomas Jefferson. Footnote 6: “See Thomas Jefferson, Preamble to a Bill for the More General Diffusion of Knowledge (1778), in 2 THE PAPERS OF THOMAS JEFFERSON, 526–27 (Julian P. Boyd ed., 1950).”

I agree (or want to) with the Jefferson/Glater assertion that education is a means to enlightened society and wizened leadership, but note that Glater’s argument cleverly sidesteps Richard Vedder’s concerns that tens of millions of Americans aren’t using their college degrees and that plenty of those who do have the aptitude to do what they’re doing without them. As far as Glater is concerned, we’re all better off because Vedder’s B.A.-holding bartender is an enlightened citizen.

However, our legislators don’t appear to demonstrate the wise leadership Glater sees. According to Michael Morella of U.S. News and World Report, the previous Congress, boasted 499 of 533 members with bachelor’s degrees or greater. Now, in fairness, I have a cautiously positive opinion of the 111th Congress as it actually passed legislation aimed at the good of the country rather than at keeping feeding tubes in one brain dead individual, but it wasn’t exactly the 21st century New Deal Congress the country needed.

As for the Senate of the 112th Congress? It boasts 53 B.A.s, 8 B.S.s (including a bunch from military schools), 40 J.D.s/LL.Bs, 2 M.D.’s, 5 M.B.A.s and a smatter of others. These wise leaders, along with an Ivy League educated president with a law degree, are resisting tyranny by advocating deflationary policies during a depression.

Potshots aside, Glater is essentially arguing that the terms of private student loans are onerous, their lenders devious, so the government should expand its lending program to cover rising tuition. Just why are costs rising? Glater doesn’t say. He merely accepts as a given that cost increases over inflation are reasonable, but spends pages 66-68 disagreeing with the Center for College Affordability and Productivity’s (CCAP) Andrew Gillen that increased federal aid causes increased tuition. In the process, he misreads Gillen:

Gillen’s argument suggests that somehow, scarcity of credit has constrained tuition hikes by colleges and universities—a questionable assertion. Given how colleges’ prices cluster around each other, the only current, evident constraint on tuition appears to be a desire not to be too much of an outlier. (66; pdf 56)

No, CCAP argues that increases in credit influence tuition hikes because colleges capture federal aid. They know how much students can afford to pay when calculating total cost of attendance and raise their prices accordingly. It does not dispute that colleges factor in competitors’ tuition. CCAP’s problem—and mine—is that higher education does not compete to keep prices down as free markets are supposed to. Nothing Glater writes disputes this. Indeed, as a law professor he can see it firsthand: since fall 2009, legal education can be fully financed by Direct Loans and Grad PLUS loans with many graduates eligible for income-based repayment. Universities did not promptly raise prices to $100,000 per year to bleed their students and taxpayers dry, but they have continued raising tuition in line with their competitors as we’d expect. My favorite was Stanford’s justification for increasing its 2011-2012 tuition by 5.75%:

[Stanford Board of Trustees President Leslie] Hume explained that the school was “under-pricing” itself relative to its competitors. “There was a feeling that we were delivering a quality product equal to or better than our competitors, and yet our tuition costs less,” she said.

In normal markets, this would be good. Not here, apparently.

Beyond that, Glater does not argue for debt servitude; he favors income-based repayment as a backstop against poverty, and one of his objectives is to make it easier for people to go into public service.

Ultimately, Glater wants life to imitate art: Winston Universities, Potemkin institutions whose sole purpose is to suck on the teat of federal loan money and provide degrees (and four years reprieve from the “real world”) because everyone needs one. Whether they have high standards, controlled costs, students who are intellectually capable of Jeffersonian enlightenment, and connection to gainful employment doesn’t matter to him.

While he appears indifferent to the Private Student Loan Bankruptcy Fairness Act/Fairness for Struggling Students Act that would return bankruptcy protections to private student loans, Glater believes nondischargeability in federal loans in bankruptcy remains necessary:

There is a rationale for making it difficult for borrowers to cancel federal student loans through bankruptcy, too, because those loans are taxpayer subsidized. (61; pdf 51)

At first blush one wants to agree. It’s taxpayers’ money, so they need special protection. Wrong. If the government wants to play private sector lender, it plays by free market rules. There is no “special exception” whether it’s lending money to students or requisitioning ballpoint pens for the Office of the Comptroller of the Currency. This entitled attitude has consequences. Consider: Which is cheaper and more efficient for taxpayers?

(1)  Reducing or eliminating all federal loans (which lowers costs), treating student debt like all other debt, with fewer than 1% of student borrowers discharging their student debt in bankruptcy as they did before Congress enacted the first “special treatments” in the late 1970s?


(2)  Allowing colleges to capture unlimited federal aid and overcharge students relative to the labor market value of their degrees, forgoing four years of their output as workers, and then forgiving tens of billions in student loans on IBR plans after twenty-five years?

Glater characterizes his option (2) as a counterintuitive progressive policy prescription, but in practice it’s an irresponsible ploy by higher education to scam taxpayers and water down higher education.