Las Vegas Review-Journal Pushes Recycled Right-Wing Media Myths To Blame Federal Student Aid Programs For College Debt Crisis

Las Vegas Review-Journal Editorial Blames Student Loan Aid Programs For Soaring National Student Debt Burden. The Las Vegas Review-Journal editorial board misleadingly argued that federal student aid and loans for student borrowers was largely responsible for the “financial boondoggle” of student loan debt that  “looms on the horizon” for American taxpayers. The paper blamed “‘free money’ floating around the system” for soaring tuition rates, claimed student debt costs are “manageable for most students,” and faulted progressives for attributing high student loan default rates to “soaring higher-ed costs and corrupt for-profit colleges.” From the June 6 editorial:

While remnants of the nation’s housing crisis linger — particularly in hard hit locales, such as Las Vegas, where foreclosures remain a stubborn issue — the country has pushed forward and markets have recovered or stabilized.

That’s the good news. The bad news, however, is that another financial boondoggle looms on the horizon.

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There is now more outstanding student loan debt than Americans owe on credit cards or for auto purchases.

Note that most of this money is owed to the feds. In their zeal to encourage everyone to attend college regardless of ability or preparedness, well-intentioned politicians have implemented policies that entail loaning billions of other people’s money to young adults with no guarantee that it will produce any benefit or ever be paid back. Need $100,000 so you can major in Brazilian poetry? Come on down!

And American taxpayers are left holding the bag.

Had any private financial institution engaged in such reckless fiduciary practices, the Justice Department would be issuing subpoenas and launching a full-blown criminal investigation. But for Congress, it’s business as usual.

Jeffery Dorfman of Forbes magazine reports that last year’s federal budget included a “$21.8 billion write off of expected student loan repayments” — and that’s likely just the beginning. The Obama administration has also expanded several loan forgiveness programs, even though evidence exists that the debt burden is manageable for most students.

“People with much lower incomes than the average college graduate pay off car loans as a routine matter,” Mr. Dorfman argues. “Student loan debt becomes a problem when the borrower wants to spend their newly increased incomes on nice food, clothes, cars, housing and vacations rather than on their student debt payments.”

Progressives blame soaring higher-ed costs and corrupt for-profit colleges. But costs inevitably go up when there’s so much “free money” floating around the system. And if certain for-profit campuses are nothing more than fraudulent diploma mills, why is the government loaning money so students may attend them? [Las Vegas Review-Journal, 6/6/16]

Fact: There Is “Not A Shred Of Empirical Evidence” Tying Federal Aid To Rising Tuition

Congressional Research Service: “There Is Certainly No Consensus On The Existence ... Of Causal Relationship Between Aid And Price.” The nonpartisan Congressional Research Service (CRS) reported that there is not a clear connection between federal student aid programs and rising costs, and that “there are often contradictory findings” within studies that attempt to establish a correlation. From the 2014 CRS report:

There is certainly no consensus on the existence, and certainly not the magnitude, of causal relationship between aid and price. This suggests the difficulty in isolating the effect of one variable—financial aid—on a phenomenon—rising college prices—with many likely causes. Put differently, it is not plausible to say that college prices would not have gone up much or at all in the absence of increases in federal financial aid. Rather the reality of rising costs in higher education is likely over determined. [Congressional Research Service, 8/22/14]

American Council On Education: Relationship Between Federal Aid And Increased Tuition Is “Ambiguous At Best.” The American Council on Education, the country's largest higher education association, conducted a literature review of studies testing the so-called Bennett hypothesis and found a limited and inconclusive body of research. The report noted that several prominent studies used the same data and similar methodologies, yet came to different conclusions about the validity of Bennett's theory. The review also highlighted studies that, instead, found a strong connection between decreased state aid levels and tuition increases at public universities. The report concluded:

[T]he best way to characterize the studies that have attempted to measure the veracity of the Bennett Hypothesis is that the findings are ambiguous. Some studies find a relationship between Pell grants and tuition increases; others do not. Some find a relationship in some college sectors but not others, and other studies find exactly the opposite result.

In all of these studies, there are major limitations that restrict our ability to draw hard-and-fast conclusions regarding the Bennett Hypothesis. [American Council on Education, April 2013]

National Association Of Independent Colleges And Universities' David Warren: “Not A Shred Of Empirical Evidence” That Student Aid Has Led To Higher College Costs. David Warren, president of the National Association of Independent Colleges and Universities, wrote in The Washington Post's Answer Sheet blog that there was no merit to the idea that student aid has made higher education less affordable -- a theory known as the “Bennett hypothesis” -- citing three recent government studies that found no connection between the two:

The re-emergence of the so-called Bennett hypothesis in policy discussions, media coverage, and federal appropriations threatens to make a bad situation worse. According to the hypothesis, named after former Education Secretary William Bennett, who promoted the notion in the 1980s, student aid has allegedly given colleges and universities “license” to increase tuition, meaning that federal student aid has not made higher education more accessible or more affordable.

There is not a shred of empirical evidence of a causal relationship between federal student aid and tuition increases at public and private nonprofit institutions, including institutions with high published prices and large endowments.

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Continuous pressures to examine the Bennett hypothesis have led to nearly 15 years of federal research. Studies conducted during three successive administrations — Bill Clinton, George W. Bush, and Barack Obama — have found no link between student aid and tuition increases. The hypothesis is nothing more than an urban legend. [The Washington Post, 6/1/12]

Fact: Student Debt Has Lasting Impacts For Many Types Of Borrowers, Especially Students Of Color And Nongraduates

U. Of Illinois Study: Student Debt Burdens Limit Net Worth, Housing Values For Borrowers. A forthcoming study from the University of Illinois found that students who dropped out or graduated with debt burdens had fewer financial resources and assets when they reached the age of the 30, and that the negative impact of student debt was worse for black borrowers. The research found that:

People who had outstanding balances on their student loans when they graduated or dropped out of college had lower net worth, fewer financial and nonfinancial assets, and homes with lower market values when they reached age 30, according to a paper accepted for publication in the journal Children and Youth Services Review. [University of Illinois, 5/18/16]

Demos: The Current Student Borrowing System Is “Deeply Biased Along Class And Racial Lines.” A comprehensive report from the public policy think tank Demos found that the current debt-financed system of higher education in the United States has reinforced existing racial and class divisions. Their findings include evidence that black and Hispanic students generally have more debt than their peers -- regardless of the type of degree or institution -- and that their outsized debt burden affects rates of college attainment and eventual financial wellness. The researchers wrote:

In an America where Black and Latino households have just a fraction of the wealth of white households, where communities of color have for decades been shut out of traditional ladders of economic opportunity, a system based entirely on acquiring debt to get ahead may have very different impacts on some communities over others.

Our debt-financed system not only results in higher loan balances for low-income, Black and Latino students, but also results in high numbers of low-income students and students of color dropping out without receiving a credential. In addition, our debt-based system may be fundamentally impacting the post-college lives of those who are forced to take on debt to attend and complete college. [Demos, 5/19/15]

Center For American Progress: “Small Debt Burdens” “Look Much Worse” When Graduation Rates Are Taken Into Account. In a recent analysis, Ben Miller at the Center for American Progress argued that the true economic concern around student loan debt must factor in the role of degree attainment. Small amounts owed by nongraduates who struggle to repay are more economically troubling, he wrote, than a larger debt burden that has led to degree completion:

The link between debt and educational attainment is too frequently missing from national discussions on student loans. While it is easy to bemoan high levels of student debt and big numbers--such as the more than $1 trillion that Americans currently owe--not all loans are inherently bad. The major issue is whether students who borrowed completed their education. Data bear out this assertion. Borrowers who earn a degree are much less likely to default on their loans than those who do not, and dropouts represent an estimated 60 percent of all people who default on their loans.

In other words, it is far better to be a bachelor's degree graduate with $28,400 in loans--the national average in 2013--than a dropout who owes $10,000. Similarly, from a state perspective, high levels of indebtedness may not be as problematic if they are due to a lot of students earning degrees. [Center for American Progress, 6/26/15]

Demos: Student Loan Forgiveness Can Reduce Black-White Wealth Gap. A report from Demos found that forgiving student debt for low- and middle-income students would reduce the racial wealth gap “nearly 7 percent,” since young black households are significantly more likely to carry student debt. From the report:

Black families face a particularly high burden of student loans in each income category studied. By targeting loan alleviation programs on the lowest income student debt holders, there is an opportunity to reduce the racial wealth gap and target assistance to those with the greatest financial need. [Demos, 8/24/15]

Fact: For-Profit Schools Are Largely Responsible For Rising Rate Of Student Loan Defaults

Brookings Study: For-Profit Schools Account For “Most” Of The Rising Loan Defaults. In a recent report from the Brookings Institution, Treasury Department Deputy Assistant Secretary Adam Looney and researcher Constantine Yannelis concluded that the recent pattern of rising student loan defaults can be largely attributed to for-profit schools:

Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experience poor labor market outcomes after leaving school. [Brookings Institution, 9/10/15]

Mother Jones: For-Profit Schools Serve An Underprepared Population, But Many Do Not Succeed In Making Up The Difference. Mother Jones reporter Julia Laurie noted in her coverage of the Brookings study that for-profit schools have expanded significantly in recent years but many leave graduates unprepared for the job market:

[C]ompared with four-year college graduates, nontraditional borrowers are poorer, older, likely to drop out, and, if they do graduate, unlikely to face bright career prospects. The median for-profit university grad owes about $10,000 in federal loans but makes only about $21,000 per year.

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So what happened? During the recession, students poured into colleges to make themselves more marketable in a crummy economy. Community colleges, depleted from plunging state tax revenues, couldn't expand to account for this exodus from the job market, so many students--and their loans--ended up at the quickly expanding for-profit universities, which promise short courses in tangible skills.

But students graduating from these colleges have notoriously dim job opportunities--some of the colleges have shut down in recent years after Department of Education probes found them to target low-income students and misrepresent the likelihood of finding a job post-graduation. So with the subsequent influx of students back into the job market--and, for many of them, into low-wage work or unemployment--thousands are stuck with debt. [Mother Jones, 9/14/15]