Looking past current campus conditions and concerns of collegiate presidents, the federal government’s role in higher education will probably evolve now that the Supreme Court has abandoned Chevron deference.
Imagine an American college or university president making the following public statement:
“I regret that my institution, along with many others, has contributed to burdensome federal student loan debt and to rising college tuition levels, allowing our institutions to profit from the existence of student loan monies. At the same time, we have failed to offer our students adequate skills and knowledge required to compete in today’s world.”
If collegiate presidents struggled with questions about antisemitism on their campuses — as they did during recent Congressional testimony — they would surely be unable to speak frankly on student loan burdens, high and rising tuition levels, institutional profiteering from student loans, and whether students benefit academically from attending college.
But if a president did actually volunteer the hypothetical statement above, how would fact-checkers respond?
Student loan burdens
The news is full of stories about student loan debt and President Joe Biden’s attempts to ignore both statutes and courts to “forgive” billions in loans. Both the debt itself and a U.S. president’s unlawful efforts to erase that debt are a national disgrace.
As I wrote previously on this site, the federal loan program has evolved since the guaranteed student loan program was created by the 1965 Higher Education Act. Guaranteed student loans relied on private bank loans, which the federal government guaranteed against default and paid the interest while students were enrolled in college. The program worked well, with few defaults or worrisome loan burdens, until 2010 when it was replaced by the current program in which the U.S. Department of Education lends directly to students.
Rising college tuition levels
With tuition increasing on average about 8% per year, roughly twice the general inflation rate, tuition levels double every nine years. Student financial aid, particularly loans, have contributed to these tuition increases.
The student admission and financial aid process unfolds as follows:
Some institutions have adopted variants of need-blind admission policies, meaning that admission is independent of an applicant’s ability to pay. Once admitted by the school’s admissions office on the basis of secondary school grades, test scores, teacher recommendations, and extracurricular activities, the school’s financial aid office may offer an eligible applicant a financial aid “package.”
Loans are often the fudge factor in these aid packages, filling any gap between attendance costs and available funding sources. Consider the following hypothetical example:
$50,000 annual college tuition, fees, room and board + $1,000 books and incidentals = $51,000 total annual student attendance costs.
$25,000 student and family resources + $11,000 institutional and other awards, merit or need-based + $15,000 federal student loan, the “fudge factor” = $51,000 total annual funding sources.
Note how loans can become the fudge factor to equate total expenses with total funding sources. If, for example, an institution increases its tuition, or if family resources or other aid declines, the loan portion of the “package” can increase commensurately to become the fudge factor. Such are the trade-offs made in the financial aid office on behalf of student applicants.
Once applicants accept admission and financial aid offers (typically in May before the upcoming academic year), the DOE will advance the student loan proceeds to the institution when students matriculate in the fall. The federal monies are then in the institution’s coffers to be applied to student attendance expenses.
That is, student loan proceeds have already been spent the moment the DOE advances the funds to the institution. Student loans are not like a home equity line of credit that offers homeowners a means to tap the equity in their property at their discretion to remodel or buy a car.
Since the student loan procedure offers institutions an opportunity to increase tuition commensurately with student loan awards, the existence of federal loan funding has raised tuition levels over time. This cause-and-effect relationship offers institutions an open invitation to increase tuition.
Institutions profiting from student loans and other federal awards
Institutions can apply the increased tuition revenue to budgetary expenditures of their choice. The American Council of Trustees and Alumni has shown that much of the increased tuition revenue has financed administrative bloat such as diversity, equity, and inclusion programs and other administrative bureaucracies such as student counseling rather than expanding educational offerings.
Student financial aid is, of course, not the only form of federal subsidy offered to collegiate institutions. Research universities have for many years accepted federal grants to conduct research projects on their campuses, a practice predating federal student funding.
But federal research awards and federal student aid funding differ significantly: federally sponsored research awards carry additional “indirect cost” funding intended to reimburse institutions for overhead expenses of providing campus space and services for grant-funded research. Indirect cost rates, which typically range from 35-50% of direct costs, are negotiated with federal grant-sponsoring agencies such as the National Science Foundation, the National Institutes of Health, the Department of Health and Human Services, and numerous others that fund the research. Thus, for example, a federal research grant funded at $100,000 in direct costs is awarded a total $135,000-150,000 including indirect costs.
Federal student aid awards, on the other hand, do not carry any allowance for institutional overhead expenses. Instead, institutions can effectively “help themselves” to some of the federal student aid monies by setting tuition higher than they might otherwise have charged.
Students’ educational attainment
Observers of the higher education industry have long been concerned that institutions have failed to provide college students with the skills and knowledge to earn higher expected lifetime earnings. A 2011 study entitled “Academically Adrift” tracked a cohort of undergraduate students over four years in college, documenting the declining hours attending class and studying outside class. This work is considered an indictment of higher education’s curricular dilution and grade inflation. Students self-reported having a good time in college but graduated with little academic achievement or critical thinking ability.
The American Council of Trustees and Alumni regularly surveys the course catalogs of many institutions to determine their graduation requirements, assigning Ds and Fs to many institutions (even, or especially, many of the most elite) for lax requirements of core subjects such as literature, science, mathematics, and history.
Richard Vedder, economics professor emeritus at Ohio University, goes further to equate grade inflation with recent campus protests, noting that lack of academic rigor encourages “mindless, militant mediocrity.” Stated bluntly, college students are bored, have a lot of free time, and find little to challenge them academically.
Harvey Mansfield, long-time Harvard political scientist, stated in a recent interview that a majority of grades today at Harvard and other elite institutions are A or A˗. The fallout from this is, of course, that “when everybody is somebody, then no one’s anybody,” quoting W.S. Gilbert, raising questions about the value of academic credentials.
Looking ahead from collegiate presidents’ perspective
Today’s collegiate presidents have a tough row to hoe. Some remain in the job for only five or fewer years, the more fortunate for up to ten years. Some negotiate deferred compensation contracts that often pay millions to reward longevity. The previous president of my own alma mater, for example, negotiated such a contract that paid her $1.2 million. She began her tenure in 2006, the contract fully vested in 2015, and she retired in 2016.
Gone are the days when these collegiate leaders regularly lasted for twenty or thirty years while held in high regard by their constituencies. Today’s presidential salary levels, which include a certain component of hazardous duty pay, reflect this lack of longevity in what has become a high-risk occupation.
Looking past current campus conditions and concerns of collegiate presidents, the federal government’s role in higher education will probably evolve now that the Supreme Court has abandoned Chevron deference. The DOE has been one of the more assertive administrative agencies with its recent Title IX and student loan forgiveness regulations, which have invited lawsuits in response.
Some observers go further, believing that higher education would be more efficient, effective, and better for society without federal government subsidies. In other words, get the feds out of the higher education industry.
Investigation of these sweeping issues is a discussion for another day. In the meantime, where is the collegiate president who will speak the truth about federal student loans?