# ↳ Higher+education

## The Student Debt Crisis is a Crisis of Non-Repayment

Think of the student debt crisis as an overflowing bathtub. On the one hand, too much water is pouring in: more borrowers are taking on more debt. That is thanks to increased demand for higher education in the face of rising tuition, stagnant wages, diminishing job opportunities for those with less than a college degree, and the power of employers to dictate that would-be hires have the necessary training in advance. On the other hand, the drain is clogged and too little water is draining out: those who have taken on debt are increasingly unable to pay it off.

The last post in the Millennial Student Debt project used a new database of student debtors and their loan characteristics (matched to demographic and economic data in the American Community Survey) to document the former phenomenon, both in aggregate and particularly as it pertains to disadvantaged communities along multiple dimensions. Specifically, it showed the rapid growth of student debt levels and debt-to-income ratios in the population at large, among people of all income levels. But this growth is concentrated among non-white borrowers, who have higher debt conditional on income and whose increased indebtedness over the past decade-plus is greater than for white borrowers. That racial disparity is particularly pronounced in the middle of the income distribution. It also showed that student-debt-to-income ratios have grown fastest in the poorest communities since 2008. This post uses the same data to document the latter: non-repayment by student loan borrowers is getting worse over time, especially so for non-white debtors.

Over the last ten years, as outstanding student loan debt has mounted and been assumed by a more diverse, less affluent group of students and their families than was the case for prior cohorts, a common policy response has been to wave away its impact on wealth, both individually and in aggregate, by saying that the debt finances its own repayment. First of all, so the claim goes, student debt finances college degrees that in turn pay off in the form of higher earnings, enabling debtors to repay. Second, expanded allowance for income-driven repayment (IDR), by capping debt service as a share of disposable income, eliminates the worst forms of delinquency and default. The first claim says that repayment is inevitable, the second that it need not take place. Both claims together, however, serve to rationalize higher debt, higher tuition, higher attainment, and the forces driving all three.

IDR was designed to address a liquidity crunch: since students are graduating with more debt, they may not earn enough immediately upon entering the workforce to pay it down. That failure of earnings to align with debt service obligations means that a program to defer those obligations until earnings are realized would ameliorate delinquency and default, at the cost of capitalizing unpaid interest into a higher principal balance. The creation and expansion of IDR programs in the early 2010s did indeed serve to stop the growth of delinquency by the mid-2010s and reverse it, to the point that the share of accounts delinquent now is lower than it was before the Great Recession, despite the amount of debt and the number of debtors having increased continuously since then. For that reason, many higher education policy analysts have proposed further expanding the program.

But IDR programs will never be successful as a solution to the student debt crisis, because they’re designed to address a liquidity problem rather than the real problem—solvency. The problem with student debt is a problem of wealth—students and their families are taking on debt because they don’t have enough wealth to afford increasingly-costly, increasingly-mandatory higher education. The debt then itself exacerbates wealth disparities that the higher education it “paid” for doesn’t rectify.

## Unceasing Debt, Disparate Burdens: Student Debt and Young America

Since the Great Recession, outstanding student loan debt in the United States has increased by 122% in 2019 dollars, reaching the staggering sum of \$1.66 trillion in June of this year. Student loan debt has grown faster than other debt types, including auto, credit card and mortgage debt. For many, education is the only pathway towards good employment with benefits, leading to economic and social opportunities later in life. But as college becomes more unaffordable with each passing year, student loans are bridging the ever-expanding chasm between college savings and obtaining an education. The crisis has reached the national political arena, with policymakers recently calling for debt cancellation up to \$50,000 for federal borrowers.

## SELECTED MOBILITY

Higher education is widely understood to be a major driver of intergenerational mobility in the United States. Despite the clear (and growing) inequalities between and within colleges, it remains the case that higher education reduces the impact that parental class position has on a graduate's life outcomes.

In an intriguing paper, associate professor of economics at Harvard XIANG ZHOU scrutinizes the implied causal relationship between college completion and intergenerational mobility. Specifically, Zhou uses a novel weighting method "to directly examine whether and to what extent a college degree moderates the influence of parental income" outside of selection effects, seeking to distinguish between the "equalization" and "selection" hypotheses of higher ed's impact on intergenerational mobility.

From the paper:

"Three decades have passed since Hout’s (1988) discovery that intergenerational mobility is higher among college graduates than among people with lower levels of education. In light of this finding, many researchers have portrayed a college degree as 'the great equalizer' that levels the playing field, and hypothesized that an expansion in postsecondary education could promote mobility because more people would benefit from the high mobility experienced by college graduates. Yet this line of reasoning rests on the implicit assumption that the 'college premium' in intergenerational mobility reflects a genuine 'meritocratic' effect of postsecondary education, an assumption that has rarely, if ever, been rigorously tested.

In fact, to the extent that college graduates from low and moderate-income families are more selected on such individual attributes as ability and motivation than those from high-income families, the high mobility observed among bachelor’s degree holders may simply reflect varying degrees of selectivity of college graduates from different family backgrounds."

In sum, Zhou finds that the "selection" hypothesis carries more weight than the "equalization" hypothesis. One implication of this finding is that "simply expanding the pool of college graduates is unlikely to boost intergenerational income mobility in the US." Link to the paper.

• A 2011 paper by Michael Bastedo and Ozan Jaquette looks at the stratification dynamics affecting low-income students within higher ed. Link. A paper from the same year by Martha Bailey and Susan Dynarski surveys the state of inequality in postsecondary education. Link.
• An op-ed by E. Tammy Kim in the Times argues for higher-education as a public good. Link.
• Marshall Steinbaum and Julie Margetta Morgan's 2018 paper examines the student debt crisis in the broader context of labor market trends: "Reliance on the college earnings premium [as a measure of success] is that it focuses primarily on the individual benefit of educational attainment, implying that college is worthwhile as long as individuals are making more than they would have otherwise. But in the context of public investment in higher education, we need to know not only how individuals are faring but also how investments in higher education are affecting our workforce and the economy as a whole." Link.

## TANGLED PATHS

### First steps to mapping the non-Title-IV education landscape

Title IV of the Higher Education Act of 1965 permits certain postsecondary institutions to be eligible for federal financial aid funds. A wide variety of programs are Title IV eligible: public, private, for-profit, vocational. Yet there are also a vast number of non-Title-IV (NT4) programs, offering credentials, certifications, and various forms of training—and neither the Department of Education, nor any other body, collects unified data on all these programs. How many students attend them? What subjects are they learning? What are their outcomes?

There's only been one recent paper that's made a serious attempt to understand the scale of NT4 programs. In a 2012 working paper, Stephanie Cellini and Claudia Goldin calculated that NT4 institutions educate 27% of students enrolled in for-profit institutions each year (670,000 enrollments).

A 2017 paper by Jessie Brown and Martin Kurzweil for the American Academy of Arts and Sciences attempts to map the alternative postsecondary landscape, including "certificate programs; work-based training; skills-based short courses; MOOCs; and competency-based education programs." That paper finds that these programs are growing:

“While each of these alternatives has roots that reach back decades if not longer, for a number of reasons, alternatives have increased in size, diversity, and importance in recent years, and are likely to continue to grow. Though the length and cost of alternative programs vary, most last for less than two years and cost significantly less than a four-year degree, the cost of which continues to rise rapidly… A characteristic feature of all the programs discussed is their flexibility to align directly with specific employer needs and competencies in skill-based fields. Despite these reasons for their appeal and likely growth, evidence of the efficacy and value of these alternatives—for students and taxpayers—is still thin.”

As the debate over the skills gap continues and the cost of college soars, the obscurity in which these programs operate becomes increasingly untenable. Link to that paper.

• Brown and Kurzweil work includes three recommendations for policymakers, including recommendations to create a robust data system and quality assurance scheme. George Washington University has just launched the Non-Degree Credential Network project to begin building out research and data. Link.
• Andrew Reamer's 2018 list of credential info aggregators brings into relief the diversity of the programs as well as the chaotic state of the information about them. Link.
• In a March letter, we featured work by Xu and Trimble on a closely related topic: what are the outcomes of students who participate in certificate programs? Link to that letter, link to their paper.
• A 2016 paper by Santa Falcone examines US certificate programs at Title IV schools from 1980-2013, and includes some relevant education history: "This growth period [1870-1910] also brought into existence private, external, independent university ratings agencies. These agencies successfully used coercion and incentives on higher education institutions to develop more standardized admissions, instruction, and accreditation criteria to counter the lack of any existing academic standards." Link.
• A 2013 paper by Rosenbaum and Rosenbaum covers occupational colleges and certificate programs (with, again, a focus on Title IV institutions). Link.

## VERIFY ACCESS

### Recruitment strategies and representation at public research universities

Public research universities have long been understood as engines of meritocratic social mobility. Relative to other higher ed institutions, public universities remain those with the highest mobility rates. But research over the past decade has shown that these institutions are failing to represent the diversity of their state populations, and adoptingfinancial aid models that cater to the wealthy.

A new report co-authored by CRYSTAL HAN, OZAN JAQUETTE, and KARINA SALAZAR looks at one mechanism behind this trend. Analyzing off-campus recruitment events, it finds that public research universities prioritize recruiting out-of-state students from wealthy, white, urban communities over all others:

"In contrast to rhetoric from university leaders, our findings suggest strong socioeconomic and racial biases in the enrollment priorities of many public research universities. A small number of universities exhibit recruiting patterns broadly consistent with the historical mission of social mobility for meritorious state residents. However, most universities concentrated recruiting visits in wealthy, out-of-state communities while also privileging affluent schools in in-state visits. Although most universities did not exhibit racial bias in in state visits, out-of-state visits consistently exhibited racial bias. Since most universities made many more out-of-state visits than in-state visits, overall recruiting visit patterns for most universities contribute to a student composition where low-income students of color feel increasingly isolated amongst growing cohorts of affluent, predominantly White, out-of-state students. These recruiting patterns and enrollment priorities are a function of a broken system of state higher education finance, which incentivizes universities to prioritize rich out-of-state students with lack-luster academic achievement."

• The report includes contextual background on the "enrollment management" industry, which advises universities on strategic admissions and recruitment strategies to improve their financial and ranking standings: "While scholarship and policy debate about college access focuses on the final stages of the enrollment funnel—when applicants are admitted and financial aid 'leveraging' is used to convert admits to enrollees—the EM industry expends substantial resources on earlier stages of the funnel." Link to Don Hossler and John Bean's 1990 book on the subject.
• Elizabeth Popp Berman discusses the results in a brief thread: "This is a function of the funding model we've created, in which public university behavior is driven by a toxic mixture of 1) the status economy and 2) state funding cuts… The good news is that there is variation in this behavior: not all schools are doing it to the same degree. There's less in states with strong state support. And there's a difference among schools with similar state support/demographics." Link.
• A 2006 report from Kati Haycock and Danette Gerald charts the trends in decreasing access for low income students. Link. Further work co-authored by Haycock in 2010 details the trend of public research universities offering financial aid to out of state students. Link.
• In our newsletter last year, a spotlight on previous work by Ozan Jaquette and Bradley Curs finds that shrinking state funding leads public universities to increase their out-of-state enrollment. Linkto that paper, link to the archived letter, which includes several other relevant papers.

## MAJORITY EARNINGS

### Studying the impact of certificate programs in the higher ed landscape

Research surrounding student debt and the labor market value of postsecondary degrees focuses primarily on students obtaining a 4-year degree, secondarily on students receiving a 2-year degree, and only rarely considers students in certificate programs—non-degree awards that are cheaper and shorter than traditional degree programs. The scarcity of discourse on certificate programs is remarkable; given the rising costs of education and declining college premiums, certificate programs have assumed an increasingly large role in the postsecondary landscape. Moreover, the mission of community colleges has gradually shifted away from academic preparation and towards vocational education and job training programs.

There is very little in the way of a literature examining the role that certificate award programs play in the postsecondary landscape. In a rare example, a 2016 paper by DI XU and MADELINE JOY TRIMBLE estimates "the relationship between earning a certificate and student earnings and employment status after exiting college." The authors use detailed student-level information from North Carolina and Virginia to understand the impact of certificates on individual employment and wage earnings:

"The paper indicates that certificates have positive impacts on earnings in both states overall, and in cases where there is no impact on earnings, certificates may nonetheless lead to increased probability of employment or to other benefits. In some cases, certificates appear to promote entry into a student’s desired industry of employment, even if the industry switch is not associated with an increase in earning on average. The paper finds substantial variation in the returns across fields of study and, more importantly, across specific programs within a particular field. These results suggest that important evidence is lost when information about the benefits of certificate programs are simply averaged together. Therefore, it is important to evaluate the programs earnings relative to the institutional context and the local labor market."