Discover more from Growth and Dreams
Prestige and Practicality - August 31, 2022
Some thoughts on student loan forgiveness, college rankings, and the fall of the humanities
School started back at many colleges this week. Almost on cue, new policies stirred up old debates and provided new data on just how deeply entwined college has become with the economic fortunes of Americans. And if and how we might unwind that connection.
The big news, of course, was student loan debt relief. President Biden released his plan to eliminate $10,000 in student debt (up to $20,000 for Pell Grant recipients) for loan holders making less than $125,000 and couples less than $250,000 as well as changes to repayment procedures that would limit payments to a smaller percentage of discretionary income and roll back the length of repayment terms.
Thanks for reading Growth and Dreams ! Subscribe for free to receive new posts and support my work.
Is it fair? Not exactly, but better than blanket forgiveness
The least persuasive arguments against student loans are also likely the most politically salient. If you've paid any attention to the partisan take-fight on Twitter, unfairness is a common theme. Unfairness to those who had never attended college, to those who had struggled and sacrificed to pay off their loans in full, to those who had paid upfront or gone to school part-time while working.
Much of the opposition focused on the fact that the bulk of student debt is held by higher-income earners. And this is true - more than half of all outstanding student debt is held by the top 40% of earners, according to Brookings Institution. So, forgiveness of all debt would have disproportionately benefitted the highest earners. But that’s not what was on the table. Limiting forgiveness to $10,000 with an income cap of $125,000 (or $250,000 per family), distributes the benefits a bit more evenly, with about 70% of the benefits accruing to the top 60% of earners, according to the Penn Wharton Budget Model. So, that’s still slightly skewed to the benefit the higher income, but less so. The additional $10,000 of forgiveness (total $20,000) for Pell Grant recipients likely further evens the distribution of benefits, and targets those who grew up in low-income households.
There is one group that stands to benefit disproportionally, for whom the unfairness argument holds a bit more sway - early-career workers in high-earning-potential industries. Graduating into a strong labor market with accelerating wage gains, many are starting entry-level careers in fields such as finance and engineering, where competition for labor has increased starting salaries to near the $100,000 mark, just within the qualification limits. These workers, though they stand to make quite a bit more over their careers, will get the $10,000 break; while the 35-year-old who graduated into the 2009 financial crisis and may have just surpassed $125,000 after a decade of making high-interest payments does not benefit, despite reasonable expectations of lower lifetime earnings.
This could set up expectations from additional rounds of forgiveness from future generations of graduates, particularly those graduating into future economic downturns. A longer-term policy that pegged forgiveness to broader economic conditions like higher unemployment might be more palatable. But I suspect this is a relatively small group, and not the most sympathetic one. Low-income borrowers, including those who never finished their degrees or who used their loans to attend predatory for-profit schools, also stand to benefit. So, it's not entirely fair as a subsidy, but what subsidy really is?
Is it inflationary? Probably on the margins
Student loan repayments have been halted since March 2020, which means the forgiveness won't have the same immediate impact on household income as a stimulus check or expanded unemployment insurance. But lower debt levels could heighten inflation as those with forgiven debt feel more comfortable making longer-term purchases like new cars and furniture. While I'm skeptical that this will lead to the same rush of spending that happened with direct stimulus checks, concerns over additional inflation could lead to a harsher reaction from the Federal Reserve, heightening the possibility of recessionary impacts. Economists estimate the plan will add about 0.1 to 0.2 percentage points to inflation in 2023.
Is it sustainable? Probably not
At first glance, the real problem with student loan forgiveness is the problem that affects much public policy in the United States. Rather than true reform, incremental policy shifts layer on top of one another to create a spaghetti-like maze of loopholes and unintended consequences. While the loan forgiveness portion of this new executive order has gotten the most attention, the changes to the income-driven repayment program present the biggest concerns. These changes cap payments to no more than 5% of discretionary income. No one making less than 225% of the federal poverty line, currently about $31,000 for a one-person household, will have to make a payment at all. Additionally, the federal government will cover remaining interest so that loan balances do not rise while in repayment. An additional provision will end repayment after 10 years of payments for those who borrowed $12,000 or less, which will end up benefitting community college students as well as those who started, but did not finish, a degree. Again, none of these are bad ideas in and of themselves, but the downstream effects could have counterintuitive impacts on up-front affordability. If students know that effective repayment rates will be lower than the sticker price of their loans, it would only make sense to max out on the loans taken. With less price-sensitive potential students, universities could continue to raise sticker tuition prices, essentially guaranteed by the federal government.
The federal student loan program does offer some safeguards here, especially at the undergraduate level. Students are capped at $5,500 to $12,000 depending on their year in school. So, concerns that this would lead to massive gaming are probably overblown. But cost overruns and other unintended impacts are possible.
Learning from Australia
The experience of Australia, where college fees are recouped as a tax on earnings with interest matching the inflation rate, seems like the closest analog to the new income-driven repayment plans. When introduced in 1989, the program was accompanied with strict enrollment caps and limited to bachelor’s degree programs and above. When those enrollment caps were dropped in 2009, and the program was extended to vocational programs (often of the for-profit and less scrupulous variety) costs began to balloon as the average income of graduates declined, according to research from the Brookings Institution.
Ultimately, Australia decided to impose payments at lower income levels, increase the percentage of income paid by higher income borrowers, and limit loan provision for vocational programs.
At a time when skilled trades are facing labor challenges, limits on vocational program enrollment seems misguided, and likely to continue reinforcing the class divide within the university. With little incentive to keep costs down, universities could increase tuition rates. This, in turn, could lead to cost overruns in the long-term as students take loans with no intention of paying them back in full. Ultimately, calls for price controls on universities could follow, which could them limit spaces in certain programs. Free or extremely low-cost public colleges with seats limited by high academic entrance standards might not be a bad thing - the City University of New York was free until 1976 - but, when combined with the lack of funding for vocational and technical programs, provide few backup plans for students who don’t get seats.
It shifts the culture war to a new front
Another factor in the background of student loan forgiveness is the post-Great Financial Crisis decline in state funding for higher education. There are notable exceptions to this such as Georgia's HOPE scholarship, North Carolina's $500/semester experiment at branch campuses in economically disadvantaged areas, and Texas' policy of ensuring flagship spots for the highest percentiles of graduating high school classes in the state. Overall, though, more of the costs of college have shifted onto students and parents and away from state governments. Federal loans have filled the gap; and with the federal government taking a larger role in higher education financing, some states may continue to draw down fiscal support.
I expect student loan forgiveness will also push universities further to the forefront of the culture wars, especially in red states, and especially in the humanities. Politicians have already raised the specter of the "slacker barista who spent seven years in college," (though judging from the line at my neighborhood Starbuck's each morning, baristas are in demand, with or without college degrees). I get it, though, the hapless and lazy humanities major is a far less sympathetic character than the single mom who got snookered into an online business admin degree from a high-cost, for-profit school. And, sure, humanities majors have gotten used to the derision lately (I know, my first major was in history).
The Humanities as Collateral Damage
Another analysis released this week showed the rapid decline in classic humanities majors since the onset of the Global Financial Crisis in the late 2000s. From 2011 through 2021, undergraduate degrees in History and English fell by more than 30%, and Philosophy and Anthropology by more than 20%. At the same time, Computer Science degrees more than doubled and health-related degrees such as Nursing and (wait for it) Exercise Science were up nearly 90%. Engineering showed a roughly 50% increase as well. Other quasi-social-science programs such as Criminology and Public Administration also showed strong gains, due largely to their direct connection to jobs in local civil service or law enforcement. Education degrees, which also track more closely with post-graduation jobs, albeit lower paying ones as teachers, also significantly declined.
While the political attacks on the humanities are often bad-faith smears, a sustained shift in thinking from students and parents has kept students out of humanities programs, at least as majors. Analyst Benjamin Schmidt argues this decline is not a sudden shift in the desire to study humanities, but clearly a reaction to job-market concerns. The one place where classic humanities majors have held relatively steady during this period are the service academies. There, students have free tuition and a guaranteed job in the armed forces upon graduation. (Schmidt noted a similar decline in humanities degrees in the challenging labor market of the 1970s, which recovered by the mid-1980s. So, there might be hope to stop the bleeding in some humanities departments with a more robust job market.)
So, should we celebrating the decline in humanities majors and the uptick in computer science and health care as a shift to practicality? I'm not so sure. Certainly, a more technically advanced world will require more technical skills, and an aging population combined with medical advances will make health care jobs some of the fastest-growing in the coming decades. And the marginal humanities major in college simply to fulfill the requirements might be better off heading into the labor force - but so might the marginally interested general management or exercise science student.
The focus on more technical programs in universities has also offloaded some training from businesses themselves to universities. In fast-moving fields such as Computer Science, universities have struggled to keep pace.
A hard-nosed Return on Investment calculation does show first-year earnings for humanities grads are lower, but then again, business school grad earnings vary widely by ranking of schools, according to research by Georgetown's Center for Education and the Workforce. Humanities grad earnings tend to catch up by mid-career, while of course remaining below engineering or medical fields. But the idea that we could turn the average humanities major into an engineer is dubious at best. A rigorous humanities program could easily surpass the intellectual heft and long-term value of a mediocre business program. Yet, even at elite schools, humanities majors are in decline.
Prestige and Practicality
One argument is that our focus on college for all has set up a class of reasonably talented and humanities-oriented college graduates for great disappointment. The share of 18-24-year-olds attending college reached peak levels in the late 2000s and early 2010s, as did the raw number of humanities grads. This all coincided with the rapid decline of humanities-oriented jobs in publishing, newspapers, law, and teaching. This was especially true in the smaller, lower cost of living areas.
Take media, for example. Working for a local newspaper in a town of 100,000 in the early 2000s, I could see dozens of examples of middle aged people living moderately comfortable middle class lives - with 401k matches and vacation time - interviewing and writing for a living. (That’s not to mention the blue collar jobs in the printing press). Some had gone to the relatively prestigious state flagship while others had English degrees from branch campuses. Many of the oldest writers, then approaching retirement, hadn't gone to college at all. Fifteen years later, that paper plods along with a handful of reporters most of whom are a few years out of college. There are still well-paid media jobs, but largely in superstar cities like New York and Washington. With more aspiring writers competing for fewer and fewer well-paying jobs, a struggle for prestige in high-cost markets has ensued, leading to more disconnect between the humanities class and broader society especially in smaller markets.
Those who saw this shift coming, changed to more practical majors or graduate programs that might yield jobs in coding or public administration or corporate communications. Those who didn’t were left to compete for rarer and rarer media jobs in the largest cities. Hyper competition for these prestige jobs in media has also focused media attention on the problems of graduates in the largest cities - and the graduates of the most prestigious colleges - rather than on those in smaller places who went to state schools. These disappointed elites, the argument goes, are more susceptible to radical politics.
This Elite Overproduction Hypothesis also focuses our energies and thoughts on the failures of those systems, rather than the relative success of others. Some thinkers have suggested that today's labor market is actually working best for state school graduates who have found middle-class jobs in middle-class suburbs. Other research shows that less selective state-funded public universities, as well as community colleges, support socioeconomic mobility at higher rates than the most prestigious schools, which continue to enroll mostly students from higher-income backgrounds. More people enter the middle class through oft-derided state “directional” schools than lower-middle-class students enter the Ivies.
So, perhaps the focus on underemployed graduates of elite institutions masks the real success stories of the US college market, moving smart students from lower-income families into solidly middle-class jobs.
At its best, this attitude helps align expectations with market realities, and reminds the public that the concerns of young national media writers and activists are hardly universally shared. But something about it rings as a dismissive reinforcement of the socioeconomic prestige hierarchy. Should middle-class grads who went to “third-tier schools” stay off social media, focus on their insurance sales jobs, and leave the big thoughts and contributions to the Ivy Leaguers?
Certainly, many are more than happy to do just that. But that still leaves those “unsexy suburbs” with a dwindling creative class - as art and media and entertainment is increasingly outsourced to nationally focused sources or niche interests. At its worst, this further severs connection to place and limits engagement with the local civic realm. In a more practical sense, the loss of local media, for example, can lead to less oversight of local government and more opportunities for local corruption.
As universities are set to face declining enrollment as the population of traditionally college-aged students declines in the coming decade, humanities departments will be doubly challenged. While academic incentives have encouraged more narrow specialties throughout university department, many colleges and universities are still uniquely positioned to engage with the communities around them. There are few robust institutions remaining that are as embedded in the civic fabric of many cities as their local colleges and universities. This is evident in the technology transfer, economic development, and business recruitment spheres as academic departments become connectors between local business and university research. The economic case is less clear in the humanities, but a focus on place-based history, literature, and thought, that better connects the humanities “ivory tower” with Main Streets a few blocks away could be one path forward for these classic academic fields.
Thanks for reading Growth and Dreams ! Subscribe for free to receive new posts and support my work.