More Student Loans, Higher Tuition: Failing to Make the Connection

Richard K. Vedder

One of the most striking features of modern university life has been the sharp increase in the cost of attending college and the closely associated growth in federal student loan debt. Consequently, the decision about if and where to go to college, and how to finance it, is truly a momentous one for many families. Caitlin Zaloom’s Indebted attempts to provide a needed and timely assessment of how families have coped with college related decision-making. While Prof. Zaloom makes some useful observations and pinpoints some dilemmas that many families face, generally I found the book extremely disappointing.

While the book fails on several grounds, the most fundamental problem is that Zaloom makes multiple assertions that are flat out factually incorrect or are highly dubious and unsubstantiated. For example, speaking about proprietary higher education, Zaloom talks about “the booming for-profit industry,” adding that the “for-profits have more than doubled their share of all college-goers, to 13 percent.” (180, 182)

Data from the authoritative National Student Clearinghouse reports precisely the opposite. From fall 2010 to fall 2019, enrollment at for-profit schools fell more than 54 percent, with only 4.2 percent of current students attending proprietary schools. Many for-profit schools have gone bankrupt or have tried to survive by converting to not-for-profit status. Hardly a “booming industry.”

Alas, this is not an isolated misstep. The apogee of misinformation or dubious assertions comes much earlier. At the top of page 33 we are told that “planning requires stability in both family life and their finances that is uncommon for middle-class families today.” I take that to mean that most contemporary middle-class families go through life facing big traumas such as divorce, unanticipated medical disability, or prolonged unemployment. While certainly some families do face family and financial instability, and that proportion has possibly even grown over time, surely it is a huge exaggeration to claim that stable family life and finances are “uncommon” today.

But Zaloom compounds her error in the middle of the same page claiming, “For a child born in 2000, a 529 investment [a college savings plan] of $50 per month would amount to about $10,000 in college savings, if it tracked the Dow-Jones Index.” In fact, one would have somewhat more than $10,000 by the time the child was eighteen even if a fifty dollar bill were stuffed monthly in a coffee can, and, according to my calculations, more than double that if invested in indexed stock funds over the course of the first two decades of this century.

But Zaloom is not done filling us with dubious assertions on this same page 33. For example, “over the last several decades, employers have abandoned their commitment to long-term jobs for their workers.” As an economic historian who has been studying, writing, and/or teaching about labor economics since before Zaloom was born, I am not aware that employers generally ever “committed” themselves to life-time employment for workers, nor that they have a much smaller commitment to retain workers today. Has involuntary unemployment of workers expanded over time? Where is the empirical evidence? Notably the book does not have a single graph or table.

One misstatement of fact is particularly noteworthy given the theme of the book. On page 49, the author claims “in 1975, the personal savings rate in the United States hit a peak of almost 14 percent. Today it hovers at 2.5 percent.” Admittedly, the personal savings rate is a difficult statistic to measure, and government revisions of it have been substantial. But the most recent Department of Commerce data suggest the annual savings rate over the second decade of this century ranged between 6.4 and 8.9 percent, with the annual median being about 7.25 percent—roughly triple what Zaloom asserts. Similarly, the 1975 rate in modern estimates by the Commerce Department is well below the 14 percent Zaloom claims, so the savings rate decline was far less dramatic than asserted.

In a “methodological appendix” Zaloom says her book is based on about 160 interviews with students and parents, divided between NYU students and some in Michigan, selected because it “has a revered place among the states in US higher education.” (208) As one who spent a decade ranking colleges for Forbes, I find that assertion quite dubious, notwithstanding the fine reputation of the University of Michigan. At no point does Zaloom engage in standard survey research techniques, like administering a questionnaire to a sufficiently sized, more randomized sample of college age Americans.

Zaloom asserts (that “the tectonic shift in who bears the burden of paying for college, from governments to families—goes against long-established national principles.” (190) She believes that once upon a time governments paid most higher education costs, not imperiling the financial future of parents who now bravely sacrifice for their kids even if it reduces their own retirement security. This is a highly dubious proposition. Total federal, state, and local government support of higher education has not undergone the big decline suggested by Zaloom. The actual amount spent on higher education is difficult to pin down, and depends on how student loans, refundable tax credits, and programs not administered by the U.S. Department of Education are treated. But federal grants and loans to college students alone rose from $6.4 billion in 1970-71 to $123.1 billion in 2016-17, while state financial aid to students increased 86 percent between 2000 and 2017.1 However, the bigger problem is that per student total spending by universities has risen significantly, abetted I believe by profligate university policies enabled by the student loan program itself. Students are probably, via student loans, absorbing a larger portion of total college costs today than fifty years ago. Zaloom sees heroic parents sacrificing to help their kids through school; one could probably make a better case empirically that the current generation of parents is engaging in more conspicuous consumption than earlier generations, forcing their kids to absorb a larger portion of the cost of attending college than was the case in, say, 1970.

While errors of commission are numerous and unsettling, errors of omission are actually more grievous. At no place does Zaloom seriously confront the “Bennett hypothesis”: the massive increase in federal student loan and related programs after the mid-1970s induced colleges to raise their fees much more aggressively than previously. The cause of the student loan debt crisis is student debt itself. A number of very careful studies by researchers at the Federal Reserve Bank of New York and at the National Bureau of Economic Research tend to confirm that for every dollar in new student loans per student, on average tuition fees have risen by at least 60 cents. The universities, not the students, are the prime beneficiaries of most student loan largess. While Zaloom thinks students have suffered from the excessively mechanistic and stern financial constraints imposed by student lending rules, the possibility that the lending itself has caused the high fees is ignored, and likewise there is no commentary about such costly pathologies as excessive administrative bloat financed from high fees. In Zaloom’s world, the colleges do no wrong. Moreover, Zaloom completely ignores the very substantial problem of non-repayment of student loan obligations.

Zaloom concludes by stating “government programs . . . have made us excessively indebted to the student finance complex, and lenders have not protected us or promoted our interests adequately.” (201) Her solution is to adopt the Australian model where debt repayment is limited to a percent of one’s post-graduate income, along with an increase in state support of higher education.

I must say I am grateful to Zaloom, for her book induced something of an epiphany in me, providing a better understanding as to why college enrollments are trending downwards along with declining public support of higher education. Zaloom is a member of the junior varsity of the chattering classes, not yet a full professor even twenty-four years after graduating from an Ivy League school and seventeen years after receiving her Ph.D. from a top flight university (University of California at Berkeley). She no doubt needs another book to attain full varsity status in the academy, so she writes Indebted, somehow talking the Princeton University Press into publishing it despite its shoddy empirical foundation and dubious research methodology. The book no doubt will soon make her a full professor, perhaps even considered one of the leading lights in the American social science establishment by progressives who read the New York Times and the Atlantic.

Yet to me and I suspect a large portion of the reasonably intelligent if not highly formally educated American public, Zaloom has written a book that is as much fiction as truth. As the Bard memorably said in Macbeth four centuries ago, “It is a tale/ told by an idiot, full of sound and fury/ signifying nothing.” I suspect “idiot” is much too strong a term to describe Professor Zaloom, but her latest work, produced at significant cost, adds far less to society than it takes from it (in resources to produce it). In the lingo of the market economy which Zaloom disdains but which helps sustain her, it is truly an “unprofitable” intellectual undertaking.

The sense that “college is an expensive playground that adds little real substance to people’s lives” is an increasingly common sentiment among Americans, at least the ones I meet in flyover country located west of the Hudson River but more than twenty-five miles east of the Pacific Ocean. In 2013, Gallup asked the question “How important is a college education today?” and 70 percent of respondents said “very important.” In 2019, that support had fallen sharply, to 51 percent. More chilling, however, is that among respondents 18 to 29 years of age, the decline was far greater (from 74 to 41 percent). Public support is what sustains higher education, whether it be from taxpayers, individual tuition fees, or private philanthropists.

Contra Zaloom, perhaps Peter Theil has a better sense of the future, and his programs to entice bright young college students to abandon college to pursue innovative dreams is viewed increasingly favorably by the students who are the raison d’etre of universities. Until colleges lose their sense of moral superiority and entitlement, their spouting of factually unsupported gibberish, and their contempt for expression of ideas dear to most Americans, enrollments and public support will continue to trend downward. For those of us who love universities, and even regard the liberal arts and the non-vocational dimensions of college with great fondness, this is a shame.

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