Friday, September 04, 2009

Using student loans to slow tuition-fee growth

IT’S back-to-school time for college students, which means big tuition bills. Most will defer large out-of-pocket costs until after college through the use of student loans. No one is happy about the explosion in student loan debt to pay rising tuition, but there is a silver lining: We can use student loans to slow tuition growth.

There are two sides to the college affordability ledger: financial aid and tuition. Politicians focus almost exclusively on expanding financial aid, which is crucial, but it’s like chasing a rabbit. Tuition outpaces inflation, grant aid, even health care cost growth, and, most importantly, median family income. To keep pace with rising tuition, student loan debt doubled over the last decade.

To slow tuition growth, supply-and-demand incentives have to change. If suppliers are on the hook for a portion of student loan default costs, they’ll be less likely to run up tuition beyond what they can expect students to repay. If consumer demand can be nudged at the same time toward colleges that are good investments, schools that offer poor value at a high price will have to slow tuition growth and improve student outcomes. We shouldn’t regulate tuition; we should nudge it in the right direction.

Colleges, because their mission rightly is to build and diffuse knowledge, have insatiable growth aspirations. Many will raise tuition as much as the market will bear, and it bears a great deal.

But families choose colleges and borrow almost blindly. They have relatively little information as to how good an investment a particular school is. Ranking guides like that of US News & World Report focus on the top 20 percent of schools and inputs like class size as opposed to outcomes like how much students learn.

If colleges are made responsible for a portion of student loan default costs, they’ll be more responsible in who they let in, how much they charge, and how well they prepare students for good-paying jobs that enable those students to pay off their debt. In the private student-loan market, banks are increasingly placing proprietary colleges on the hook for a portion of student loan default costs. The federal student loan market is five times as large. We need recourse there as well.

There’s a danger colleges will respond by pricing their exposure to defaults into even higher tuition. That’s why we also need to nudge demand away from high-cost, poor-value schools. Most colleges supply a good product, and shouldn’t be penalized simply for serving high-risk populations. But a subset of schools is clearly not serving students well. Community colleges in that group aren’t the issue here, because of their low cost and low borrowing rates. The real problem is with low-level private institutions and shoddy for-profit trade schools. We should steer students away from them, but how?

Few Americans want to see No Child Left Behind-like testing at the college level. But it’s relatively easy to compare colleges according to what students most want out of higher education: good jobs and financial security.

We need a price-to-earnings ratio - that is, price of college to expected future earnings - for higher education. The US Department of Education has the average net price for each college. It can generate lifetime student default rates for each school as well. A private website,, lists median starting and mid-career salaries for hundreds of schools. Put such data together and construct a higher-education value index, including a “lemon list.’’ Just like politicians have to say they approve campaign commercials, make the lemons warn consumers on their marketing materials.

“Warning: One in two Acme College borrowers defaults on a student loan within three years of separation from Acme College. Acme graduates earn an average starting salary of $22,000 a year. Be careful before assuming substantial student loan debt to attend Acme College.’’

Schools will want to be identified as good-value options and shudder at the prospect of being on a lemon list. To avoid it, they’ll be less quick to raise tuition - and more interested in making sure their students get good-paying jobs.


Crooked German academics

Germany's academic community is being shaken by doubts cast on the integrity of around one hundred professors.

The professors, working across all academic disciplines at many major German universities, are suspected to have accepted thousands of euros in bribes from the now-insolvent Institute for Scientific Consulting ("Institut für Wissenschaftsberatung") in Bergisch-Gladbach, near Cologne.

The scandal is the latest in a series of investigations into the Institute's business practices. Public prosecutors searched its offices back in 2005 and again in March 2008, after malpractice accusations first emerged.

In July 2008, the managing director of the Institute was sentenced to three and a half years in prison and a €75000 fine for having paid a law professor in Hanover up to €4000 to accept PhD candidates, some of whom did not fulfill the prerequisites for studying towards a PhD. The law professor was also convicted of accepting bribes.

Files found after the Institute was searched last year created enough suspicion to trigger the current investigation.

Most of the professors involved are of junior status, without full tenure, although some tenured professors are among those being investigated, says Cologne's senior public prosecutor, Günther Feld.

"This is not about selling PhD titles, but about whether academics accepted money to take on particular PhD candidates," Feld emphasises.

Even so, there are grave concerns within the academic community. The federal minister of education, Annette Schavan, said on Sunday that the credibility of Germany's academic community could sustain major damage if the accusations turn out to be true.

The president of the German Association of University Professors and Lecturers (DHV), Bernhard Kempen, said that a thorough investigation of these cases was urgently needed and that the legitimacy of an agency offering services to students to help them obtain PhDs should generally be questioned.

He called for university regulations to require PhD candidates to sign statements that they have not accepted any outside help in obtaining their PhDs.


Hate shouldn’t be a pillar of Islamic education

When the Islamic Saudi Academy in Fairfax, Va., requested to expand the campus, protests about the curriculum came to a head. Why allow such an expansion when the school’s books are tainted with hate? The books are the same as those used in schools in Saudi Arabia: Students are taught to incite violence and cause human rights violations, to be hostile toward non-Muslims, and how to punish people, among other shocking passages.

Under pressure from a congressional report in 2008, the academy changed its textbooks — but inflammatory passages remain. An 11th-grade textbook reads: “Scholars of the People of the Book know that Islam is the true path because they find it in their books, but they shy away out of ignorance and stubbornness. And God knows their deeds and will judge them.” The “People of the Book” are Jews and Christians, who are allegedly ignoring the truth of Islam. Even more horrifying, the books promote child marriage, going so far as to condone forced marriage with a 1-year-old child. In Saudi Arabia, there are many examples of such marriages between children who are prepubescent.

There are over 5 million students in the state schools in Saudi Arabia, not to mention the sizeable quantity of students enrolled in Saudi-supported schools across the world, including the one in Fairfax. What students are taught in school should be a concern for the United States, and stopping the problem at its roots should be a top priority.

Ahmed Omar Abu Ali, the school’s former valedictorian, was convicted in 2005 of joining al Qaeda and planning to assassinate President George W. Bush. Another graduate of the academy, Raed Abdul-Rahman Al-Saif, was arrested just last month at a Florida airport while trying to board a plane with a concealed butcher knife.

The existence of a Muslim school in the United States should not even be debated. There has been some strong response to the Islamic Saudi Academy, perhaps some of which may be too reactionary.

Generalizing Islam as a fanatical religion that breeds hatred and terrorism is false. Students instead need to be taught Islam without the influence of the Saudi government and its archaic, strict practices.

Achieving a moderate and appropriate curriculum has proved to be an attainable goal. The King Fahd Academy in London, a sister school to the one in Virginia, used to teach from the same controversial textbooks. Over time, the school modernized its curriculum to contain moderate teachings of Islam. In the United States, students should be able to go to Islamic schools. But getting rid of these toxic textbooks should be part of the package.


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