No wonder people get confused about student debt: a new Federal Reserve report shows student debt worsening. A group of universities jump into spending small fortunes creating Massively Open Online Courses (MOOC), which are free. The New York City Council clears the way for NYU to build a $4-6 billion expansion, financed entirely by debt. Confused? You won’t be after this episode.
First, the Fed, who are doing a good job of trying to alert lawmakers to the personal debt crisis, not that anyone is paying attention. They use a somewhat different and conservative methodology to arrive at a total amount of student debt but nonetheless their figures show a rise of $30 billion in the last quarter to $902 billion. So student debt is rising at nearly $100 billion a year. Average student debt is now over $24,000. There are over 37 million people with student debt.
What’s freaking out folks at places like the Wall Street Journal is that it turns out that this debt doesn’t go away. 5 million of the endebted are in their 50s and their average debt is $23,000, only $1000 off the overall average. Student debtors know why: compound interest, penalties and other fees make it almost impossible to reduce the principal. For people with children of their own, a second wave of student debt is now breaking. With home equity radically diminished (the presumed source for many to pay college bills), the fastest rising category of Federal education loans is to parents.
Delinquencies in borrowers over 40 are notably up in the past quarter, running as high as 11.9% for forty-somethings but not falling below 9% for any age group over 30. For many middle-aged people–and I know whereof I speak here–debt management is all about redistribution, moving credit card balances, taking loans on home equity or retirement accounts, refinancing mortgages and so on. Only the merry-go-round stopped in or around 2008 and it’s not going to be moving again any time soon.
The reason student debt continues to get worse while other categories of debt “improve” is very simple. You can declare bankruptcy, get foreclosed or default on other debt. Student debt never goes away. There is no bankruptcy or other means of legal adjustment. So while credit card companies have written off 10% of 2008-level debt as irrecoverable, and 5 million homes have been foreclosed, student debt remains. The Fed did not update its December estimate of defaulters excluding those currently in deferral: but it’s safe to assume from the overall increase in default that the 2011 rate of 27% is closer to 30% now.
Meanwhile, universities are responding in two ways: fantasy and insanity. The fantasy is that if you are not a university with a huge endowment, creating free MOOCs will somehow make you more competitive. Everyone knows that Stanford’s Artificial Intelligence MOOC attracted 160,000 people. No word on how many completed the course, still less of anyone inventing a robot or any of the other fantasy outcomes that people associate with A. I. All this has been great publicity for Stanford, which gets to appear civic-minded at relatively low-cost. With a $16.5 billion endowment for their 18,000 students, it’s not as if Stanford is broke or looking for new people to apply. For places like that, keeping the rabble out is a price worth paying.
Now a new consortium called Coursera has set up shop using faculty from a range of institutions. There is already a Great Lectures market for CDs and the like that might be in trouble but for state funded or less affluent private institutions, the upside to the “brand” and other publicity generated by the expensive creation of online content is less clear. A MOOC can be fun, you might learn some skills, but it’s really not equivalent to college.
Given that employers are not impressed at the moment by a B.A., what use would a set of MOOC “credits” be? The answer might be this: if MOOCs can supply a skill-set that allows a person to do what they want. For many young people, though, the purpose of college is to find out what it is that they truly want, rather than the limited range of options presented in grade school or locally.
Yesterday NYU persuaded New York City Council’s Land Use Committee that the place more young people want to do that discovery is New York. Its massive expansion scheme was approved 19-1, making it a foregone conclusion that the Council will approve it. Legal challenges may succeed in turning this back but it’s still not clear what NYU is thinking. Why undertake this massive new building when only 18% of it is for academic purposes and it will be paid for by debt? Meaning student tuition fees for the most part presumably, although no budget has been supplied. The answer is the same as the thinking behind the MOOC: college is a mercantilist system in which there are limited resources and schools must aggressively compete for them.
This is a Business School role-playing game and has no educational content at all. And that business-think is so manifestly not working–see above, see the economy, see unemployment– that to begin vast new projects without proper funding based just on that is a threat to the entire enterprise. So are you still confused? I am.