Home > arms race, education, modeling > Obama has the wrong answer to student loan crisis

Obama has the wrong answer to student loan crisis

May 27, 2014

Have you seen Obama’s latest response to the student debt crisis (hat tip Ernest Davis)? He’s going to rank colleges based on some criteria to be named later to decide whether a school deserves federal loans and grants. It’s a great example of a mathematical model solving the wrong problem.

Now, I’m not saying there aren’t nasty leeches who are currently gaming the federal loan system. For example, take the University of Phoenix. It’s not a college system, it’s a business which extracts federal and private loan money from unsuspecting people who want desperately to get a good job some day. And I get why Obama might want to put an end to that gaming, and declare the University of Phoenix and its scummy competitors unfit for federal loans. I get it.

But unfortunately it won’t fix the problem. Because the real problem is the federal loan system in the first place, which has grown a shitton since I was in school:

Screen Shot 2014-05-27 at 6.26.10 AM


and in the meantime, our state and private schools are getting more and more expensive relative to the available grants:

Screen Shot 2014-05-27 at 6.41.47 AM



And state funding for public schools has decreased while tuition has increased especially since the financial crisis:

Screen Shot 2014-05-27 at 6.46.40 AM

Screen Shot 2014-05-27 at 6.46.51 AM

The bottomline is that we – and especially our children – need more state school funding much more than we need a ranking algorithm. The best way to bring down tuition rates at private schools is to give them competition at good state schools.

Categories: arms race, education, modeling
  1. May 27, 2014 at 7:25 am

    I’m very pessimistic about the student loan situation… it looks to be a drag on our economy well into the future, and delay young people from jumpstarting their lives and careers as never before. Short of some sort of partial (unlikely?) ‘amnesty’ or ‘bailout’ I don’t see any solution… but maybe I’m not creative enough. Meanwhile, I think a lot of (even longstanding) liberal arts colleges will go out of business in the process.


    • david s
      May 28, 2014 at 8:42 am

      No, an amnesty or bailout isn’t a bad idea at all. Which is why neither of our political parties has any interest in it at all.

      And you’re right about the drag all of this debt puts on the economy. Young Americans won’t start households, won’t invest for their or their kids’ futures, etc. A permanently worse future for them.


      • V
        May 28, 2014 at 12:34 pm

        Will such bail out stop the flow of need for further bail outs ? Case in point is the financial sector bailout – starting from the rip offs of taxpayers of the SE Asian countries engineered by the IMF during the Asian financial crisis -that was a back door bail out of the financial sector that made bad bets. Or the rescue via Brady bonds in the western hemisphere – that was similarly a back door bailout.

        Finally this bailout band wagon washed up in the bailout of the financials due to the so called ” sub prime” housing crisis. Has any of these bailouts that do not address the essential underlying premise solve anything except promise a bigger problem down the road as this cascades. This has become pervasive and the pace has picked up. the Student loan fiasco is but a manifestation of this larger phenomenon and as such cannot be solved or viewed in insolation.


  2. Jim Bender
    May 27, 2014 at 8:18 am

    The problem seems to be that the state schools are spending big bucks for administration and sports and someone gets a degree in gender studies and a $100,000 student loan debt that can’t be touched by bankruptcy or anything else. I am less certain then you are that for-profit schools are automatically a rip-off, when I see the non-profit schools ripping people off right and left.


    • Pippa Abston MD, PhD, FAAP
      May 27, 2014 at 8:51 am

      Jim, there is a similar problem in healthcare, with supposedly “non-profit” facilities gaming the system. It makes the issue clearer for me to consider the category of “profit-maximizing” facilities and schools. Any school that puts the bottom line ahead of the quality of work done is going to create problems. And ranking them just turns into a box checking game– it won’t work. You hit the nail on the head by identifying administration as a problem. How about requiring schools to sharply limit the percent of funds put into admin– tell them they must put those funds into actual education, or their schools won’t qualify? Would have to have strong oversight to keep them from simply reclassifying expenditures the way private insurers have done with the ACA.


  3. May 27, 2014 at 9:39 am

    It’s not the “wrong” answer if you realize the question was never how to improve the circumstances of the students. This policy is well-suited to extending the top-down class war exemplified by the corporate K-12 school reform movement to the universities. No front-man for the corporate government is going to say that, of course, and quite possibly they believe their own bullshit religiously (“highly effective people” tend to think they’re the good guys). But the K-12 policies developed and pursued unrelentingly under Bush and Obama, in coordination with the Billionaire Boys club, speak for themselves. Cathy, you are well aware of how they use and abuse data as a justification, claiming they’re helping children in what is actually a drive to defund public institutions, open new opportunities for privatization, allow hedge fund managers to run their own public schools as charters, etc. Magical thinking predominates in the bogus quality control of testing score changes and pass/fail ratings for schools, with a lot of pious talk about how this is all good for the children. Moneybags employing statisticians always know what matters far better than mere teachers, who are the source of everything bad. Poverty and economics are never treated as factors operating outside the control of teachers and schools.

    It’s entirely possible Obama’s just paying lip service for now to the ideals, but if it goes ahead it won’t surprise me if this plays out through the extension of standardized testing into public colleges. Do you think the authorities conferring these ratings are going to be professors? It also won’t surprise if motherfuckers associated with the likes of Phoenix University (or the Harvard Department of Voodoo Economics, same difference) are among the raters, or if different and more stringent standards are applied to public institutions than to the likes of P.U. Again, finally, this will have about as much relationship to relieving the burden of student debt as the desire to free the oppressed peoples of the Middle East did to the invasion of Iraq.


  4. mathematrucker
    May 27, 2014 at 10:43 am

    Assuming that North Dakota’s 16.5% increase in higher education funding per student 2008-2013 didn’t result from everyone leaving, hopefully some of those additional dollars found their way to NDSU’s Mathematics Genealogy Project, one of the coolest (no pun intended) math websites of all time.


    • Guest2
      May 27, 2014 at 11:09 am

      You are in the wrong discipline if this is what turns you on — this is sociology, not mathematics, and has a wide range of applications.

      See, for example, the genealogy of ancient Greek philosophers.


      • mathematrucker
        May 28, 2014 at 11:36 am

        WordPress truncates my username: it isn’t “mathematru”, it’s “mathematrucker”. Thus I am in the wrong discipline for multiple reasons you’ve provided interesting links to in this discussion.


    • Zathras
      May 27, 2014 at 11:14 am

      People aren’t leaving North Dakota–it’s the fast growing state in the country (by percentage). It’s all about the fracking, which is causing North Dakota to be swimming in cash right now.


  5. Guest2
    May 27, 2014 at 10:52 am

    Probably better to maintain the Wall Street critique —

    Big schools are acting like homebuyers during the bubble, and now students are paying the price.

    “How much is Wall Street skimming off our higher education system? Watch the video, and go to go.aft.org/skim to download the full report on the Wall St. skim from higher education and sign up to take action. And while you’re at it, make sure to check out the fabulous work by the folks at Debt & Society who made this report possible”


    Borrowing against the future: The hidden costs of financing U.S. higher education
    posted on May 22, 2014


  6. Chris Sormani
    May 27, 2014 at 10:57 am

    I am a faculty member at an urban public university. We do need more state funding, but this is not something Obama can do much about unless he decides to replace state funding with direct federal funding. However, before we can start any additional federal funding we do need to start ranking the universities exactly to avoid the leech universities but also to avoid some universities and colleges which underperform the leeches. The ranking system might also force states to fund their public universities more to ensure that they do keep up. We already deal with an accredidation process the feds have not been looking at when handing our financial aid, and we deal with NRC rankings which effect our government funding of research, we can handle another ranking institution aimed at our performance educating undergrads. In fact if the ranking system would involve a formula related to percent increase in income over the college years, the public universities in NYC will do very well and many a private institution will flounder.


    • Dorrance Fish
      May 27, 2014 at 6:29 pm

      I’m curious to hear you elaborate on your suggestion for a metric (“a formula related to percent increase in income over the college year”), since it seems quite hard to come up with something. Trying to parse your suggestion, I take it that you want to rate schools based on the increase in earning power they confer to their graduates. But I imagine that it is important that you measure the increase, not just the salaries of graduates (because you say the public NYC universities will do better than many privates, but a ranking based on average alumni salary will put the Ivy’s and top engineering schools on top). So the first problem you run into seems to be one of measurement — how do you measure this increase? Its hard to tell how much the same student body would have made had they not attended college.
      Even if you could measure this quantity, is it really what you want? A quick way to increase this statistic would be to eliminate the English and History departments. Engineering schools are great — but you should at least be conscious that metrics based on earning power will cause schools to focus on high earning majors. There is a good argument to be made that this is what you want though.


  7. Bill
    May 27, 2014 at 12:19 pm

    Actually, the REAL problem here is that so many of these students are so desperate to go to college. Our labor system has turned into an incredibly sadistic game of musical chairs.
    Fewer and fewer of the chairs provide anything more then a subsistence level of income and the bipartisan answer when the participants complain is to tell them to get more education so they can fight harder for the few chairs that are worth having. I get incredibly angry when I hear stories about high school dropouts who made good by going back to school. Now to be clear, I’m happy for those individuals and support the idea of our society helping those who have the desire and ability to pursue advanced studies. The problem I have is that to a great extent, I think it is a zero sum game. If Anne goes from high school dropout to Ph.D recipient and gets a high paying job, I believe what too often happens is a ripple effect that eventually dumps some unknown Susan into the same crappy job that Anne escaped. And what makes it so perverse is that many liberals with ties to academia directly or indirectly profit from the game. While “we” love to hate the University of Phoenix and their ilk, we seem blind to the ways in which our continuing mantra of “get an education to get a better job” supports the the system that has rewarded “us”; but won’t do anything to help whoever ends up in those minimum wage jobs that are not going away.

    So sure, fix the higher education funding system so students don’t have to go into debt as much while playing the game; but please be aware that you are probably only changing how big a hole the new losers are in when they still end up at the bottom of the heap.


    • Dorrance Fish
      May 27, 2014 at 6:33 pm

      Well — its not a zero sum game. Anne the PhD (or MBA) is more likely to contribute to a new technology or idea that eventually leads to the creation of jobs than Anne the high school dropout.


      • Guest2
        May 27, 2014 at 10:24 pm

        Really? Where is your evidence?
        Here’s a glimpse of the future.

        Click to access The_Future_of_Employment.pdf


        • Dorrance Fish
          May 28, 2014 at 9:53 am


          Yes, many professions will be eliminated as computer technology (and eventually robotics) becomes better. The steam engine and the cotton gin also replaced whole sections of human employment. But historically, technological advance has universally expanded the economy, not shrunk it. Jobs are mechanized, but new industries are created. Cab drivers will be replaced by software engineers.


        • Guest2
          May 28, 2014 at 9:59 am

          Not likely. See —

          “The Myth of the Science and Engineering Shortage: American students need to improve in math and science—but not because there’s a surplus of jobs in those fields.” by Michael S. Teitelbaum Mar 19 2014



      • V
        May 28, 2014 at 4:44 pm

        Yes just imagine if Bill Gates et al had perused a PHD rather than waste their time starting and running a business what a tremendous serge of job creation would have taken place.. (Sarc in case someone does not get I)


        • Dorrance Fish
          May 30, 2014 at 9:04 am

          Yes, or Larry Page and Sergey Brin, or David E. Shaw, or Daniel Lewin and Tom Leighten (Akamai), or… Oh wait. I’m quite confident that if we compare the employment rolls of companies founded by people who didn’t graduate from college, to those that did, it won’t be much of a competition.


    • May 28, 2014 at 12:36 pm

      Great point.


  8. David18
    May 27, 2014 at 2:49 pm

    My father is a professor at a major state university and I do have some insight regarding public universities. I also paid for my undergrad education by programming computers beginning in high school and paid for med school working on Wall Street.

    First, percentage changes in the graphs listed are not helpful. I’d like to see the absolute amounts for tuition. It is possible that some states that have large increases in tuition may actually have low tuition costs while others with low percentage increases may have high tuition costs.

    A large part of the reason for decreasing public university funding is the ever increasing proportion of state budgets that goes towards Medicaid spending. The new ACA healthcare law has only made this situation worse than it was. In addition, a large proportion of Medicaid funds goes towards long-term care including nursing homes (total $54 billion in NYS, 41% of Medicaid funds) and not the poor. Many of those in nursing homes paid for by Medicaid are middle class who used lawyers to spend down assets passing them on to their children instead of say, purchasing long-term care insurance.



    In addition, a large proportion of the Medicaid budget for the poor pays for diseases caused by tobacco, obesity, air pollution, and drugs and alcohol. The taxes on tobacco do not compensate for the high health care costs of tobacco.

    Regarding rising administrative costs, each of the universities has a board of trustees (and for public institutions there is also the state legislatures that are accountable to voters). Interested alumni could do a cost analysis and instead of just donating funds, donating funds ensuring that administrative costs are reduced and holding the board of trustees and university administrators accountable for rapidly increasing administrative costs.

    In short, the problems of higher tuition costs are solvable, but it requires understanding the underlying reasons and addressing them.


    • Guest2
      May 28, 2014 at 10:06 am

      “In addition, a large proportion of Medicaid funds goes towards long-term care including nursing homes (total $54 billion in NYS, 41% of Medicaid funds) and not the poor. Many of those in nursing homes paid for by Medicaid are middle class who used lawyers to spend down assets passing them on to their children instead of say, purchasing long-term care insurance.”

      Yes, I heard this from a former nursing home administrator.

      As for the local boards, they will pay what their nearest status competitor will pay, and this has resulted in an arms race to pay more. Too much, in fact.

      The problems of higher tuition costs are not solvable without nationalizing the entire system, and standardizing fees nationally.


  9. Uncle Bruno
    May 28, 2014 at 9:33 am

    The goal of the Obama program is to cut public funding for education, not “fix” student loans. Of course, public funding for education is extremely popular with the public, so you can’t say that. So, you talk about accountability, and excellence, etc. Things that people support.

    The beauty of this system, like most of its kind, is that it will cut funding to the people who need it most. That’s a feature, not a bug.

    Oh, and it’s another way to deflect attention from a shitty economy: blame it on the schools. I don’t think it’s a primary goal, but a nice value-add for the Obama administration.

    I’m also wondering about the role of interest rates for student loans. I’ve only seen figures for total borrowed, not total paid. I paid 10% and took a couple of student deferments so that interest really added up.


  10. lew
    May 28, 2014 at 10:41 am

    Increasing the size of government in one area is not the way to diminish the bad consequences of government in others.

    Size and scope of government is the problem here. Without all of the subsidies of education the cost of education would be much lower. Without all of the subsidies of the medical system, etc. Defense, police, fire, … are all the same.

    Any gov involvement increases the opportunity for gaming the system for the simple reason that increasing rules and regulations increases the # of loopholes and the subsidies are a revenue stream to be had, gaming is easier than competing.

    Give me un-governened reality any day, we humans have evolved minds to deal with that.


    • Bill
      May 28, 2014 at 1:25 pm

      And without those government expenditures (at all levels), I believe that we would have:

      1. Fewer people who could even read
      2. More corpses
      3. More cities burning down
      4. More crime

      Personally, I would consider all of those things to be negative consequences. Perhaps you disagree with that assessment. Perhaps you don’t think that would be the result. Please provide a cost/benefit and historical analysis if possible.


  11. Allyn K.
    May 28, 2014 at 9:19 pm

    “Now, I’m not saying there aren’t nasty leeches who are currently gaming the federal loan system…” Since when is that not a problem that is entirely within the purview of the federal government to do something about? “Federal aid to students at for-profit colleges jumped to $26.5B in 2009 from $4.6B in 2000 – http://www.bloomberg.com/news/2010-04-30/homeless-dropouts-from-high-school-lured-by-for-profit-colleges-with-cash.html.” More here “http://www.bloomberg.com/news/2013-12-03/for-profit-caribbean-medical-schools-use-federal-funds-loophole.html.”

    And what’s wrong with rankings which even the supposedly non-leechy public and private colleges try to game for U.S. News, etc.? If I hadn’t already put my kids through college, I would be interested in reviewing rankings of the sort proposed by a fair arbiter like Uncle Sam. Seems like a mathematical model designed to help students and their parents make a good decision about something with high economic significance to me. Your focus on the percentage increases at state schools (~ 76% of attendees), funded by state governments and attendees, undercuts your unstated premise that the federal government should rather be doing something else about the increase in cost of state universities. What is your proposal exactly? And what is the federal government supposed to be doing about the cost of private schools? And what is your funding mechanism to support higher ‘core services’ cost of those schools, even though some savings are to be found in reducing administrative cost? “http://www.insidehighered.com/news/2011/09/16/unc_berkeley_cornell_experience_show_where_administrative_cuts_can_be_made#sthash.fZ9C6gCn.dpbs.”

    Also in your charts here we’re talking about a span of years here with two recessions, which have a tendency to dry up tax revenues at the local and state level, at the same time as the newly unemployed go back to school to improve skills. Both of those factors prompt state governments to raise tuition for attendees since tax receipts are down and costs are up. One of those recessions from 3Q 2008 to 1Q 2010 we still haven’t fully recovered from, so there’s still pressure on state government budgets. The charts you’ve presented show big increases in the states hardest hit by the housing boom and bust – but they do not show that federal ranking of schools should not be done.

    Finally I can’t help but notice that your Pell Grant chart cuts off shortly after passage of ‘Obamacare’ aka The Affordable Care Act and College Cost Reduction and Access Act, which directed $32B of the expected $61B in cost saving towards higher Pell Grants – what’s up with that?


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