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Post Event Summary
Do student loans represent a new credit bubble? On Thursday at AEI, panelists gathered to discuss solutions to the mounting U.S. student loan debt crisis. In his keynote address, Bill Bennett of the Claremont Institute alleged that student attitudes toward higher education may be shifting. Bennett claimed this shift may be a consequence of the lower return on investment provided by a college degree, the twenty-first century primacy of intellectual capital over the prestige of a degree, the lowering of academic standards among colleges and the technological developments that will provide individuals with nearly unprecedented access to higher education.
Richard George of the Great Lakes Higher Education Corporation contended that the debate over interest rates distracts from the real problem of rising college costs. Whereas college costs are increasing much faster than inflation, incomes are growing at less than half the rate of college costs. The only solution is to control capital flows supporting college costs by revamping student loan programs to reflect the bifurcation in the U.S. higher education system.
Art Hauptman, a higher education consultant, advocated limiting the amount students can borrow and changing institutional behavior to restrict borrowing by charging colleges a fee for defaulting students. Alex Pollock of AEI then described the history of tuition dollars, demonstrating that since the passage of the Higher Education Act in 1965, college tuition as a percentage of average earnings has risen from 8 percent to 26 percent. Finally, AEI's Ed Pinto drew parallels between the tuition debt crisis and the mortgage debt crisis of last six years. According to Pinto, as long as government sets interest rates based on politics and both colleges and private sector capital have no skin in the game, the tuition debt bubble may grow to $2 trillion, $400 billion of which will be at the expense of U.S. taxpayers.
Outstanding U.S. student loan debt is now estimated at over $1 trillion. The problems of student loans are generating sharp debate, including claims that they represent a new credit bubble. Colleges (and all purveyors of post-secondary education) arguably receive the greatest benefits from student loans, since they pump up colleges’ revenues with no credit risk and allow colleges to keep increasing their prices and expenses. Meanwhile, many students graduate — or even worse: drop out — with mountains of debt and unattractive or no job prospects to boot. Even more dismal is the fact that defaults on student loans are high.
American colleges in effect practice the “originate and sell” model of lending, while the price of their product keeps going up. This practice is reminiscent of the mortgage bubble that has brokered loans and escalating housing prices. One possible improvement would be for colleges to retain “skin in the game” for student loan credit risk, which is the same treatment Congress has prescribed for mortgage lenders. This event will address the problems and improvements needed for student loans, beginning with a keynote presentation by former secretary of education Bill Bennett.
If you are unable to attend, we welcome you to watch the event live on this page. Full video posts within 24 hours.
Registration and Luncheon
Bill Bennett, Claremont Institute
Richard George, Great Lakes Higher Education Corporation
Art Hauptman, Higher Education Consultant
Edward J. Pinto, AEI
Alex J. Pollock, AEI
Richard Vedder, Center for College Affordability
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Bill Bennett is one of America’s most important, influential and respected voices on
cultural, political and education issues. The Washington Fellow at the Claremont Institute, Bennett is also the chief education officer of Education Media and Publishing Group International — a Dublin-based company providing educational services to emerging markets and developing countries — and a senior adviser to Project Lead the Way, a 501(c)(3) organization that is one of the America’s leading providers of training and curriculum to improve science, technology, engineering and mathematics education in American schools. Bennett is an award-winning professor in academia, having taught at Boston University, the University of Texas and Harvard University. He also worked in the Ronald Reagan and George H. W. Bush administrations, including holding two cabinet-level positions as secretary of education under Ronald Reagan and the as the nation’s first director of the national drug control policy under President George H.W. Bush. He has authored twenty books, including two New York Times bestsellers and two of the most successful books of the 1990s. He is likewise the co-founder and served as the first chairman of K12 Inc., an online education company.
Richard George is chairman, president and CEO of the Great Lakes Higher Education Corporation & Affiliates. George has been substantially involved in government and public finance and post-secondary educational finance since beginning his career in 1972. Formerly a bond lawyer and an investment banker, he has also served as a public official and on numerous government task forces. He has previously served as a director and chairman of the Finance and Audit Committee of the board of directors of the National Student Clearinghouse and as a designee of the U.S. comptroller general and the U.S. secretary of education to the study group for the Study of the Feasibility of Alternative Financial Instruments for Determining Lender Yields. George was a principal negotiator in the 1992, 1998 and 2007 U.S. Department of Education-negotiated rulemaking committees for the Title IV loan programs. He has also consulted on post-secondary educational finance for the World Bank’s International Finance Corporation subsidiary and has authored a number of pieces on the student loan industry. He currently serves as chairman of the Wisconsin Covenant Foundation Inc. and as a director of the National Association of Student Loan Administrators.
Art Hauptman has been an independent public policy consultant specializing in higher education finance issues since 1981. He is an internationally recognized expert who has written extensively on student financial aid, fee-setting at public and private institutions and the public funding of U.S. institutions and those around the world. A consistent theme of his work is that public policies are more effective when the above key elements of higher education financing are systematically linked. In the U.S., he has consulted with many federal and state agencies as well as higher education associations and institutions. He played key roles in developing the rationale for a number of federal programs, including Direct Student Loans, Income Contingent Repayment, Gaining Early Awareness and Readiness for Undergraduate Programs and tuition tax credits. He has argued for counter-cyclical policies to address the adverse effects of recessions, tying public sector tuition fees to general income growth rather than costs, and paying institutions on the basis of their performance. Internationally, he has consulted with governments or funding bodies in more than two dozen industrialized and developing countries to design financing strategies for tertiary education.
Edward J. Pinto is an AEI resident fellow and is the president and CEO of Courtesy Settlement Services LLC. An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has conducted groundbreaking research on the role of government housing policies in the lead-up to the financial crisis. In particular, his data have revealed striking facts about the contributions of housing policy to the mortgage crisis. Two of his major research papers have been submitted to the Financial Crisis Inquiry Commission: "Government Housing Policies in the Lead-up to the Financial Crisis: A Forensic Study" and "Triggers of the Financial Crisis." At AEI, Pinto is continuing his work on the role of housing policies in the financial crisis and researching policy considerations and options for rebuilding our housing-finance sector.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the Deflating Bubble series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance and he is the chairman of the board of the Great Books Foundation.
Richard Vedder is Distinguished Professor of Economics at Ohio University, director of the Center for College Affordability and Productivity and an adjunct scholar at AEI. He has written widely on American economic history, having authored such books as “Out of Work: Unemployment and Government in Twentieth-Century America” and “The American Economy in Historical Perspective.” He served as a member of former secretary of education Margaret Spelling's Commission of the Future of Higher Education and he is the author of “Going Broke by Degree: Why College Costs Too Much.” Vedder has held a number of visiting appointments, including serving as a senior economist with the Joint Economic Committee of the U.S. Congress and as John M. Olin Visiting Professor of Labor Economics and Public Policy at Washington University in St. Louis. Vedder is also the author of numerous scholarly papers for journals in economics and public policy, as well as shorter pieces for the Wall Street Journal and other popular press.