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Original article URL: http://bridgemi.com/2016/09/saving-money-on-the-backs-of-young-college-grads/

Phil's column

Saving money on the backs of college grads

Anybody who was unwise enough to visit a Michigan college town last week now knows it was move-in time, when the streets are jammed with cars and U-Hauls, while students (and parents) are anxiously wandering around with bags in tow. So it seems timely to revisit the old debate over declining state support for public colleges and universities and how this affects both increasing tuition costs for students and the resulting mounting student debt burdens.

An extensive report released last week by the Michigan League for Public Policy, a progressive think tank based in Lansing, found that Michigan’s public university tuition, adjusted for inflation, has increased by 100-150 percent since 2003 and today ranks as the sixth-highest in the country. At the same time, there is no doubt that Lansing over the same period has cut support for Michigan higher education more than nearly than any other state. For example, newly elected Gov. Rick Snyder’s first budget in 2011 slashed higher education funding by 15 percent, although in recent years the legislature has slowly increased state support.

Further, there is a direct relationship between declining state support and increasing university tuition and fees – a conclusion reached by both MLPP and the nonpartisan House Fiscal Agency. Back in the 1990’s when I served as a Regent of the University of Michigan, students paid around 30 percent of total operating costs, but today that figure is around 70 percent. Former U-M President James Duderstadt used to say that the University “was not a public university in the full sense of the term, but it was only to a degree ‘state supported.’” A Business Leaders for Michigan study concluded that our state in 2013-14 ranked 36th in the country in amount it allocates to higher education institutions.

As a consequence, according to the MLPP, not only do students pay more to go to college, but on average they graduate deeper in debt after graduation. Sixty-two percent of Michigan’s four-year college students graduate with debt levels averaging a little above $29,000, the 8th highest in the country, according to BLM, although the remainder graduate with little or no debt.

The debate over who is to blame has raged for years. Is it the fault of budget-cutting, conservative lawmakers in Lansing or is it universities with bloated administrative costs and unnecessarily expansive faculty salaries?

And the debate is not confined to Michigan; nationwide, state support has been declining for public universities for years, according to a report from the Center on Budget and Policy Priorities, which says that 25 of 46 states that offer comparative data are funding their public universities at lower levels than before the Great Recession.

At least in Michigan, public universities are doing pretty well at restraining cost increases and managing bloat when compared with peers around the country, according to a recent study published by Business Leaders for Michigan. University officials argue that in an environment of reduced state support, they have an obligation to maintain quality to attract the best and brightest to our state and provide our businesses with the best possible pool of talent.

They make the simple point that you usually get what you’re willing to pay for.

Critics respond that merely getting a university degree (unspecified) may or may not result in sharply increased lifetime earnings, and that an individual student’s ambition to succeed often is more important than the quality of education received on campus. Quality overall may well be important to attract the best and brightest, goes the argument – buttressed last week by the University of Michigan’s recent ranking as the best public university in the country — but that doesn’t necessarily translate to increased lifetime income for any individual graduate.

Because these arguments are predicated on overall political ideology and sustained by individual anecdote, there is something for everybody in these passionate exchanges, which all too often shed more heat than light on the subject.

There is, however, an important part of the discussion that is too often neglected: The economics of long run versus the short run.

Students today are being asked to assume student debt levels at the moment they graduate that are far higher than they were before the legislature started cutting back on support for higher ed. Paying off large amounts of student debt is tough for young people just starting out in their careers; many will defer for years getting married or buying a car or a house. And a fair number will be caught in the debt trap, never able to pay it off over the long term.

According to the Atlantic Magazine, the total student debt in America amounts to $1.3 trillion, spread over 43 million borrowers, of which only 37 percent were making timely payments on their long term debt. A House Fiscal Agency report concludes Michigan ranks 39th in the nation in granting state financial aid to students, a 70 percent reduction since 2002.

Lawmakers, on the other hand, can happily live in the political arena, cheerfully boasting to their constituents that they’re taking a hard line on college costs and gaining political points for being tough minded. But by cutting current funding for colleges, lawmakers are transforming today’s current costs for universities into long-term debt instruments held by individual graduate borrowers, who are required to pay them off … with interest.

In effect, it’s a hidden “college tax” levied on kids and their families, a gigantic (and carefully disguised) cost shift from the state’s historic collective responsibility to educate our people to growing long-term debt dumped on new graduates.

My impression is that there is general policy agreement that Michigan needs as many talented and skilled people as possible in order to compete in a global economy. To impose a stiff college tax on those working to develop their skills and talents seems exactly the wrong way to go about it.

Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics. He is also the founder and chairman of the Center for Michigan, a nonprofit, bipartisan centrist think–and–do tank, designed to cure Michigan’s dysfunctional political culture; the Center publishes Bridge Magazine. The opinions expressed here are Power’s own and do not represent the official views of the Center. He welcomes your comments at ppower@hcn.net.

13 comments from Bridge readers.Add mine!

  1. Neil Sikora

    I totally agree. In my discussions with recent college graduates, I am horrified at their student loan debt. (How will they ever get out from under that load?) I then follow up with a question about their voting practices. Almost every one of them will say that they do not vote. I try to engage them with how the voters elect people to give all sorts of deductions/provisions to the people who do vote (e.g., mortgage interest and charitable donation deductions), so why not vote but make student loan debt an election issue too. Just imagine the voting block for a presidential candidate who ran on just this one issue, namely to forgive all student loan debt (no details needed on how to do it). Would college-bound students, those attending college, and college graduates still paying student debt rally to that candidate in enough numbers to get them elected? It could certainly change the dynamics.

    1. Matt

      $30,000 (average debt according to Phil, MLPP and Co)? This is a fairly typical car loan. Evidence is that people do these all the time and usually with a much shorter amortization. I don’t understand the hand ringing. What about car loans, should they be forgiven too then?

  2. Lois

    Not only are they in debt but I have a friend who is being charged18% on her college loan
    We should be ashamed

  3. Matt

    Phil, so while you’re talking about throwing more taxpayer “investments” into this, what are you saying we’ll actually get for this “investment”? What percentage of college grads go into occupations that actually require a college degree verses not? What about students who don’t complete their degree? Can we pass a law to force them? What evidence do you have that the college grads we do produce actually stay in Michigan vs. move to another state (with our “investment”)? Is there a better way to incentivize and attract new residents with productive skills? I know giving stuff is fun but do you have any solutions to address these likely outcomes before asking for more cash?

    1. Peter

      “…do you have any solutions to address these likely outcomes before asking for more cash?”

      Restoring the money that was taken would be a good start. You don’t just slash funding and then accuse universities of asking for “more cash” when they and others call for the funding to be restored back up to its previous levels. The reports linked to in this article provide more information if anything in Phil’s article wasn’t clear.

      1. Matt

        What is not being answered by Phil or you is what are/did we as taxpayers getting/get for our investment in higher Ed? I’ve heard nothing just calls for more money. I’d take it to zero and then help our residents with college reimbursement on the back end.

  4. Kevin Grand

    I am unaware of any private company which was able to stay in business if the cost of its product rose at least 100% in about a decade.

    Given Michigan’s economic morass going back several years, to say nothing about what Michigan Residents and businesses have done to make it through when their incomes nose-dived, this doesn’t exactly bode well for those running the institutes of higher learning here in Michigan.

    That been said, here is a question (again) for Mr. Power: Exactly what areas would you cut from the Michigan budget, what taxes would you propose to be enacted statewide or some combination of the two, to make up for this “lack” of state support?

    Local municipalities?

    Roads?

    K-12 education?

    Corrections?

    Travel Michigan?

    None of those are to your liking?

    Then, how about a higher income tax?

    A new sales tax?

    A tax on Michigan workers to pay for the process of creating and collecting new taxes? With a portion “skimmed” off the top to go towards places like U of M (which is sitting on a $10-billion endowment) and MSU (which is sitting on a $2.5-billion endowment).

    Readers would like to know.

    1. Peter

      Kevin, a good start to answering your question would be: what parts of the budget were strengthened with the money taken from higher education?

    2. David Waymire

      Kevin, the price of the product didn’t increase 100 percent. The price is basically the same plus inflation. The problem is there used to be agreement that society benefited from having more college grads (which is true…there is a direct relationship between the share of grads in a state and its per cap income….carpenters don’t work for $15 an hour factory workers but they will build homes for $75000 a year college grads) so the state paid 75 percent of the total bill through taxes. Now the state pays on average 22 percent. So the student is stuck with the larger part of the same cost.

      1. Kevin Grand

        Dave, very little hasn’t risen due to inflation. So that argument is a little misleading.

        With the notable exception of things like gasoline (via supply/demand) and pre-existing homes (due to the housing crash/foreclosures), what has gone down in price?

        Those schools also have other sources of income at their disposal to address growing costs, like endowments which have grown significantly over the years. So Lansing and students shouldn’t be considered the only sources of income here.

        Peter, I do know that Lansing did its best to minimize budget cuts in things like community health programs, but I am unaware of things that were actually strengthened during the lost decade (or if they were increased, it was only very slightly).

        One important aspect that Mr. Power failed to mention is that Michigan is sitting on something like $80-billion in debt. That means instead of paying your bills with the money that is coming in, you whip out the state’s credit card and rack up some significant charges.

        I don’t know about anyone else here, but I don’t view paying off interest on things that you couldn’t afford in the first place a legitimate, long-term state expense.

        And as I mentioned above, there are a number of other interests aside from higher ed, that would just love to see their budgets increase as well.

        Where do you want the money to come from?

  5. Mark

    Good article, but soft on lack of cost control. For example, appalling for EMU to charge students over $1000 for sports and to be Division 1. Few students care. Better model: Hope and other MIAA schools.

  6. T.J.

    This escalation in the costs associated with obtaining a college education has bee going on for more than just the past decade. We sent our first child to MSU IN 1996 and our other four throughout the next 14 years. By the time the fifth child began in 2006 the cost had almost doubled.
    The chest thumping claims by legislators that they are saving us from unnecessary costs associated with waste and excess is little more than pandering to an increasing number of us who believe we should be able to reduce our tax bill while still maintaining the same quality services we expect.
    We have done the same thing with our K-12 system. Reductions early in the Snyder administration caused massive cuts to staff and programs in public schools at the same time that we were allowing online, for – profit providers to receive the same foundation allowance for offering low quality, canned content with little or no success or oversight. We are also willing to set up systems of oversight and accountability for public schools which we don’t apply to charter schools which also receive public funding.
    Yes, we have slowly restored the funding that was slashed from colleges and K-12, but we are still way below the level of funding required to bring us back to a level necessary to allow the restoration of the cuts and reductions made to programs over the past couple of decades or to allow for a reduction in tuition.
    It has almost become a requirement for politicians hoping to win an election that they promise a reduction in taxes without a reduction in services. We didn’t build the infrastructure or the institutions in our state and nation without the willingness to pay for them, nor will we rebuild them or see them advance and improve without costs. It doesn’t require a microscope to see that they are in a sad state now.

  7. Scott Roelofs

    Mr. Power says in his column: “The debate over who is to blame has raged for years. Is it the fault of budget-cutting, conservative lawmakers in Lansing or is it universities with bloated administrative costs and unnecessarily expansive faculty salaries?”

    This statement clearly shows to me his bias. Liberals have been at LEAST as responsible for the situation as conservatives. The trend of higher costs borne by students goes back 40+ years and includes governorships of faux-conservative Milliken, liberal Blanchard, conservative Engler, liberal Granholm and faux-conservative Snyder. Liberals and conservatives have both been in the majority in the legislature and boards of regents. Since 1970, democrats have controlled the State House 28 years and the republicans 18 years. Since 1975, democrats have been a majority on the U-M board of regents all but 2 years. During the 11 years that Mr. Powers’ wife Sarah (democrat) was a regent, and followed by Mr. Powers’ (democrat) 11 years as regent, the democrats were NEVER in the minority on that board.

    I was a freshman at the U-M in 1972; my son entered U-M as a freshman in 1997. I calculated the increase in freshman tuition in that 25 years as 9.2% compounded PER YEAR OVER A 25 YEAR SPAN! I have not calculated the increase rate since 1997, but I am sure it is down because conservatives have tied state funding to tuition increases. If not for that, regents and university administrations would have a much freer hand to raise tuition on students. Even so, costs continue to out-pace general inflation. Most public universities have far more applications (demand) than they have spaces (supply) for students. There is not much incentive to control costs by admin boards, unless it is applied by the public through their legislatures.

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