Letter from Australia: The high price of student debt

Americans are obsessed with student debt. The words student and debt are almost always followed by the word crisis. Student debt crisis. It has a certain spin-chilling ring to it.

And no wonder. The total debt in the US has now risen to a jaw-dropping $US1.5 trillion (£1.18 trillion) spread across 44 million borrowers. It’s the second highest consumer debt category in American households after their mortgage.

The rising level of student debt in the US has been a big deal for years. The reason why it has coalesced in my brain as an issue of utmost importance is that I was invited to Washington DC to speak to a think tank about the Australian experience of student loans and student debt. Australia is held up as the paragon of what higher education financing should look like by many American policy wonks.

In the Australian bubble we often forget how good we have it. Certainly student debt and the American system were very much part of our national conversation back in 2014-15 when Tony Abbott and his band of merry men (they were all men) tried to deregulate university fees. I won’t dwell on it, but I will say, with a great deal of relief, that we dodged a bullet on that one.

Anyway, back to the think tank. It is a biannual, closed room, Chatham House rules get together at the American Enterprise Institute of Public Policy of 50 or so intellectuals, professors, policy folk, government insiders and thinkers who come together for two days to have a very – and I mean very – robust conversation about issues impacting on higher education. As they like to call it: “higher education fight club”. No one is shy in expressing their thoughts and opinions. There’s a kind of intellectual peacockery among those in the room, but their engagement and knowledge of the intricacies of policies is very impressive.

Needless to say higher education financing and student debt are the topic de jour. (And equity. I was truly impressed with the seriousness and rigour with which Americans approach the equity debate. It is truly inspiring).

Paying the price

While I can’t report what went on in the room specifically, you don’t need to look very far to get a close proxy. An article was published in the New York Times on June 3 by Kevin Carey. Carey is director of the education policy program at New America, a left of centre think tank, and he was among those who spoke at the AEI workshop.

Carey has done an analysis of federal government data that shows that the student debt crisis is being fuelled – and I mean kerosene on the fire – by postgraduate study.

It seems that only around 15% of US students go to graduate school, but graduate school debt accounts for about 50% of total debt. And growing.

The point Carey’s NYT article so clearly makes, is that operators are exploiting federal tuition loans to make mega bucks.

The American Academy of Art University in San Franciso, for example, receives around $US100m a year in tuition and fees financed by federal student loans. (For those of you who, like me, did not know that the US has an income-contingent loans system, well consider this your revelation).

Students of the American Academy of Art University leave with loans that average $100,250. As Carey points out, tuition fees for a masters in fine art at Yale are $21,500. Graduate jobs in the arts field are not only hard to come by, they don’t pay very well.

Carey list other examples of colleges charging exorbitant fees relative to graduate outcomes; these include social work and veterinary science (studied in courses in St Kitts, Grenada and Scotland), among others, as instances where high fees far outweigh any realistic possibility of ever being able to repay in full given average low wages. The US caps loan amounts for undergraduates ($31,000) but has no upper limit for postgraduate programs. Students can also borrow from the loans program for living expenses. The US, unlike Australia, forgives student debt after 20 years.

Countering Obama

Of course, things have got worse under Trump. There are moves to repeal Obama-era gainful employment rules that sought to expel colleges from the financial aid system if its graduates failed to benefit from their education (aka earn enough to pay back their loans).

As Carey points out, by releasing the data on postgraduate loans, Education Secretary Betsy DeVos is hoping that students can make informed decisions about where to study.

But this will likely prove to be wishful thinking.

“The Department of Education has been publishing college graduation rates for over a decade. The latest numbers show that only 28 per cent of Academy of Art undergraduates earn their diploma within eight years; most transfer or drop out. Yet thousands continue to enrol,” Carey writes.

“A handful of numbers on a government website can be no match for trained recruiters who get a bonus from colleges for enrolling more students. (This is an illegal practice that the Academy of Art stands accused of in a federal lawsuit that may soon go to trial.) Universities also spend millions on perfectly legal marketing campaigns to convince students that taking out large debts for graduate school will pay off in the long run.”

For Australians, this a a carbon copy repeat of the VET FEE-HELP scandal with the vivid exception that the Trump administration is removing laws that restrain it. In this free market mecca, it is a case of buyer beware. But weirdly, it is the government that is increasingly footing the bill. Why postgraduate loans aren’t capped, I have no idea. Why there is a 20 year time limit before loans are forgiven, I have even less idea.

Moving to masters

But here I am going to be bold enough to make a prediction.

It is this: that with the capping of the demand driven system and with all the hoops and hoopla Australian universities are going to have to jump through in order to get some measly demographically-prescribed funding increase from 2020 onwards – that are contingent on as-yet-unspecified performance criteria – it might just be a whole lot easier for universities to max out their full-fee masters coursework programs for all they are worth.

Can we expect to see entry requirements for masters coursework programs fall? I imagine so. Can we expect to see academically underprepared students targeting with slick marketing practices and big promises? Probably. Will the government carry the cost of all of this? Yes, through the Higher Education Loans Program? Does it matter? It depends on whether the qualifications being gained are valuable and worthwhile. And also how student loans and doubtful debt are perceived.

And, heaven forbid, should there be a tremor in the international student market, then all bets are off.

(Sadly, this is my last Letter from Australia for Wonkhe. The last nine months have been an absolute pleasure. I hope you’ve enjoyed half as much as me. Stay in touch on Twitter at @harejulie)

Au revoir.