The student loan crisis - or near crisis; narrowly-averted crisis ; or postponed crisis - no one is sure - comes co-incidentally at a moment when many colleges and universities are once again repackaging their basic programs. The new buzzword, as John Leo has pointed out is "sustainability." I also recently tried my hand at unpacking this polyvalent idea. "Sustainability" sounds to the uninitiated as though it is about environmentalism, but it is much more. As I wrote in Inside Higher Education, many of the advocates of "sustainability" see it as an encompassing concept. It includes science, economics, and the social structure. And for many in the movement, the focus on social order is the basis for far-reaching attempts to advance "social justice" policies.
I doubt this development has come into focus for many parents or people outside the campus. The campus left learned with its promotion of the concept of "diversity" the advantages of packaging hard-core ideology in bland, feel-good terminology. Sustainability is another venture in this direction. No one can really be against sustainability (definition 1) - prudent use of resources with the needs of future generations in mind. But while most of us hear the word in that sense, campus ideologues are busy rearranging the curriculum and student life around "sustainability" (definition 2) - a condition that arises when capitalism and hierarchy are abolished; individuals are made to see themselves as "citizens of the world;" and a new order materializes on the basis of eco-friendliness, social justice, and new forms of economic distribution.
Sustainability (2) is an amalgam of environmental extremism, shards of Marxism, romantic utopianism, and identity group politics. It doesn't have a significant political following in America outside college campuses, and in that sense it is a fringe movement. But on campus it's everywhere. Hundreds of campuses now have sustainability officers, courses that promote the ideology, and most ominously, "co-curricular" programs run through student life and residence halls that attempt to "educate" students about their mistaken "worldviews" and bring them aboard this new ideological ark.
So what does this have to do with the student loan crisis?
On its face, the student loan crisis is an aspect of the larger credit squeeze. Lenders don't have as much money as they did a year ago to lend to students who need to pay their college tuition. The crisis arose from the convergence of two separate developments. First, beginning in January 2007, the Attorney General of New York State, Andrew Cuomo, uncovered almost by accident a widespread pattern of bribes, kickbacks, and other misbehavior among private lenders and college officials. These revelations were gasoline on the fire for Democrats in Congress who were already irked about the Republican-backed emphasis on using private lenders to dispense federally-guaranteed student loans, instead of "direct lending" to students from the federal government. As the scandals multiplied, Congress acted by passing a bill in September 2007, the College Cost Reduction and Access Act - CCRAA - which I wrote about here. CCRAA slashed the incentives for lenders, some of whom quickly announced that they would leave the student loan business as unprofitable. This trend has continued.
The other development, quick on the heels of the first, was market resistance to student loan-backed bonds. It turned out that the student loan industry, like the home mortgage industry, had succumbed to the allure of securitization. Rather than keep their own loans, lenders would sell them to a third party, which in turn bundled them together into giant bonds and sold them to the public. The bonds would include good debt (the kind that gets repaid) as well as more dubious loans (from the kind of students who are likely to default.) As the sub-prime mortgage crisis convinced millions of investors that pig-in-the-poke bonds weren't such a good idea, the student-loan-piglet bonds suddenly found themselves unloved and unwanted too. The turning point came in October, when First Marblehead, the premier re-packager of student loans offered $1.1 billion of student loan bonds, and found no buyers.
In late April, The National Association of Student Financial Aid Administrators released a white paper, The Student Loan Credit Crunch, in which it cites only the second of these developments. My guess is that too many of NASFAA's members were implicated in the kick-back scandal for the organization to acknowledge that side of the problem. But NASFAA's white paper offers a good account of how the mortgage crisis spilled into student loans. It also provides a good scale to consider how far the crisis has extended. "Up to 60 lenders have been forced to discontinue lending, while others continue to make loans at a loss, all the while indicating they may need to halt operations in the near future."
This week, Congress attempted to preempt the crisis with a bill - immediately signed by President Bush - that authorizes the Secretary of Education to buy up the loans of lenders who have not been able to sell them to anyone else. The New York Times declared that the President showed "good sense" and urges as a longer term solution the migration of a much larger percentage of student loans into direct government loans. (Currently 22 percent of the federal loans are of this type.)
There is an audible sigh of relief in student-loan world over this development. In the Times' view, "There was no real danger of students being left high and dry." Perhaps not. But there was and still is the prospect that colleges and universities will have to re-think some of their business assumptions. The issue is, to grab a familiar word, a matter of sustainability. The federal government cannot bail out improvident lenders indefinitely. The Education Department estimates that 7 million student borrowers (out of about 18 million college students) will need to borrow "more than $68 billion in federal loans this academic year."
Add to this the now famous "moral hazard" problem behind government bailouts. The improvident lenders now will have less incentive than ever to ensure that they are lending to students who are good credit risks. The federal government will pick up their loan portfolios, good, bad, and indifferent.
Perhaps this is just an election-year bailout and we will see the restoration of a more sustainable student loan system next year. But in truth, the student loan system is beginning to look threadbare. For generations we have been conjuring all sorts of reasons to convince more and more young people to forego every other opportunity and plunge themselves into debt in order to get a college degree. Generally these appeals are more carrot than stick, more "get a good education to get a good job" than "If you don't, you get stuck in Iraq," as John Kerry put it in October 2006 - a remark recently echoed by Stephen King. The go-to-college ethic has been a powerful force for generations, to the point where now almost 70 percent of high school graduates pursue college, at least for a while.
The advantages of attending college are, according to some analysts, exaggerated. Charles Miller recently challenged The College Board on this point. The College Board frequently issues an updated report, Education Pays: The Benefits of Higher Education for Individuals and Society (Sandy Baum and Jennifer Ma, 2007). Harvard economist Susan Dynarski weighs in on the side that attending college is a good financial bet.
Let's stand aside from the grand debate. Clearly attending college serves some students extremely well when it comes to getting well-paying jobs, boosting lifetime earnings, and building satisfying careers. Just as clearly, it serves other students poorly. They emerge with few marketable skills, self-defeating attitudes, cynicism, and an insupportable burden of debt on their student loans.
Let's close the loop. When colleges and universities transform themselves into enterprises centered on "sustainability," which students are they serving? Are students assuming these burdens of debt (average balance over $19,000; a quarter of students owing nearly $25,000) willingly paying a premium to be indoctrinated in some resident hall director's theory of social justice?
Over half of the employees of colleges are administrative staff of some sort, not faculty members. A slice of that high-interest $19,000 debt goes to service sustainability czars, diversity vice-provosts, and the rest of the ever-widening "service" oriented bureaucrats whose job is, in effect, actively to hinder the real education of students.
What would happen if students had a choice of a "Plan B" - the same educational program, minus the ideological frills, and priced at a prorated discount? It seems unlikely that many of our colleges and universities would dare to offer such a Plan B for fear of discovering just how unpopular the full-loaded option has become. But it is a clarifying idea. The student loan credit crunch points to a future where parents will find it much more difficult to finance the children's college education. When that happens, they will become more discerning consumers, who are both less content to pay a premium for "sustainability" indoctrination, and more concerned that the children enroll in programs that provide a substantive education that leads somewhere.
We are at an interesting moment, where two visions of sustainability are about to collide. The shortage of capital is focusing the minds of students and parents on being good stewards of their educational opportunities. But at the same time, higher education is being swept with enthusiasm for an ideology opposed to economic growth, capitalist investment, and traditional intellectual ideals.
I have waded into two complicated topics here and further complicated them by suggesting they are connected. To be clear, I don't wish financial calamity on colleges and universities, and I do think that higher education can constructively address "sustainability," including questions about the changing social order. But we need to distinguish. The student loan crisis has roots in doubtful practices: misbehavior on the part of lenders and campus officials; poorly conceived financial instruments that mingled good and bad debt in ways that made it impossible for investors to discern what they were buying; and the over-selling of college degree programs to students for whom a college degree offers little prospect of personal prosperity. The student loan crisis represents the triumph of effective marketing over common sense. Something similar has happened with sustainability. It is a wholesome idea in its original form and may well provide the basis for some sturdy academic programs. But the concept has been captured on many campuses by people whose strong beliefs about how they would reform society are running unchecked by the need for reasoned debate, scrupulous cross-examination of the evidence, or even ordinary skepticism.
We are, in other words, spending too much on too little. This phase of the student loan crisis is a collective declaration by the markets that a college education in its prevailing form is overvalued and overpriced. The next phase may be a harsher judgment on the institutions that fail to heed the warning. And any college or university that is now licensing the sustainability zealots to indoctrinate students in the residence halls or the classrooms is making a doubtful guess about its future.