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Student Debt in Iowa

posted on January 15, 2008 at 11:03 AM

David Miles is president of the Board of Regents and also managing director of The Miles Group, a family investment business. He will also serve on the board of the Iowa College Student Aid Commission. Jim Sumner is senior counselor, Office of Admissions and Financial Aid for Grinnell College.

Yeager: First question. In seeing the Davenport Promise, what does the Davenport effort say, David?

Miles: Well, I think it's a tremendous effort on the part of the city in two ways. One is it will provide necessary funding for their young people to go to college, and college is so important. It can be a transformative experience.

As we're going to talk about today, student debt is a real issue. They're going to be able to help their students a long way there. The second is migration into Iowa, attracting new families to come here. And this should be a great attraction for families that are thinking about the future of their children to come to Iowa and to come to Davenport, and I really applaud their energy and their leadership on this.

Yeager: All right. Jim?

Sumner: Well, I think it's a reminder that we've gotten ourselves into this tremendous predicament, and it might be worth spending a minute to talk about why we've gotten ourselves in this predicament. But what it means is that people are looking for new solutions, creative solutions to approach this problem of exorbitant college costs.

Hardly any families can any longer afford to send their children to the great public universities in our state, to the great private and independent universities and colleges in our state. And people in Davenport are looking for a solution. I commend them for it. It does all of those things.

Yeager: Well, you talk about higher cost of universities. How did we get here in the first place?

Sumner: Well, I think two things need to be looked at. One is that prior to World War II, there was no financial aid. There were a few scholarships, but mostly people went to college who could afford to go to college. We introduced the G.I. Bill. It revolutionized American society and in the early '60s reminded us, gee, if the federal government and the state government and the colleges and universities formed a partnership, we could provide education to everybody. And we had about 15 really good years where that was largely the case.

Prices kept going up, which is worth talking about in just a minute. But then the federal government, beginning in 1980, began to excuse themselves from their part of that partnership. So the bulk of financial aid funding, nonloan funding fell to the institutions themselves and to the states. And so that's part of what's created this terrific debt problem.

But the other thing that's happened is that colleges provide more and more services than they used to. You know, we've never taken the approach in the United States that they take in Europe and in the U.K. And that is that in those places you get a good student and a good professor together, and good things happen.

They don't worry about sports. They don't worry about health services. They don’t worry about housing. They don't worry about providing food and counseling and all of the other things. And our college and universities, public and private in our state, provide great comprehensive services to students, and that costs a lot more money.

Yeager: Is that the same thing at the regent level?

Miles: Certainly. And I would just underscore what Jim said about the federal government role. If you go back to around 1980, roughly 72 percent of college costs could be covered by the Pell grant program from the federal government.

Today if you get the maximum Pell grant, it only covers about 30 percent. So it's a very different look at higher education, a very different level of support from the federal government. That's sort of one of the major issues that has brought us to the place that we are today.

Yeager: We're in a place where -- you just mentioned the Pell grant level, but it appears that the expense that it takes to go to college rises but the income this we're making when we graduate or those graduates get out of college is not quite going at the same rate. So it appears we're on a cycle that we're not going to be able to turn around. Why is student debt higher in Iowa? We talk about that but college costs rising faster than our income. Do we change that by encouraging citizens to go into jobs that are going to pay us more?

Sumner: Well, Dave may have some great comments on this as well. But one of the things that I think I need to interject coming from the independent college side is that one of the reasons that public universities cost a lot in the state of Iowa is that they are great universities. I compare them to my home state.

I moved here just seven and a half years ago from Oregon. Oregon has a good public university system. It doesn't hold a candle to the public university system here. So to a certain extent Iowans are paying more -- conceivably, I don't even know if that's true -- but they are getting a very terrific product for those expenses.

Miles: First of all, I want to thank Jim for his comments. I certainly think very highly of Grinnell as well and all the independent colleges and universities in Iowa. We have a great higher education system statewide, independent and public both.

I would say one of the other elements that has been a real challenge for the public universities certainly is the reduction in funding from state appropriations. First of all, I'd like to thank both the Governor and this legislature for the great turnaround that they brought about in the last legislative session. And we’re very hopeful about the condition of the state message tomorrow and what the legislature will do this year.

But if you look roughly nine years ago, the state contribution to the Regents institutions was almost exactly where it is right now -- where it was in 2007. It's up 3 percent over nine years. In order to provide the kind of service and the quality of education that we want to provide in an environment where costs keep going up, tuition at the Regents institutions has essentially doubled in that same time period. So the gap has had to be made by tuition.

Now, tuition for the public institutions is still a great bargain. We average about, tuition and fees, just over $6,000. Across the nation public universities average about $6,600. And for UNI, Iowa State, and Iowa, they're still all below median for their peer groups, so it's still a good bargain. But that much of a change that quickly has led to higher student debt, and that's something that we're concerned about.

Yeager: So what are the schools doing to try to help those students who are kind of stuck here, that have got kids that have gone through schools the last few years? What can a university or a college do to help those students?

Sumner: Well, I think there's one definition that's important to understand, and that is the difference between price and cost. At Grinnell College, the student pays the full cost of our tuition and fees. That's about 30 percent of what we’re expending.

For the public universities, the picture isn’t much different. So students who come and pay everything should realize they’re getting an enormous hidden scholarship provided, in Grinnell’s case, by donors and endowment and so forth. In the case of the public institutions, largely the taxpayer is providing that terrific subsidy.

One of the things that we've done at Grinnell to try to and make things work better, we've introduced a firm cap on borrowing. So beginning this fall, a student who chooses to come to Grinnell College will have their debt capped at $12,000 over the course of four years.

Yeager: Over the course of four years, not just each year.

Sumner: Over course of four years. And Grinnell is in an unusual situation in terms of its large endowment, and we can certainly afford to arrange for all needy students to have no debt. We think having some investment on the part of the student is a good idea.

So we like the idea that our students work full time in the summer. We like the fact that they work part time during the school year, and we like the fact that they're willing to borrow. We're going to phase that down. We're going to go from $12,000 to $10,000 to $8,000 and then leave it at $8,000. But we think investing generally in one's education is a very good idea.

Yeager: So the school sees a little bit of debt as a good thing to say, if I just get everything paid for, well, I'm not going to go to class, I'm not going to study. It's paid for; I'm going to take it for granted. So you're trying to instill --

Sumner: That's exactly right.

Yeager: How common is that in institutions?

Sumner: Well, it's becoming more common. This is the first time it's happened in Iowa, but it is definitely springing up across the country. I don't necessarily think this is a problem in Iowa, because the work ethic here is so strong.

But last year when I was reading applications to Grinnell College, one period of time I read over a hundred straight applications of applicants who had never worked a day in their life. These were students who were applying for admission and applying for financial aid, but they hadn't worked summers.

I think we've gotten to the point where it's great that the student spends two weeks in France and the summer perfecting their French and that they go to three soccer camps, but the notion of actually getting a job and working 40 or more hours a week throughout the summer can make a significant dent in the cost of higher education, plus learning all the other things that we know get learned when you have a good job.

Yeager: And it's actually -- we do have a graphic that's going to show -- it used to be some parents could say, well, when I was in school, I paid for all of my education by working through the school. And you can see that that's the bottom line. That's the green line. That's below 10 percent.

Sumner: And it's actually declined.

Yeager: And the loans and the scholarships and grants are way above that. What kind of a job, David, could you get in a summer to pay for a year --

Miles: Well, I think that's exactly it. And while there are students certainly that may not have that work experience, the data that I've seen suggests that 75 percent of our students work. I shouldn't say our students because that's not the Regents institutions, that's nationwide. On average they're working 25 hours a week.

Well, to me, while contributing to your education is important, and doing that by doing some work study -- and certainly working on campus is much better than working off campus -- 25 hours a week is a tremendous work load to then try to focus on what you're really there for, which is your classwork and graduating from the university with a great experience and learning what you're there to learn.

So I don't think by and large we have an issue of students contributing. I think we're asking students to contribute far more today than we asked them ten years, twenty years, thirty years ago. And we need to find a way particularly for those neediest students -- and again, I applaud the efforts of Grinnell to cap the overall debt. We need to find ways to do so that.

Basically, I think we need to find ways to increase the grant portion of the financial aid that we provide for those neediest students and reduce the loan portion. And that's been the big change over the last few years.

Yeager: So what has to change to make that happen? Do you have to lobby on a federal level? Do you have more private institutions – private businesses to get involved to fund college students, or how do you change that cycle?

Miles: Well, first of all, you have to start with a real commitment to control costs. We're very pleased that last year with the funding that we were able to receive from the legislature and the governor that we passed the lowest tuition increase in 27 years for the Regents institutions. So you need to do everything that you can in order to keep those tuition increases low.

Yeager: What we're seeing here is that it's been a 989-percent increase for private loans, and that's a little different thing. But the smaller number is there, but it’s still part of the way to pay for college.

Miles: But it certainly relates. And I think it relates in two ways. One, the Pell grants, which we talked about, have been capped and so there hasn’t been enough aid there.

The second is that states, as they've gone through difficult times in the late '90s and the early 2000s, often higher education has been the balancing wheel of the state budget. If there was money there, then the education needs were fully funded. If it wasn't -- and this is certainly very true in Iowa -- then it was not fully funded. When it wasn't fully funded, what needed to step in, loans. So that's part of the growth in private loans has come from that very strong need.

Yeager: We talk about employment. We talk about jobs. There's social work colleges that focus on that that don't pay well. There's teachers that don't pay as well as maybe a computer programmer. How do you stop that? I mean, it's an economic tool.

It's almost like what Davenport was talking about. They think if they can keep people or at least get them to come back, their salaries, their education level will help the community. How do you keep people from saying I have $40,000 in loans. I have to go get a job that pays very well. How do you get them --

Sumner: It's hard to do that. I do want to back up for just a second. On the work issue I do want to draw a distinction because I think Dave has made a very important point, and that is too many students are working too much during the school year. So I endorse the notion of 40, 50, 60 hours a week in the summer.

But we're like a lot of colleges. We've got some evidence that working about ten hours a week actually enhances a student's academic performance. Twenty hours doesn't, five hours doesn't, but there’s a ten-to-twelve-hour balance. So I do want to draw that distinction between summer work.

The other thing I think that every college has to ask themselves is that about twenty years ago most colleges, especially independent colleges, were meeting the full need of every student and not doing much in the way of academic merit scholarships. As academic merit scholarships have increased, both in public and private sector, that’s taken dollars that might have gone to needy students and given it to great students.

I think the question each college has to ask themselves, each college and university, is if mom is a lawyer and dad is a doctor and they have one child and they've got a second home at Lake Okoboji and their child is the valedictorian, should Grinnell College, should Wartburg College, should the University of Iowa give that student academic merit scholarship knowing that by doing so you will not be able to as adequately address the needs of a needier student?

Now, at Grinnell, again because of the unusual endowment, we're able to do both, big merit scholarship program for top scholars and meet the full need of every single admitted student, but not very many places can do that.

Yeager: Very quickly. We've got thirty seconds, and I've got to get you both in.

Sumner: I do think there's a great question. We want that student to have a small enough debt so if they want to be the third assistant curator at the Iowa historical society as opposed to being an investment banker on wall street, they should have the opportunity to do that.

Yeager: Same thing, David, would you agree?

Miles: Yes. Large student debt or even the prospect of large student debt changes choices. It changes choices whether to go to college. Tie changes choices as to what major to pursue. It changes choices as to where to go and for what sort of jobs. I think that influence is not positive. We need people to be thinking about what it is that they’re passionate about in their lives, what they want to pursue, and feel comfortable to pursue that.

Yeager: Gentlemen, as always, Jim Sumner from Grinnell, David Miles from the Board of Regents, thank you very much. That does wrap up this edition.

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