Category Archive for: Education [Return to Main]

Wednesday, January 04, 2017

The Department of Education’s Power to Cancel Student Debt

Luke Herrine at RegBlog:

The Department of Education’s Power to Cancel Student Debt: Something has to give on student loans. The $1.4 trillion in outstanding student loan debt has weakened the macroeconomy and has become a form of regressive taxation. In the process, an increasing number of individuals have had to defer starting a family, accept jobs that they do not want, and endure the significant psychological and physical burdens of heavy indebtedness.
Although there has been plenty of discussion surrounding these issues, with a specific focus on student loan interest rates and income-based repayment plans, little has been said about the U.S. Department of Education’s broad powers to outright cancel existing student loans. This series of four essays will discuss the most important of those powers, and why the Department’s authority has not been frequently discussed—much less invoked by the agency.
These issues will be examined through the lens of for-profit college students’ demands that the Department cancel their debts under a law mandating discharges in the case of school fraud. The essays in this series will reveal that despite the breadth of the Department’s debt-cancellation powers to discharge these debts, the Department has failed to employ its powers to their fullest extent—to the detriment of the many students who had been defrauded by their former institutions.
This is a problem, as the essays will explore, that largely stems from the fact that the Department views maximizing collection as its primary responsibility with respect to student debt. Accordingly, the Department has relied on questionable arguments about the limits of the Department’s powers, while pointing the finger at a dysfunctional Congress instead of acknowledging its responsibility to students—enabling the Obama Administration to maintain its image of cracking down on these for-profit schools and protecting defrauded students, while still fulfilling its budgetary prerogative.
After analyzing this saga, this series will conclude by addressing the Department’s broadest power: its discretionary compromise and settlement authority, which, if fully invoked—as it should be—could be used to discharge all outstanding student loans under the right political circumstances. The tremendous potential of this authority can only be implemented, however, if we reconsider the obligations of education officials to student debtors and vice versa. ...

Trump University comes to mind.

Tuesday, September 27, 2016

Why Study Economics?

Stanley Fischer:

Why Study Economics?: I am very pleased to visit today with the students and faculty of the Howard University Economics Department. First, a fact that you know but others may not: The Howard University Economics Department is the only producer of economics Ph.D.'s among the nation's historically black colleges and universities, and it has been teaching economics to undergraduates for nearly a century.1
Speaking as one economist to a group among whom I hope will be many future economists, let me start by saying that pursuing a degree in economics can bring many rewards. First, an economics degree provides many possible career paths. The discipline's logical, structured approach to problem solving is valued in many settings, including academia, banking, business, consulting, government, and law. Economics majors typically receive salaries that represent a good return on their educational investment. Second, in addition to career prospects and financial rewards, economics offers a means of engaging in many of society's most pressing issues. The study of economics provides a rigorous, analytic perspective on human behavior. It commands respect and has the ability to influence policies that address important issues. A degree in economics will help you understand and participate in these policy debates, putting you in a good position to change the world for the better.
Next, I would like to discuss two current questions that economists are actively debating: First, why is participation in our nation's labor force declining? And, second, what can be done to improve economic mobility (the ability to climb the economic ladder) for children from all groups and from all areas of the country? By doing so, I hope to illustrate the relevance of economics to important, real-life issues.
The proportion of adults participating in the labor force--that is, either holding jobs or actively searching for employment--has declined substantially over the past decade. The decline has reflected, in part, the severe economic recession. Millions of people lost their jobs, and many of them experienced great difficulty finding new employment. Some of these people became discouraged and stopped looking for work. In other words, they dropped out of the labor force. However, much of the decline in labor force participation reflects factors that precede the recession.2 Most significantly, our population is aging, and older people participate in the labor market at lower rates than younger adults. In addition, the labor force participation of prime-age males--that is, individuals aged 25 through 54--has been declining since the mid-1960s, particularly among those with only a high school degree or less education, and has continued to decline in the years since the last recession.
Economists are examining a number of reasons why prime-age males are falling out of the labor force. Here there are differences among economists. Some economists have emphasized the role of public assistance programs, such as disability insurance. Some evidence suggests that public assistance income has likely played a role. Other economists have put more emphasis on the effects of the reduction over time in the demand for lower-skilled labor.3 Indeed, the wages of high school graduates have fallen sharply in comparison with the wages of college graduates over the past 40 years. Many economists believe that the decline in demand for lower-skilled workers reflects technological changes.4 For instance, the introduction of information technology such as desktop computers may have boosted the wages of highly skilled workers by more than the wages of workers with fewer skills. The slump in demand for lower-skilled labor likely also reflects the effects of globalization, including competition from goods produced and imported from abroad.5
My second current question concerns economic mobility: How likely is a child from a low-income family to move up to a higher income level as an adult? Over the past few years, economists have made important findings using newly available data. First, economic mobility varies substantially across the United States. For example, the odds of a child from the bottom quintile of the income distribution reaching the top quintile of income as an adult are 11 percent here in the Washington, D.C., area but only 4 percent in the Charlotte, North Carolina, region. Second, mobility is significantly lower in areas with greater residential segregation in terms of both race and income. Mobility is also lower in areas with greater income inequality, less family stability, and lower-quality schools.6 However, we need further study and analysis to understand whether these factors cause lower mobility or are merely correlated with it. Thus, despite the gains in our knowledge in recent years, significant gaps remain in our understanding of what factors help and hinder economic mobility.
I will conclude by discussing diversity in the economics profession. Our profession currently is not very diverse, but it needs to be. Only about one-fourth of tenured and tenure-track faculty members in U.S. academic economics departments are women, and only around 5 percent are African American or Hispanic. Yet research conducted by economists as well as other social scientists suggests that a diversity of perspectives and ideas lead to better decisions and increased productivity.7 In my own experience, economic policy decisions are better when informed by a wide range of views and experiences. You all here today are crucial to the future of our profession.
Indeed, I hope that by obtaining your degrees and working on economic problems, you will help change the field of economics itself. As in many other fields, economics undergoes continual redesign by its practitioners. We need--and by that I mean society as a whole needs--a more diverse set of practitioners in economics, practitioners who may perceive different questions to be important and different answers to be more persuasive. And so, by joining the profession you can acquire the power to change not only the field, but also the broad set of societal institutions that are influenced by the work of economists.
Economists tend to respond to the results of research. And the research shows the importance of diversity in decisionmaking. As a result, many organizations are working very seriously to become more diverse. At the Federal Reserve Board, these efforts include developing connections with the Economics Department here at Howard. Our economists have recently served as visiting faculty at Howard or have given guest lectures here. During the past spring semester, Board economists served as mentors to Howard master's degree and Ph.D. students. This fall, we are offering a class on statistical programming methods through the university. On October 25th, we will host an open house with the undergraduate economics association here at Howard for students who are interested in learning more about the Federal Reserve. I encourage you to attend. I would also like to make you aware that the Board offers internships to qualified students, including Howard students studying economics. Moreover, the Federal Reserve Board's Office of Diversity and Inclusion is coordinating an effort to increase the diversity of our staff.8 Everyone at the Board with responsibility for recruiting, hiring, management, and promotion is involved. But I want to emphasize that these are steps on what will be a long road.
Finally, Board economists are also working to increase our understanding of the diverse economic experiences of different groups in the economy. For example, staff economists have recently been examining the disparities in wealth across families using our Survey of Consumer Finances. Wealth is an important measure of household well-being; it can be used to start a new business, cover expenses when household income unexpectedly falls, and provide an inheritance to children--all factors that influence opportunities for economic advancement. One study finds that factors such as educational attainment and inheritances almost entirely explain the gap between the wealth of white families and that of Hispanic families. Although these factors also explain most of the gap in wealth between white families and black families, a substantial portion of this gap cannot be explained by such factors.9 Additional research is required to fully explain the difference in wealth across white and African American households.
Thank you for inviting me to speak to you. It would be great to see some of you who are here today going on to influence the direction of the country on any number of issues. To put it in a nutshell, I firmly believe that a degree in economics will equip you for a personally productive and rewarding career, will position you to help make progress on some of society's toughest issues, and will change the field of economics itself.
Thank you for listening--and may you all both enjoy and succeed in your future careers, especially in economics.
1. I am grateful to Andrew Cohen and Byron Lutz of the Federal Reserve Board staff for their assistance. Views expressed are mine and are not necessarily those of the Federal Reserve Board or the Federal Open Market Committee.
2. See Stephanie Aaronson, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher Smith, and William Wascher (2014), "Labor Force Participation: Recent Developments and Future Prospects (PDF) ," Brookings Papers on Economic Activity (Fall), pp. 197-255.
3. See John Bound, Stephan Lindner, and Timothy Waidmann (2014), "Reconciling Findings on the Employment Effect of Disability Insurance ," IZA Journal of Labor Policy, vol. 3 (11), pp. 1-23. For an opposing view that concludes that disability insurance has significantly suppressed the labor force participation of the less skilled, see David H. Autor and Mark G. Duggan (2003), "The Rise in the Disability Rolls and the Decline in Unemployment," Quarterly Journal of Economics, vol. 118 (February), pp. 157-205.
4. See Daron Acemoglu (2002), "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, vol. 40 (March), pp. 7-72.
5. See David H. Autor, David Dorn, and Gordon H. Hanson (2013), "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, vol. 103 (October), pp. 2121-68.
6. See Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez (2014), "Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States ," Quarterly Journal of Economics, vol. 129 (November), pp. 1553-1623.
7. See, for example, Amanda Bayer and Cecilia Elena Rouse (forthcoming), "Diversity in the Economics Profession: A New Attack on an Old Problem," Journal of Economic Perspectives.
8. See Board of Governors of the Federal Reserve System (2015), Report to the Congress on the Office of Minority and Women Inclusion (PDF) (Washington: Board of Governors, March).
9. See Jeffrey P. Thompson and Gustavo A. Suarez (2015), "Exploring the Racial Wealth Gap Using the Survey of Consumer Finances (PDF)," Finance and Economics Discussion Series 2015-076 (Washington: Board of Governors of the Federal Reserve System, September).

Thursday, May 26, 2016

On Negative Effects of Vouchers

From the Brookings Institution:

On negative effects of vouchers, by Mark Dynarski: Executive summary Recent research on statewide voucher programs in Louisiana and Indiana has found that public school students that received vouchers to attend private schools subsequently scored lower on reading and math tests compared to similar students that remained in public schools. The magnitudes of the negative impacts were large. These studies used rigorous research designs that allow for strong causal conclusions. And they showed that the results were not explained by the particular tests that were used or the possibility that students receiving vouchers transferred out of above-average public schools.
Another explanation is that our historical understanding of the superior performance of private schools is no longer accurate. Since the nineties, public schools have been under heavy pressure to improve test scores. Private schools were exempt from these accountability requirements. A recent study showed that public schools closed the score gap with private schools. That study did not look specifically at Louisiana and Indiana, but trends in scores on the National Assessment of Educational Progress for public school students in those states are similar to national trends.
In education as in medicine, ‘first, do no harm’ is a powerful guiding principle. A case to use taxpayer funds to send children of low-income parents to private schools is based on an expectation that the outcome will be positive. These recent findings point in the other direction. More needs to be known about long-term outcomes from these recently implemented voucher programs to make the case that they are a good investment of public funds. As well, we need to know if private schools would up their game in a scenario in which their performance with voucher students is reported publicly and subject to both regulatory and market accountability. ...

Thursday, March 17, 2016

'Throwing Money at the Problem' May Actually Work in Education

Bridget Ansel at Equitable Growth:

“Throwing money at the problem” may actually work in education: When it comes to tackling the United States’ large and growing achievement gap between high- and low-income children, today’s education policy entrepreneurs have increasingly adopted an accountability-and-evaluation mindset. Well-known policies including No Child Left Behind, Common Core standards, Race to the Top, and charter schools all stem from the conventional wisdom that we can’t just “throw money at the problem.”
But in the case of our national education policy, does this conventional wisdom hold true? Maybe not. New research by Julien Lafortune and Jesse Rothstein of the University of California, Berkeley, and Diane Whitmore Schanzenbach of Northwestern University finds that an increase in relative funding for low-income school districts actually has a profound effect on the achievement of students in those districts. ...
 LaFortune, Rothstein, and Schanzenbach find that ... increasing funding per pupil by about $1,000 raises test scores by 0.16 standard deviations—roughly twice the impact as investing the same amount in reduced class sizes (according to data from Project STAR, a highly acclaimed study of Tennessee schools in the 1980s). ...

Friday, March 11, 2016

'Spending on Public Higher Education Overlooks Net Benefits as Investment in State's Future'

Whether or not the estimates are precise or directly applicable to other states, the broader point is noteworthy:

Spending on public higher education overlooks net benefits as investment in state's future, Eurekalert!: ... the state of Illinois continues to underinvest in public higher education. But considering higher education funding as an investment that lowers state welfare and prison costs, generates tax revenues and leads to economic growth in the future -- and not as mere consumption spending -- could reframe the debate, according to an article by ... Walter W. McMahon, an emeritus professor of economics and of educational organization and leadership at the University of Illinois. ...
Published in the Journal of Education Finance, the article develops the total return of public education relative to the full costs to the state of Illinois, the key criteria for determining whether there is under- or over-investment for the most efficient statewide development.
McMahon concluded that public education in Illinois contributes to investment returns of 9.5 percent for K-12; 15.3 percent for community college; and 13.4 percent for university, respectively, for every dollar that's spent -- returns that are well above the 7.2 percent the money would have earned if invested in an index fund that tracked returns of the S&P 500, McMahon noted.
(Updated calculations based on the newest earnings data at each education level, corrected for dropouts and other factors, show returns relative to costs of 12.9 percent at two-year institutions and 12.3 percent at the four-year institutions.)
"These earnings-based and total social rates of return both show that higher education is economically very efficient - in fact, more efficient than the average corporation in the S&P 500," McMahon said.
This measure of efficiency trumps any possible overspending on administrative costs cited by critics...
"All told, the state of Illinois' education investment pays for itself every 2.3 years in state budget savings alone."
The return to the state is considerably larger if nonmonetary outcomes are considered.
"A major opportunity being missed is estimating the effects of higher education on state tax revenues and on budgeted state tax costs for health care, welfare, child support and the criminal justice system," McMahon said. "Beyond these state budget savings, I also found about a 30 percent total return that includes these wider health and other benefits to statewide development." ...

Friday, November 27, 2015

'Student Debt in America: Lend With a Smile, Collect With a Fist'

On student loans:

Student Debt in America: Lend With a Smile, Collect With a Fist: ... Borrowing is risky, financial decisions are not always rational, and people often do a poor job of properly weighing the interests of their present and future selves.
The private enterprise system is built to limit overborrowing by sharing risk between lenders and borrowers. ... They charge more interest when they take on more risk. Because most loans can be discharged in bankruptcy, lenders share the cost of default. ...
But the federal student loan program doesn’t work that way. Those ads that run on bus stop signs and on late-night television — “No Cash? No Credit? No Problem!” — are essentially the Department of Education’s official policy on student loans.
On the front end, the department is the world’s nicest, most accommodating lender. Interest rates ... are lower than banks charge... Borrowing for college is essentially an entitlement...
When the loan bill finally comes due, the federal government transforms into a heartless loan collector. You don’t need burly men with brass knuckles to enforce debts when you have the Internal Revenue Service..., which can and will follow you as long as you live.
The government acts this way because the federal student loan program has been removed from the norms and values of prudent lending. Because the Department of Education doesn’t consider risk, it takes no responsibility. If life, luck and bad choices leave you ... in the hole, it’s all on you. ...
Most college students ... pay back their loans and enjoy the fruits of their degrees. But most pack-a-day smokers don’t die of lung cancer. And most people who bought cars with Takata airbags from 2002 to 2008 weren’t killed by shrapnel from explosions. Nevertheless, we still regard small risks of catastrophic outcomes as problems to be solved. ...

Just one quick comment. We need to solve the student loan problem for existing loans, but I wish talk about how to address this problem going forward was more about how to provide adequate funding for colleges so that large loans aren't needed in the first place rather than focusing on how to change the loan program itself.

Friday, October 16, 2015

The Financial Crisis: Lessons for the Next One

Alan S. Blinder and Mark Zandi:

The Financial Crisis: Lessons for the Next One: The massive and multifaceted policy responses to the financial crisis and Great Recession -- ranging from traditional fiscal stimulus to tools that policymakers invented on the fly -- dramatically reduced the severity and length of the meltdown that began in 2008; its effects on jobs, unemployment, and budget deficits; and its lasting impact on today's economy.

Without the policy responses of late 2008 and early 2009, we estimate that:

  • The peak-to-trough decline in real gross domestic product (GDP), which was barely over 4%, would have been close to a stunning 14%;
  • The economy would have contracted for more than three years, more than twice as long as it did;
  • More than 17 million jobs would have been lost, about twice the actual number.
  • Unemployment would have peaked at just under 16%, rather than the actual 10%;
  • The budget deficit would have grown to more than 20 percent of GDP, about double its actual peak of 10 percent, topping off at $2.8 trillion in fiscal 2011.
  • Today's economy might be far weaker than it is -- with real GDP in the second quarter of 2015 about $800 billion lower than its actual level, 3.6 million fewer jobs, and unemployment at a still-dizzying 7.6%.

We estimate that, due to the fiscal and financial responses of policymakers (the latter of which includes the Federal Reserve), real GDP was 16.3% higher in 2011 than it would have been. Unemployment was almost seven percentage points lower that year than it would have been, with about 10 million more jobs.

To be sure, while some aspects of the policy responses worked splendidly, others fell far short of hopes. Many policy responses were controversial at the time and remain so in retrospect. Indeed, certain financial responses were deeply unpopular, like the bank bailouts in the Troubled Asset Relief Program (TARP). Nevertheless, these unpopular responses had a larger combined impact on growth and jobs than the fiscal interventions. All told, the policy responses -- the 2009 Recovery Act, financial interventions, Federal Reserve initiatives, auto rescue, and more -- were a resounding success.

Our findings have important implications for how policymakers should respond to the next financial crisis, which will inevitably occur at some point because crises are an inherent part of our financial system. As explained in greater detail in Section 5:

  • It is essential that policymakers employ "macroprudential tools" (oversight of financial markets) before the next financial crisis to avoid or minimize asset bubbles and the increased leverage that are the fodder of financial catastrophes.
  • When financial panics do come, regulators should be as consistent as possible in their responses to troubled financial institutions, ensuring that creditors know where their investments stand and thus don't run to dump them when good times give way to bad.
  • Policymakers should not respond to every financial event, but they should respond aggressively to potential crises -- and the greater the uncertainty, the more policymakers should err on the side of a bigger response.
  • Policymakers should recognize that the first step in fighting a crisis is to stabilize the financial system because without credit, the real economy will suffocate regardless of almost any other policy response.
  • To minimize moral hazard, bailouts of companies should be avoided. If they are unavoidable, shareholders should take whatever losses the market doles out and creditors should be heavily penalized. Furthermore, taxpayers should ultimately be made financially whole and better communication with the public should be considered an integral part of any bailout operation.
  • Because fiscal and monetary policy interactions are large, policymakers should use a "two-handed" approach (monetary and fiscal) to fight recessions -- and, if possible, they should select specific monetary and fiscal tools that reinforce each other.
  • Because conventional monetary policy -- e.g., lowering the overnight interest rate -- may be insufficient to forestall or cure a severe recession, policymakers should be open to supplementing conventional monetary policy with unconventional monetary policies, such as the Federal Reserve's quantitative easing (QE) program of large-scale financial asset purchases, especially once short-term nominal interest rates approach zero.
  • Discretionary fiscal policy, which has been a standard way to fight recessions since the Great Depression, remains an effective way to do so, and the size of the stimulus should be proportionate to the magnitude of the expected decline in economic activity.
  • Policymakers should not move fiscal policy from stimulus to austerity until the financial system is clearly stable and the economy is enjoying self-sustaining growth.

The worldwide financial crisis and global recession of 2007-2009 were the worst since the 1930s. With luck, we will not see their likes again for many decades. But we will see a variety of financial crises and recessions, and we should be better prepared for them than we were in 2007. That's why we examined the policy responses to this most recent crisis closely, and why we wrote this paper.

We provide details of the methods we used to generate the findings summarized above....

Saturday, October 03, 2015

Where Have all the Teachers Gone?

The people who say "think of the children!" when stoking unfounded fears about the debt seem to have no problem with this. Maybe the children aren't really their main concern:


Wednesday, September 30, 2015

'Are American Schools Making Inequality Worse?'

Education is not the only cause of inequality, but it's part of the problem:

Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.
Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.
Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...
"Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."
In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...
"Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."
Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.