[inaudible conversation] good afternoon. Thank you, ladies and gentlemen forks turning out on a cold, late fall day. I can i sure you its going to be worth your time im ben desalvo, an associate professor of Political Science at city college of new york and its any pleasure to introduce our speaker, beth akers. Id like to welcome beth to Manhattan Institute where she has recently become a fellow. Prior to joinings she was a fell lee at the Brookings Institution center on children and families, and before that she was a staff economist at the president s council of economic adviser, and worked extensively on Higher Education policy. Second id like to welcome beth back to new york. Beth received her ph. D in math and excuse me are ba in mag and economics and her ph. D in economics from columbia university. Beg is here to talk about her guantanamo low game of loans rhetoric and reality of student debt published by Princeton University press and written with Matthew Chingo of the urban institute. She is going to fight right in at the Manhattan Institute where they lyle to debunk poorly argued narratives in the press and public debate, beths book just does that. A timely corrective to wildly exaggerated student debt crisis they pressure cystness the media. Her thesis is that theres no broadbased student loan crisis that the New York Times and others would have us believe. And she makes a powerful datadriven case that i think while also giving the read are broad and full accounting of the Higher Education finance and how it works. In light of beths analysis, i think its safe to say that Hillary ClintonBernie Sander proposal to make college free is an indulgence solutioning look for for a problem bell bes book will be of enorm now val few universitied a administrators college and graduate students and concerned taxpayers and citizens because it complaints things explains things simply and clearly, even if theres things not everyone want to hear. Take my own case inch our culture today obsessed with selfesteem no one likes to be told theyre average. Well, from reading beths book i learned that, well, was average. Like other Prospective Students i made a decision to invest in my own future and took out what turned out to be a i learn now in retrospect the average minnesota of Students Loan to tapped a liberal arts college not a 1990s if had little sense of how much i borrowed at the time or from whom. Then that woman, sal are me a, started sending me these sally mae started sending me letters but i also had little rickty difficulty paying back the loans because it was daunting. So much for the media narrative that all borrowers are in deep trouble. Leonard another hard truth, when it came to graduate school i lander i was in fact, well, below average. Taking i was below below average in the amount of tike too completely ph. D. Being blow average below average is a being this and bass becausing a beth shows one of the most disturbing elements of the world of Higher Education debt is the amount that is taken out by graduate students. So, look, i could go on about the virtues of beths book, which many, but let me end by encouraging all you to pick up a couple of the book staned. Gather theyre for sale outside and ifow pick one up there asuggest amazon or the equivalent online and i think theres a lot to chew on in the book. Without further adieu let me welcome beth akers, beth. [applause] there,. Well, thank you, dan, very much for the generous introduction. Im thrilled to be here, meaning here at the Manhattan Institute and part hover this great organization, but also here today to be able to put some of my ideas intoure ear hope they stick. So thank you so much for giving me the opportunity to speak with you today. So, it sounds like you already heard what the book is about butll give you detail and kind of sell you on my arguments here. I think you took the first page of my notes. I did. I was going to say thats not the first idea i wanted to talk about. So i think its help inflame talking about the become book to start before the book started and give you a sense why i wrote the book, why i embarked on the agenda of research in the first place. Joined the think Tank Community five years ago i idea had just finerned graduate school and was studying economics in a athlete resident cal department. So i theoretical department. I had reported call me and i has to answer their questions. One question i found i was asked almost daily through that process was, is a student loan crisis on the horizon . As i just said i had come out of graduate school so i was familiar with the academic literature on the financial returns to investments education. Somewhats interest familiar with the headlines that were pervasive on the issue of student debt but it wasnting a obvious to me why the media was really sob obsess witness the about the a student loan cries. We were just a fewyearold out from the Mortgage Loan crisis and people were drawing parallels between walt keep and he mortgage crisis. I was imagining a Higher Education in the lens of it was an investment that pays off over the course of lifetime. The estimates we have from the academic literature suggest if you think of education that would ask aggregate across thesterrents american have had over History Organization the past decade the financial returns of this investment have held steady at 15 . So, a 15 rate of return and a i new full we the government was sucks subsidizes loans. Think of it in the lens of a long Term Investment that pays off over the course of lifetime you have students making an investment with a pretty decent margin of return, at least nor typical borrower. There was automobile dissidence the way people were talking about the issue and the evidence that we had to support the conversation. So this really inspired know embark on this agenda of rye search aimed at one wreck don siling this dissidence i saw but also just giving more descriptive evidence to what was happening in the student loan marked more generally. So, what does it look like . Just so a bit of an overview. The first thing we know that more people are borrowing today than have ever borrowed in past. Some of to the post recent data tells us among young how would hosts 40 are hold something form of Student Loan Debt and thats up grass doctors drastically if some poem are borrowing more so during the same period of time that over the past 20 years, the average debt has more than tripled for the same young hold households and the statistic we have auld heard more and over and over is those two things have amended to an outstanding student debtber foe nation is 1. 3 trillion doesi say lets consider applying a different lens to this. If we think of investments in education as paying off over the course of a lifetime we can think of increase inside debt as a symptom of increased investment in education which we know pays disdids to the individual dividends to the individual and society elm one at that time be 1. 3 trillion in student loan dead debt be with may doc at the time increase inside gdp from the increased productivity of the invelocity of human capital. This is the right way to be thinking about investments in Higher Education can and the rit way to think about what should be done, if anything, be Student Lending situation. What else do we snow . Contrast to general understanding, the outstandthe very large outstanding student loan balances are in fact exceedingly rare. Only person two percent of house holdded have more than 100,000 in Student Loan Debt and the large balances are held by the folk whose have very lucrative graduate and professional dealing and high incomes. Ours there individuals who do not have high earning who have high income but this this trend in the data. Month bachelor dry holier less than 40,000 the norm and greater than 60,000 its largely unheard of for jihad who had just obtained a bachelors going. Its easy to why understand why the media has focused on the he balanced borrowers in contrast to the typical experiences. I imagine what the headline would look like if the storys, a curely rotation what is happen and it would look something lying student borrow are getting wellpaying job after college and faces affordable Monthly Payments. It sounds a it by like an onion article headline. The probe his thats truth is not as catchy of a headline, and weve been age to quantity thigh, in 2014 someone dade study looking at the popular Media Coverage of student dead. That look at 100 recent articles of debt all of which profiled four individuals and the individuals was in question of 85,000 which i three times the actual average for borrows. So if your getting your information about what student borrowing looks like from the newspaper articles youre going have an inappropriate understanding of the issue. So, burdening are not as large as we imagine them to be but the question is are the squeeze are borrowers. This is an important question for us to dig in into empire a include, to get an understanding are what this looks like. If we leak dat the average Monthly Payment a borrower is facing is under 300. That amounts to seven percent of the inning and the median is lower, four percent. So the mobil squeeze of these debts hat declined or held steady, so this is actually an incredible finding. Its largely in contrast to what most people believe to be happening in the space. Thinking nor getting worse at least monthly. Dramatically different from the conclusion we would have drawn prior to the research. The other thing uncovered is that the struggling borrow ares nor who you think they are. The newspapers colorful the story that cover the storied that are he the balance were rows and the highest rates of default are month borrows who have more than 5,000 in debt. Miami who havelets of date heed have big we know the payoff with large dividends so the problem is not where we believe it to be. So, generally speaking, i draw the conclusion that in fact we do not have a crisis in Student Lending in this country, at least know not crisis that phonings have been talking about. It is the people have made the investments in education but do not see those returns that ive been talking about repeatedly. There are people who are upside down on their Student Loans. So where these crisis is coming from, we have a huge issue with college completion, people who who have invested in their degree but do not see the dude dividends to that degree and have gained access to employment opportunities. Among quotes who started college in 2009 only half were able to obtain a degree in six years. A lot of people spend money noncollege but not getting the returns because they dont get that diploma into their hands. We also have a repayment crisis in the country. So we have a set of repayment plans that offer robust safety net for borrowers. They ensure a borrower should not face a high Monthly Payment. It is incredibly complex and individuals have a difficult time accessing benefits currently available to them. As a result we have millions of people in this country in default in their Student Loans despite the safety net that exists. We also have an information crisis. We expect in this country consumers to make savvy choices into costbenefit analysis. But with their dollars and go to institutions that will pay off. Unfortunately we dont give them that information necessary. The government is withholding information on financial return to every institution in this country. Because lack of Data Availability consumers cannot use this to assess the options. We know information problems exist after students enroll with the borrowing issue. In survey data we know if you ask people enrolled in school how much theyre paying to be enrolled only about half can tell you within a reasonable margin of error. If you asked them how much they borrowed only about one third can tell you within a reasonable margin of air. Other people we know that are borrowing the survey, 20 will tell you to have no debt at all. These are concerning facts, especially if we wish for Higher Education system to look like a market. We know market cannot exist if consumers are not operating with information. Some have criticized the narrative of this book and said if you believe there crisis or issues to be addressed in Higher Education space why b dismisses of an ocean of crisis. Its bringing attention to this issue that needs reform. The argument is that mischaracterizing the problem that exists will lead us to the wrong solution. And solutions that dont provide relief to people who need them the most. One of the most prominent policy reforms that have been discussed is refinancing Student Loan Debt. Its reducing the Interest Rates on outstanding bottom of debt that folks are holding. Sounds like a great idea off the bat providing relief to people who are struggling the most. If you take a second look we know the borrowers who have the most debt are the most well off, at least on average. The positive relationship between income and debt means this is a largely regressive policy. It does not succeed in helping people who are struggling with those debts. In general general the popular discourse on this issue is missing the necessary nuance that is needed to create reasonable and appropriate policy. We are missing the point that not all debt is bad debt. At which a borrower ends up upside down is concerning. Debt which enables and individual to make an investment that will pay off over the course of their lifetime is not. In order to characterize over think about the conversation needs to shift away from the number of dollars that people are borrowing for tuition and rather than notion of risk. Investment that amounts to a gamble. Some people will win, some people will lose. Policy should be focused on helping folks that make the gimbal but loose rather than propping up the system. I will stop and open up for questions. [applause] i will help field some questions. Lets start over here. Please wait for the microphone. What are the default rates currently on Student Loans . Thats a difficult question question to answer due to Data Availability. We can measure twoyear and threeyear cohort default rates. Currently we have around 8,000,000 u. S. Borrowers who are are in default on their Student Loans today. Many would be helped if we could shift them into income driven or Payment System which they are eligible for. But this is information barrier people. People are unaware of the benefits available to them. I dont know the total number borrowers off the top of my head. 42 million from the front row. Lets go to the gentleman on the left. Im curious whether you have looked at your data in the context of the majors they take. Increasingly on campus we find majors like media studies, block studies, gender gender studies, and usually the argument you hear is that its one thing to take out a lot of debt if youre in medical school or Computer Science its quite different if youre in a field that does not pay very much and youll never pay it off. So the question is is there any effort to align debts with what they are studying and say like id be happy to pay you but not much sense youre going to be majoring in like media studies. My research has not looked at this but others have. The financial return with different degrees are exactly what you had imagined. The returns are much greater for stem, Engineering Mathematics to folks who do really well who come to a rate of return type measure. The current lending system is inconsistent with the notion that you suggested. We dont have underwriting in the system. The creditworthiness or likelihood of repaying is not a factor. A lot of people argue that cement should be. I would not make that argument. So in the discussion of Higher Education in washington there seems to be at the that we do not want to drive individuals into particular programs of study because well have under subscription and careers that are important for society. And to use that as a rationale for not entering the loans and giving folks equal access to financing regardless of the future ability to pay. I would argue its a disservice to taxpayers because it leads to more defaults than we see otherwise. Also a disservice to the individual borrowers. To not telling individual through any mechanism that in the humanities that theyre likely to earn less and less able to pay their loans and someone whos in a stem field is a disservice and it is shielding people from information they would be better off knowing. Maybe we could. You started off the talk with a statement that i agree with, that loans are an investment to be paid off over the lifetime of the individual. And and then we talked about a 15 return. It might be paid off over the lifetime of the individual, but in actual it has to be paid off within three or five years,. Ten years, so how do you deal with that difference . And tell us about how you got this 15 return on it . Is it the stem or the steve. So the 15 rate of return comes from a study published at the new york fed and is the average across all folks who complete an associates or bachelors degree. Im sorry you it asked two questions but i only answer the second. I guess the the first had to do it either that is it over the lifetime of the individual or loan. The practical constraint means in theory thered like to see the individual being able to pay back the financial obligation over the course of a lifetime. Match the term of the loan to the term of the asset but in practice, the borrowers are defaulted in the federal program into a ten year repayment plan. They can consolidate loans have to have enough into a longer 30 year payment plan and then the income payment plans have people pay back their loans in 20 years. So when we looked at these the way that monthly applications had change over time its because were concerned on thought and theory we were expecting people to pay back over the course of the lifetime. Look at the squeeze that was caused by the mismatch of the term of the asset they had not increased over time and it was a relatively modest burden. I personally would like to see a longer payment time for these loans. I can tell you folks who are participating in the policy discussions from the issue in washington are not keen on this idea. There seems to be a visceral reaction to the idea that someone would pass this obligation over such a long time. I dont think its a theoretical objection i think its more of an emotional objection and behavioral evidence suggests that people make different decisions when theyre carrying tat or have an emotional burden that comes with holding the debt. I think we need to balance those things so how do people perceive these debts. I just have one question, i think we could all agree that there are series of crises going on and underline issues that are under the rug because everybody is at the idea that just like real estate as part of the American Dream and everybodys entitled to an education. However i think think the biggest failure is the data transparency. This gentleman brought up a great point that theres different pricing mechanisms that should be taken into consideration before the debt is consumed. One thing you did not mention was that if we are looking at it as a product and marketplace why isnt there more Equity Financing focused . One of the companies we launched is focused on income share which is what we believe to be the future organic methodologies to solving if not reducing this bubble of 1. 3 trillion. I know its not in your title but equity is part of the possible future for us. Would you talk about income share agreements as a potential future solution in the book. For those not familiar with the concept that the financial concept so maybe people in new york are more familiar with it but this is the idea that a student would in theory or concept be selling a share of the future income to an individual who will give the money up front to make their investment to pay for their tuition on the frontend. This is a theoretical concept that was first introduced in the 50s as an appropriately to think supporting investments in Higher Education. The clever thing about income share agreements and what makes me excited is they essentially operate both as a financing activism and insurance mechanism. I talk about the concern needing to be placed on the individuals maybe and up worse off if they have not spent the money the first place. It is an elegant way of providing relief to that individual because the contract states the individual pays back a portion of their income over time. They are protected from the full extent of the downside risk. We see movement in the private sector with innovations happening with income share agreements. Purdue has introduced a program called backup boiler which is an eight income share agreement program. Researchers are anxiously awaiting the data from the Pilot Program to see how students respond to this as an alternative to traditional Student Loans. Im excited to see whats happening. I think well see more private institutions getting into income share agreements. Part of the reason we havent seen more growth is there is not a regulatory regulatory free market to support that. Investors are squeamish about putting money behind these Financial Instruments that may be deemed predatory in the future. So im very excited about it. My understanding is that one of president obamas policy initiatives was to nationalize the Student Loan Program and take private funders out of it. Is that correct . Did the administration do that . Rhetorically yes that happened. We used to have a system of federal Student Lending that had two strands. The federal Government Finance some part of the Student Loans in the private sector stepped in its true that with the healthcare reform was simultaneously past the remove the private letter participation. Before i let you give your second question will say it is a mistake to think of that system as having any more characteristics of a marketplace in the system we have today. Even though private lenders were participating and originating of financing loans there was no pricing mechanism to the other point made earlier. The the term for these loans were set by legislation just as they were federal loans. It looks like a market but it was not. So in your opinion did that policy change work . Was it effective or should we be looking at bringing the private sector back into the student loan business . It worked in one sense because that program was not well designed was more expensive for taxpayers to administer loans through the private lenders that it was through the federal government. I think there are ways for the private sector to be more involved in Student Lending that would improve efficiency. I would like to see the government stop making parent plus loans and let the private market take up that loan volume. In terms of of getting private lenders into the federal Lending Program, its a bit dicey. There are are ways to think about the federal government subsidizing loads. Governmentsubsidized loans because we have a market failure without a federal lending system we would have insufficient investment in Higher Education. So the question is how to do that. An an alternative way of doing it rather than having government administer loans the government could offer interestrate subsidies. We could allow the private market to exist in them to be my give each borrow and interestrate voucher they can take in chaperone to different lenders. Some people are starting to think about creative ways to get private lenders back into the space. Theres a lot of opposition to the notion of it. And its largely recognized to be an inefficient and wasteful program, unfortunately. Thank you for your remarks. One of the things they see as a companion issue in this is these nonprofit colleges and universities and as a taxpayer it looks like we are going to be taking on a lot of that debt. Did your work look at where this debt was. Was it a disproportionate number of students that attended the nonprofit im sorry the forprofit. What we have found is that a Student Loan Repayment looks very bad at these private institutions. In theory years ago i was making the argument that there is no reason theoretically speaking that forprofit institutions can provide the same quality of service is a nonprofit or public institution. In practice, we did not have a lot of evidence to look one way or the other on the issue for a long time. So we had two debated in theory. That changed about two years ago the Treasury Department obtained some of the data that i was talking about wanting more available for public consumption and they released a report that showed very clearly that the repayment success for students coming out of forprofit institutions was far worse than students coming out of Community Colleges are comparable public institutions. I think we need to be concerned about that. Our Current System of regulation of institution is insufficient. When the government looks at who can participate we have some quality measures and Outcome Measures that are used in that determination. We also use accreditation as an indicator as to whether an institution can participate and get access to taxpayer funds. The Accreditation Process is broken and based largely on input. What does does an institution doing a daytoday basis. It turns out they were seen over and over theres an insufficient way to think about creating between taxpayers and the federally program. Ive lost track of the fact that obama said ministration was trying to come up with the scoring system. There had had to be a publication of graduation rights in return. It seemed like the Free Enterprise got the upper hand and removed the thought of having some kind of transparency and accountability. Where is that issue at . Is it a good idea or bad idea . This is a Big Initiative that happened maybe two years ago now. The administration came out and announced that were going to have this information and put Graduation Rates and earnings that we want consumers to be looking at when theyre shopping for colleges and then we are going to rate institutions. It wasnt clear what that meant if youre going to get an a, b, or c, excellent or good rating. When that came out i argued strongly that i didnt think the government should be in the business of putting quality ratings in these institutions. I thought that the byproducts of this initiative was more data than i can get behind the Rating System. I figured and practice a lot of people would dismiss those anyway by consumers would have access to data that was used to create the Rating System. What happened was the data became public its imperfect data and then they dropped the idea of putting forth quality Rating System. So i want in terms of what i hope to get out of it. I got out of it without having to pay the price of of federal government endorsed quality Rating System as well. My story is that when they default they say i cant pay and the lawyer in the bank says yes, but mom and dad cosigned and they go to mom and dad and they say you have got to get some kind of alone to pass off, is that for real . What you might be hearing about is whats happening the private living market. The majority of the volume of outstanding debt comes from the federal programs because Interest Rates are lower than the private market. Than lower than the private market. Than students have a gap in their financial need will turn to private lenders. The common practice for private lenders with the undergraduate level is to require a cosigner for that loan. We have a lot of instances where people are upset to realize there on the financial hook for an investment that they help their child or even someone else may were starting to hear stories about that. Unfortunately its a a Consumer Loan mike any other like not alone or a personal loan. So we would anticipate the same repercussions. I dont think people are cognizant of that when they havent signed on the line. Its information ive talked about before. There seems to be an explosion in tuition rate across the country without any increase in the quality of education. A direct correlation is an explosion of Administrative Expenses and administrators in general. Have you given any consideration to the lack of discipline on the part of universities in terms of tuition rates which seems to be related to the ease of financing the education in terms of the amount of loans . Theres almost no question that the availability of federal aid is driving him the price of tuition. People refer to this as the more subsidies available the more the increase in tuition. To call this a hypothesis if we draw the supply and demand graph its very obvious unless you have any demand that you have an increase. So increase institutions are able to increase their price. If i was a purist in terms of thinking of markets outside students are willing to pay this so that must suggest its worth it. Its not a good argument. Lets not a good argument because of the symmetry of information we talked about what i think inflation is continuing to increase is that we have an environment where weve encourage people to go to college essentially identical cost. Weve told people that a bachelors degrees degree as part of the American Dream now. We have not been good at least culturally in terms of the narrative of telling people that when you think about going to college think about it as a costbenefit analysis. When he shot for institutions compare the likely outcomes of a set one relative to another. So we have consumers who are not sensitive we have institutions who are aware of a substitute generous environment. We have students who dont appreciate that loans are not grants all of this leads to a dramatic inflationary environment we have in Higher Education. I honestly think that our best first breath guests in address and it is to get consumers to be more savvy with their dollars. We cant can tune you to perpetuate the idea that college and any cost is a good idea. We know from evidence that its not. A lot of people are making the gamble and losing. The less discipline we have and if we continue to go that direction will see more and more inflation. Please wait for the microphone. Should there be more education about the probability of getting the job and making a decent salary if you decide to take some course of study that doesnt necessarily lead to a job. Absolutely. I recently sat in a focus group of students and i think it shed light on my thinking of this. Of course im thinking as someone who is economically minded. We people are making the decision is what are the future opportunities to become available and is it worth the investment to get there. The focus group of nontraditional students i observed recently when you asked them why they were going to college or how they chose what to study the kind of gave me this blanket answer which was that they been told that a bachelors degree equal success. So the narrative in the way that folks are making decisions at least for a segment of the population is really divorce from this way thinking. So i would love to see students be able to make decisions based on program of study and likely outcomes. I talk about about Data Availability. Currently we have Data Availability unemployment rates and earnings across institutions. At the best data but it is data. So i can go and look at institutions that im considering going to. Another employment is but what i dont know what engineering majors make at that school compared to mandys majors. In order for this to work as a market and use information to make savvy choices we need that. Averaging across those disciplines doesnt give sufficient information. We need to change the culture of decisionmaking around college so those who do not have the luxury of following the heart and study whats inspiring to them can make a decision thats likely to lead them to Financial Wellbeing in the future. Or people are going to college that means theyre going to have to hire more people to teach the courses, this doesnt d more students mean more tuition dollars coming in the door of course too. But yes, point taken. I think we have time for one more question will keep it in the front. I think we may be approaching the topic using from the wrong end. These are really college loans. There loans to the institution. Who have no skin in the game whatsoever. What you think of every student loan carrying a 5 first loss exposure for the institution. If a student defaults the colleges pays the first 5 of the loss. Because when you look at the discussion so far essentially students are ignorant. They are not informed consumers. Its almost impossible to expect them to be informed consumers. The colleges know their business. Theyre the ones who should assess risk. This is a touch in a conversation happening now. The idea that the institutions can have skin in the game when it comes to lending. The federal Lending Program is not really taxpayer dollars going to the institution, as the borrows of future dollars going to the institution enabled by the government. When it becomes taxpayer dollars is when they defaults or if they default. What we have is the federal government offering insurance policy to institutions on the service they are provided. So youre going to offer a degree of study a a bachelors degree or whatever it doesnt pay off for your student will ensure their bad outcome. This is a substitute to the institution as the argument youre making. I can get behind having a premium based system for the institution to pay for the insurance they are being provided. I think thats a reasonable way of thinking about this proposal on the table. [applause] i thank you for your questions which made for a good discussion. As i said before the book is on sale outside. Please help yourself, [inaudible conversation] cspan, where history unfolds daily. In 1979, cspan was created as a Public Service by americas Cable Television companies. Its prior to today by your cable or satellite provider. Afterwards is next on book tv. Cnn sr. White house correspondent jim interviews