Episode 89: Debt Forgiveness is Not Enough to Solve the Student Debt Crisis with Phillip Levine, Founder, and CEO at MyinTuituon Corp.

Phil Levine is Katharine Coman and A. Barton Hepburn Professor of Economics at Wellesley College, a research associate at the National Bureau of Economic Research, and a non-resident Fellow at the Brookings Institution. He has written dozens of journal articles and five books devoted to the statistical analysis of social policy and its impact on individual behavior. His most recent book, A Problem of Fit: How the Complexity of College Pricing Hurts Students – and Universities (University of Chicago Press) analyzes the system of pricing in higher education and ways that we can change it to improve access. Levine is also the founder and CEO of MyinTuition Corp., a non-profit organization that supplies a vastly simplified financial aid calculator to dozens of colleges and universities.

Why is College so Expensive? Should it Really be Expensive?

It is important to think about why college cost what it costs and what that says about college debt, and why so much of it exists. The first thing to remember is when people say how expensive college is, mostly what they are referring to as the sticker price. A typical four-year public institution charges something like $30,000, and a typical four-year private institution and an elite one charge more, around $80,000. It is very difficult for people to be able to think about and also to comprehend how they’re going to pay that amount for college. These astronomical prices are paid by a very small subset of the population. Over 85% of students receive some form of financial aid that reduces that cost. What’s critical to understand isn’t the sticker price because so few people are paying that. We need to think about how much students pay, depending on where they are on the income distribution. How much are they paying relative to how much are they making? In these cases, what we are seeing is where we have a significant problem of affordability among lower-income households and lower to middle-income households where the financial aid system is insufficient to lower the cost to a price that families really can afford. There is a gap of $5,000 to $7,000. If you take a low-income family that makes $20,000 to $30,000 a year, then how much can they afford to pay for college, with the answer basically being nothing. This is the affordability problem, and it helps contribute to the debt issue.

Still Having To Pay For Other Expenses Even If The Sticker Fee Is Waived

With things like scholarship you can get some portion of your fees paid but that does not mean it covers everything. The scholarship oftentimes substitutes for need based financial aid., so the only people who actually keep those scholarships are high-income people, not low-income people. This is a very common practice. You can get a scholarship that covers your entire tuition but it does not cover your living expenses. Students will still need to pay for housing and meals. Where is the money gonna come from if you are from a low-income household? That is the affordability problem is about. Those students do not have enough resources to their family through the institution, through the State or through the Federal Government to pay their bill. They end up borrowing too much and that is how we end up in a debit crisis. That is the problem with loan forgiveness, it does not solve the underlying problem.

What Is The Rationale Behind Sticker Prices?

It is important to recognize that sticker prices are numbers that very few people actually pay. Most people pay less than the sticker price. The reason they are still around is because the high-income students do pay that amount. It goes back to that fact that if you are making more money then you should pay more and basically a high sticker price enables that. Beyond that, at most institutions. This is not true for the elite institutions because they are doing just fine. Institutions are also very competitive businesses and they have bills to pay, and so they both need students, and they need to be bale to pay their bills. That is how they will be able to generate a business model that creates enough revenue that will cover their cost and accomplish their mission. Their academic mission of being able to educate as many people as they can. From a public institution, where is money coming from? In some sense, it is great that public institutions charge a lower sticker price if you are from a high-income family, because if you are from a high-income family, you just got a huge discount on how much you have to be to go to college. It will very affordable for them. From a broader perspective, that means you also lost a lot of revenue. The goal of making college affordable by lowering the sticker price does a great job of making college affordable for upper middle class and higher income families. That limits revenue to the institution and makes it harder to charge lower income people lower and less amounts of money, lower tuition levels. In theory, the State can just provide direct funding to the institution to help pay the bills for the lower income students but this does not happen and has been happening less over time. The institution are actually scrambling for money. They do not have money coming in from the high income students because the sticker price is so low. They don't really have endowments to speak of to draw revenue from investment returns. This is why they do this so they can pay their bills.

Contact Philip Levine: https://www.linkedin.com/in/phillip-levine-01354b145

Phillip Levine Twitter: https://twitter.com/phil_wellesley?s=20&t=XWiqxUEAONTx8JKt3dmjGQ

Learn more about MyinTuition Corp: https://myintuition.org

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