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Banking on student debt

from David Ruccio

Colleges and universities are certainly banking on student debt—four-year schools so that they can raise tuition, for-profit schools so that they can engage in deceptive practices and outright fraud.

Wall Street is also banking on student debt—by first lending to students (with government guarantees) and then slicing and dicing the loans into Student Loan Asset-Backed Securities.

The only ones losing out are students—who in 2009 graduated with $24,000 in outstanding loans, and now face almost twice the rate of unemployment they did in 2007. 

The result is the new corporate university:

If overfed teachers aren’t the causes or beneficiaries of increased tuition (as they’ve been depicted of late), then perhaps it’s worth looking up the food chain. As faculty jobs have become increasingly contingent and precarious, administration has become anything but. Formerly, administrators were more or less teachers with added responsibilities; nowadays, they function more like standard corporate managers—and they’re paid like them too. Once a few entrepreneurial schools made this switch, market pressures compelled the rest to follow the high-revenue model, which leads directly to high salaries for in-demand administrators. Even at nonprofit schools, top-level administrators and financial managers pull down six- and seven-figure salaries, more on par with their industry counterparts than with their fellow faculty members. And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years.

When you hire corporate managers, you get managed like a corporation, and the race for tuition dollars and grants from government and private partnerships has become the driving objective of the contemporary university administration. The goal for large state universities and elite private colleges alike has ceased to be (if it ever was) building well-educated citizens; now they hardly even bother to prepare students to assume their places among the ruling class. Instead we have, in Bousquet’s words, “the entrepreneurial urges, vanity, and hobbyhorses of administrators: Digitize the curriculum! Build the best pool/golf course/stadium in the state! Bring more souls to God! Win the all-conference championship!” These expensive projects are all part of another cycle: corporate universities must be competitive in recruiting students who may become rich alumni, so they have to spend on attractive extras, which means they need more revenue, so they need more students paying higher tuition. For-profits aren’t the only ones consumed with selling product. And if a humanities program can’t demonstrate its economic utility to its institution (which can’t afford to haul “dead weight”) and students (who understand the need for marketable degrees), then it faces cuts, the neoliberal management technique par excellence. Students apparently have received the message loud and clear, as business has quickly become the nation’s most popular major.

In the end, the new corporate university and Wall Street have combined to bank on ever-higher levels of student debt.

  1. Keith Wilde
    May 8, 2011 at 10:50 am

    Exquisitely on target!!

  2. Ken Zimmerman
    May 8, 2011 at 12:59 pm

    Former Education Secretary William J. Bennett focused strongly on teacher accountabilitiy, a classical curriculum, parental choice of schools, competency based pay for teahcers, and a national education test of competency. He was widely critized by so called progressive educators. At the same time it was popular in the Republican Party to talk of running education like a business, making it cost conscious and focused on meeting objectives with minimal input from employees (e.g., teachers). Now the financial model has taken over and both these models are rejected. Education is just another CDO, another place to leverage for more profits. At this juncture I wish Bennett was back. I think a lot of progressive educators might agree. Just goes to show one should be be careful about of the criticisms offered.

  3. s h a r o n
    May 8, 2011 at 1:33 pm

    #1, I don’t believe that students–or their parents–are being forced to borrow OR spend for a college education.

    #2, Why, in fact, is a college education de rigeur? Because this is one of the few metrics prospective employers can use to weed out too many applicants for jobs; and the major indication that a person with letters after their name is better/”worth more” than one without those letters, even if those in the latter group have real skills, which skills were obtained by actually doing something until satisfactory expertise is attained. There is little difference in this regard when it comes to a high school diploma: again de rigeur to be considered for any job. Never mind looking at actual skills to be able to do something. Education is a screening metric, and educational institutions will take full advantage of that.

    Consider if there were no “high school diploma”; consider if there were no colleges and universities who literally sell those letters to be affixed after one’s name. Consider that a young person has just about all they need to advance their skills in something once they can read, write and do some simple math (skills attainable by the 7th or 8th grade). From that point, they can learn skills on their own from other skilled folks (experts)in a venue that is of interest. What young folks need is an “interest”, and the feeling that they can develop and improve skills by actually DOING something. But no, they must sit in one-size-fits-all desk chairs until their late teens; and only later “eligible” (via parents’ money or their own debt) for a job/career until those letters follow their name.

    The stakeholders are the politicians who must keep K-12 public education graduation rates healthy to protect their own job/image, and the institutions of “higher learning” who benefit from tuition and prestige. If that scenario makes sense to others, I’d welcome some help in getting it to make sense to me.

    • May 8, 2011 at 10:48 pm

      Seriously, are you proposing that everyone “apprentice” in some field after the 8th grade? Do you really mean that? I’ll grant you there’s much not right about public education in the US, but I don’t conclude that less of it is what fixes it. The original post observed that the academy has been displaced by managers, but you don’t even the academy back in place?

  4. Bruce E. Woych
    May 8, 2011 at 4:10 pm


    Excellent discussion at this link on this question and issue with an intelligent exchange from the comment stream.

    also see:

    There are many links to follow at the Baseline Scenario site (first link above) and anyone interested in this material question would be wise to review all that was exchanged. The comments are now closed over there, but I did get the last word on the stream with this comment:

    If you look at college loan systems (called financial aid…) it is essentially Government backed loans just like government backed mortgages for Homes. In the process it also inflates the price structures and eventually converts those loans to a private market that benefits directly from the debt process as well as the higher progressive escalation of college pricing. The system pumps careers like a brokerage firm and the process becomes self perpetuating debt dependency and barriers to professionalized career entry all in one. Bruce E. Woych March 24, 2011

    I will follw this if we can re-establish a full exchange at this time on this essential and critical issue. We are now the University in Exile…and a University without Borders!

  5. Podargus
    May 8, 2011 at 7:39 pm

    Thanks,sharon,for an excellent comment.

  6. Pandora
    May 9, 2011 at 4:01 pm

    Might the student loan industry be the next “bubble” to pop? What recourse or remedy is available for today’s debt burdened college grads who have not been able to secure “career track” employment and are trying to pay student loans on a part-time service job wage? At least those housing bubble victims could file bankruptcy or walk away from their upside down mortgages. I understand that even in bankruptcy, people are still responsible for their student loans. Will college grads be going from college to debtor’s prison? (is there such a thing anymore?)

  7. Pandora
    May 9, 2011 at 4:16 pm

    Just read the article provided in Dave Raithel’s link and a couple of my questions were sort of answered. The student loan bubble is getting closer to bursting, but when it does, what then? Can’t wait till the “College Conspiracy” information comes out! I’ve been wondering for years now if we American people are not being bamboozled by the myth of “higher earnings for college graduates.” Mostly what it gets you is a better conversation in the unemployment line…..

    • May 9, 2011 at 9:55 pm

      I’m actually conflicted about the various points raised here and in the discussion pointed to by Mr. Woych (which struck me that only two participants mentioned the most successful publicly funded education program in American history, the WWII-Vietnam Era GI Bill that sent me and millions, literally millions, of working class people to college.) I never pursued and obtained a doctorate in philosophy because I expected I would make money from it, and I never have. But I really don’t believe that the purpose OF higher education is primarily to train workers – until one chooses a technical or special practical field – or provide one a higher income.

      I am old-fashioned – I think that the purpose of an education is to learn of things one does not know, and unlike one of the commentators above, I don’t suppose that most of us are especially equipped to lead our ourselves from an 8th grade education alone. So though I concur on all the points about what harms have been done to schools and students as they’ve been occupied by managers and exploited by finance speculators, I still believe in the value, in itself for one’s self, of advanced secondary and post-secondary education. I laugh, sardonically, that the same political factions who would have everyone but themselves work till we drop would also make primary/secondary schools more like factories (yes, even more so than they are) and then shove college students through baccalaureates in three years. Time for reflection might invite dissent…

      But I’m old fashioned, I still think that concepts like the expropriation of surplus value and the over-accumulation of capital have empirical meaning…

      • Bruce E. Woych
        May 10, 2011 at 2:46 pm

        Thanks for your summary outline of the intrinsic issues concerning what amounts to the very nature of education and the University system itself. Incidentally, I started with World Literature and Philosophy and very early on shifted to a lifelong pursuit of an uncorrupted Cultural Anthropology. Your profile of non-commercial idealism is dear to me but it is a lost venture in Universities these days. If you recall (following the greatest legislation ever devised in the GI Bill)…the 50s became a revolt against strait jacket intellectualism and class structured identity. Oddly enough, the children of wealth and privileged were often the leaders to these anti-establishment movements. In the 60s we not only had non-conformity and a revolt against business suit college programs that mass produced identities, but we also had a continuation (growing dependency…) upon Federal grant money that often funded great department growth (when it dried up starting in the 70s it left academics competing for less jobs while they needed greater enrollments…as well as producing more degrees…and “tenure” captured security for standing faculty…but the progressive inversion was already set in motion). Without getting involved in the common cause membership and the galvanizing anarchy of anti-draft/war momentum…the Universities were truly the hub of counter cultural emergence over and above anti-intellectualism. The Funding, however, began to dry up and the Universities entered the growth and finance trap of the 80s and by the 90s the neo-conservative CEO model of trickle down education was fermenting even stoic faculty members into a passive submission of survivalism. The corporate model took hold and the idealism of a centuries old university purpose was marginalized to a luxury sector for well connected and protected class pacing of social consciousness and the escape hatch of University experience was fully captured, orchestrated and directed towards market forces and the commanding administrative “community” that served those demands.

        Your not old fashion, your the real thing! But I ask you Brother…How do we get this message out to our next generation that is being rationed into a submissive monetarism even while social consciousness is becoming militarized? How do we get that out when Michele Obama makes statements that the death teams of military intelligence is …the greatest example of “PUBLIC SERVICE” (NOT duty to country but the more domestic term “public service!”)

        Orwell stated that they capture the future by capturing the past. The media is a conditioned market reflex of the overall “public service” and so too is the University market. The first step is to recognize what it is, for what it is…a MARKET. After that we need to determine (once again…as in the 50s…) just what these institutions are about…public or private service?
        If we are to have a system of education that is derived from our Universities, than we need to take this territory back. From what I see, the Prison system is doing the teaching into the streets of our youth better than the trickle down institutionalism of university markets and marketing.

        Of interest:
        Heroism of Wisconsin Protestors Inspires Students to Rise Up and Fight
        By Sarah Seltzer May 4, 2011

        “Rutgers students staged a sit-in in their president’s office a few days ago, demanding several things: public support for a tuition freeze; three votes for students on the Rutgers Board of Governors; arbitration for Rutgers staff whose salaries had been frozen.”

        The University is in Exile: We need A University without Borders (and without barriers to entry)!

  8. Bruce E. Woych
    May 10, 2011 at 11:22 pm

    Real Time: (excerpt)

    Faulty Towers: The Crisis in Higher Education
    William Deresiewicz
    May 4, 2011 | This article appeared in the May 23, 2011 edition of The Nation.

    “It wasn’t supposed to be like this. When I started graduate school in 1989, we were told that the disastrous job market of the previous two decades would be coming to an end because the large cohort of people who had started their careers in the 1960s, when the postwar boom and the baby boom combined to more than double college enrollments, was going to start retiring. Well, it did, but things kept getting worse. Instead of replacing retirees with new tenure-eligible hires, departments gradually shifted the teaching load to part-timers: adjuncts, postdocs, graduate students. From 1991 to 2003, the number of full-time faculty members increased by 18 percent. The number of part-timers increased by 87 percent—to almost half the entire faculty.

    But as Jack Schuster and Martin Finkelstein point out in their comprehensive study The American Faculty (2006), the move to part-time labor is already an old story. Less visible but equally important has been the advent and rapid expansion of full-time positions that are not tenure-eligible. No one talks about this transformation—the creation of yet another academic underclass—and yet as far back as 1993, such positions already constituted the majority of new appointees. As of 2003, more than a third of full-time faculty were working off the tenure track. By the same year, tenure-track professors—the “normal” kind of academic appointment—represented no more than 35 percent of the American faculty.

    The reasons for these trends can be expressed in a single word, or buzzword: efficiency. Contingent academic labor, as non-tenure-track faculty, part-time and full-time, are formally known, is cheaper to hire and easier to fire. It saves departments money and gives them greater flexibility in staffing courses. Over the past twenty years, in other words—or really, over the past forty—what has happened in academia is what has happened throughout the American economy. Good, secure, well-paid positions—tenured appointments in the academy, union jobs on the factory floor—are being replaced by temporary, low-wage employment.”

    read more:

  9. May 26, 2011 at 3:05 pm

    Right to the point! Young people should think seriously before making a decision and make an exhaustive analyses cost/benefit in order to chose the best college.

    • Bruce E. Woych
      May 27, 2011 at 7:22 pm

      This may be true but young people of normal class stature are not in a position to make decisions as a cost/benefit coordinate for their future. The truth is that the debt bubble machine is actively seeking to lock them into indentured servitude and they are signing away their future trying to just have a future. Were is the competition? Do you need a University degree to become an accountant? I don’t think so! It’s a vocational specialty and could be done in a three semester certificate of competence license and have incremental advancements from the market experiences they achieve: Up to and including master of Accounting. The whole system needs to be revamped. It was great to have well rounded educational fomats to produce well rounded individuals, but we hav a lot of well rounded unemployed graduates out there deeply in debt. the luxury of a full University degree is out of reach economically…and any “cost benefit” analysis depends on family connections more than the degree. Get real; this generation is being ripped off!

  10. Alice
    May 28, 2011 at 9:45 pm

    Great comments here. This generation of students are being ripped off big time. This generation of universities are squeezing the life and vibrancy out of education and learning. This generation of universities has an enlarged core of administrators who have stolen the tenured secure positions from the academic staff and have over indulged themselves in both pay and conditions. This generation of Vice Chancellors have appointed up to twelve deputy Vice Chancellors in many universities on high pay so that their own even higher pay and security is guaranteed to continue. This generation of University leaders are no better than the CEOs who do the same thing using compliant boards, to reinforce their longevity and their remuneration by effectively stealing from shareholders. But in the modern university they have stolen from academics but they have stolen even more, both quantitatively and qualitatively, from students.

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