Wall Street & California s Student Debt Crisis

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1 ISSUE BRIEF Wall Street & California s Student Debt Crisis Center On Culture, Organizations and Politics Institute for Research on Labor and Employment University of California, Berkeley By Charlie Eaton and Brian Stewart* Executive Summary This brief shows large student loan debt increases in California since the school year. Further, we show that the whole public higher education sector not just students is paying more than ever to Wall Street. By the academic year ending in , California's public colleges and universities were spending more than $1 billion a year on interest alone for bonds and institutional borrowing. Meanwhile, spending on instruction declined in the California State University (CSU) and community college systems. Spending on auxiliary services, including amenities like dorms and recreation centers, however, increased rapidly. Expansion of such amenities is often financed using bonds marketed by Wall Street banks. Some key findings include: State appropriations to the University of California (UC) system after Prop 30 remain 21% lower than in without even considering inflation or enrollment growth. CSU appropriations are 11% lower. Nor have college appropriations been restored to inflation adjusted levels. From to , in-state tuition increased by 114% at UC, by 134% at CSU. Fees per unit increased by 80% at community colleges. From to , 1 average revenue per student from tuition after financial aid is awarded increased by $3,990 at UC, by $2,982 at CSU, and by $537 at community colleges. Despite declining interest rates and stabilization of university revenue through tuition increases, growth in borrowing by CSU increased annual spending on interest payments per student by 82% from $265 to $479 per student annually. Despite stabilization of university revenue through tuition increases, growth in borrowing by UC increased annual spending on interest payments per student by 21% to $2,078 per student annually. Community colleges avoided tuition increases comparable to UC and CSU, but only with borrowing to offset public funding shortfalls under California s Prop 98 deferred payment scheme. With this new borrowing, community colleges increased spending on interest payments by 2,044% from $25 to $536 per student annually. While CSU decreased instructional spending, it had an 18% increase in spending on auxiliary services, an area that includes amenities such as dorms and recreation centers. Expansion of such amenities is often financed through bond borrowing that increases university interest rate costs. UC increased spending by 78% on auxiliary services but by just 23% on instruction. Facing these increasing costs, the share of current and former college students with student debt increased from 15% in 2004 to 23% in The average debt owed by Californians with student loans increased from $16,600 to $25,700. The share of California borrowers who are more than 90 days delinquent increased from 10% to 18%. Nationally, 81% of African American students have student loans, the highest rate. Nationally, 84% of students at for-profit colleges have student loans, the highest rate for any higher education subsector. 1 This brief uses after-aid tuition revenue, state appropriation revenue, interest spending, auxiliary service spending, instructional spending, and full time equivalent student enrollment data from Delta Cost Project database which uses Integrated Post Secondary Education Data System data. Unfortunately, the database only has consistent data from to Tuition and fees data come from the College Board, CSU, and UC and are only easily available from through *Please direct correspondence to Charlie Eaton, Department of Sociology, University of California, Berkeley at charlie.eaton@berkeley.edu on Twitter. Brian Stewart is the Communications Director for Generation Progress. Page 1 of 11

2 PART 1: Tax Breaks For Wall Street, Cuts in Per-Student Funding For Higher Education While Wall Street profits have soared, benefiting from corporate tax breaks, state funding per student has declined for higher education. From 2006 to 2012, state appropriations per student in California declined by 28.7%. $10,000 $9,232 $9,316 $9,165 $7,500 $7,880 $7,159 $7,127 $6,584 $5, State Funding Per Student for Higher Education in real 2011 Dollars Source: 2013 Grapevine Compilation of State Fiscal Support for Higher Education, Center for the Study of Education Policy at Illinois State University. This data is adjusted for inflation to represents 2011 constant dollars. Between and , state and local funding per student declined by 37% at the University of California, by 38% at California State University, and by 3% at community colleges. $21,000 $20,964 $18,577 University of California California State University Community Colleges $16,335 $14,912 $15,005 $15,413 $15,294 $13,220 $12,500 $12,049 $10,224 $9,560 $9,157 $7,103 $6,431 $6,876 $8,343 $6,922 $8,372 $7,348 $8,407 $8,096 $8,302 $7,794 $5,837 $7,570 $6,351 $6,890 $4, State Funding Per Student by Higher Education System Source:: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. IPEDS data is not available for years since Proposition 30 restored some funding for higher education. It is clear, however, that Proposition 30 has not altered the basic pattern. State appropriations to UC after Prop 30 remain 21% lower than in without even considering inflation or enrollment growth. CSU appropriations are 11% lower. Community college appropriations have not kept up even with inflation. Page 2 of 11

3 PART 2: Students Are Paying the Price With Higher Tuition Public colleges have increased tuition radically to offset state appropriation reductions rather than rein in spending on noninstructional costs. From to , in-state tuition increased by 114% at UC, by 134% at CSU, and by 43% for 2-year at community colleges. $12,200 $12,192 $12,192 $12,192 $10,302 $8,958 $8,133 $5,684 $6,141 $6,141 $6,636 $7,126 $5,472 $5,472 $5,472 $4,026 $4,401 $4,067 $2,334 $2,520 $2,520 $2,772 $3,048 $997 $968 $831 $710 $673 $886 $878 $1,157 $1,447 $1,424 $ Average Sticker Price Per Student By Higher Education System University of California California State University Community Colleges Source: Community college tuition and fees data are from CSU data is for systemwide tuition only and is from budget/student-fees/fee-rates/fullerton-history.shtml. UC data is for systemwide tuition only and is from Fees per unit at California Community colleges increased by even more than the average fees for full time students reported by the College Board. Fees per unit increased by 80% from $20 in to $46 in Average revenue per student from tuition after financial aid is awarded increased by $3,990 at the University of California, by $2,982 at California State University, and by $537 at community colleges $736 $809 $3,094 $3,340 $6,177 $6,251 University of California California State University Community Colleges $1,011 $4,039 $7, $1,244 $4,437 $8, $1,199 $4,606 $8, $1,120 $4,556 $8, $1,055 $4,723 $8, $1,153 $4,992 $9, $1,273 $6,076 $10,167 $0 $2,750 $5,500 $8,250 $11,000 Tuition Revenue Per Student After Financial Aid Has Been Awarded Source: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. Page 3 of 11

4 PART 3: More Spending is Going to Wall Street Instead of the Classroom Public colleges have dramatically increased borrowing from Wall Street, much of it to pay for construction of amenities such as dorms, recreation centers, and sports facilities. Spending is increasing rapidly for auxiliary services, the area in which large parts of amenity spending is reported. Increased borrowing has also led to substantial increases in interest payments to Wall Street, despite a decline in interest rates offered by bond markets. On the other hand, spending on instruction has remained comparatively flat. With flat or reduced instructional spending, California s public colleges have turned away hundreds of thousands of qualified students. From to , California s public higher education institutions paid $6.5 billion in interest to Wall Street. $314,528, $83,688,231 $18,620,278 $319,910, $102,733,508 $51,347,015 $314,487, $101,118,047 $113,159,353 $333,462, $100,977,788 $154,069,878 $376,991, $135,635,536 $202,101,418 $409,903, $130,735,130 $302,910,137 $409,809, $127,584,449 $339,456,510 $363,353, $140,736,237 $410,939,947 $460,490, $177,347,752 $469,792,285 $0 $125,000,000 $250,000,000 $375,000,000 $500,000,000 Annual Cost of Interest Payments For Servicing Higher Education Debts To Wall Street University of California California State University University of California Source: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. Page 4 of 11

5 By the academic year, California higher education institutions were paying $775 per student in annual interest to Wall Street, an increase of 127%. $1, $265 $25 $1, $308 $64 $1, $300 $152 $1, $304 $203 $1, $398 $266 $2, $372 $397 $1, $348 $426 $1, $378 $494 $2, $479 $536 $0 $733 $1,467 $2,200 Dollars Per Student Paid Annually as Interest to Wall Street University of California California State University Community Colleges Source: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. Page 5 of 11

6 Between and , California s public higher education institutions increased spending by 44% for auxiliary services, which include many amenities. $3, $648 $636 $3, $589 $698 $3, $630 $744 $4, $712 $700 $3, $714 $708 $4, $597 $719 $4, $764 $648 $4, $824 $654 $6, $749 $632 $0 $1,750 $3,500 $5,250 $7,000 Annual Auxiliary Service Spending Per Student University of California California State University Community Colleges Source: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. Page 6 of 11

7 Between and , California public colleges increased per-student spending on instruction just 5%. Spending decreased at CSU and community colleges. $17, $6,016 $4,497 $16, $6,161 $4,080 $17, $5,987 $4,242 $17, $5,766 $4,172 $17, $5,892 $4,350 $18, $5,890 $4,572 $20, $6,399 $4,578 $19, $6,303 $4,341 $21, $5,617 $4,001 $0 $5,000 $10,000 $15,000 $20,000 $25,000 Instructional Spending Per Student University of California California State University Community Colleges Source: Author analysis of Integrated Post Secondary Education Data (IPEDS) from National Center for Education Statistics IPEDS Analytics: Delta Cost Project Database : Data File Documentation. Washington, DC. This data is adjusted for inflation to represent 2010 constant dollars. Page 7 of 11

8 PART 4: As Tuition, Amenities Spending, and Financial Transfers to Wall Street Have Risen, So Has Student Debt While the federal bailout has helped profits soar again on Wall Street, unemployment especially youth unemployment remains high. With limited employment opportunities, students are taking on more debt than ever before. An increasing share of borrowers cannot afford to make required payments. Students at for-profit colleges some of them turned away from publics because of budget cuts have been particularly hard hit by student debt. Youth unemployment in California is 20.2% Source: Young Invincibles ND NE SD OK IA MN MT UT MA NM OH WY WI VT KS MD NH PA HI TN TX AK IN DE WV MO AL FL ME CO LA WA VA KY MI CT RI ID AZ NV AR OR NY NH IL NC CA GA SC MS Youth Unemployment Rate The share of current and former college students with student debt increased from 15% in 2004 to 23% in % 22% 22% 23% 21% 21% 19% 18% 18% 15% 12% Percent of Students Who Have Attended Some College That Have Student Loans Source: Number of borrowers is from the Federal Reserve Bank of New York Consumer Credit Panel. Number of current and former college students is from Steven Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken, Matthew B. Schroeder, and Matthew Sobek. Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, Page 8 of 11

9 The average debt owed by Californians with student loans rose from $16,600 in 2004 to $25,700 in $26,000 $25,700 $24,400 $23,000 $21,333 $21,600 $22,100 $20,300 $19,200 $16,667 $16,600 $17,400 $12, Average Student Loan Debt Per Loan Holder, In Real 2011 Dollars Source: Federal Reserve Bank of New York Consumer Credit Panel The share of California borrowers who are more than 90 days delinquent has increased to 18% Percent of Student Loan Holders Who Are More Than 90 Days Delinquent Source: Federal Reserve Bank of New York Consumer Credit Panel. *90 day delinquency rates tend to be twice as high for borrowers who are in repayment, because many borrowers have loans that do not require repayment until future years and conditions. Page 9 of 11

10 PART 5: Nationally, African Americans Are Hit the Hardest Students at for-profit colleges have the highest rates of student debt as well as the highest average student debt. African Americans, who have disproportionately turned to for-profit institutions, have the highest rates of borrowing and the highest average debt levels. National age breakdown of borrowers with education debt 1.4% Under to to to and over Age not known 16.4% 11.3% 4.2% 33.9% Source: CBS News 32.8% National rates of borrowing and average student debt level by race Percent of students who borrow Level of average debt for each student type 90% $30,000 60% 66% 81% 65% 66% 54% $20,000 $24,842 $28,692 $24,724 $22,886 $21,090 30% $10,000 0% All Black White Hispanic Asian $0 All Black White Hispanic Asian Source: Demos, College Board Levels of student debt by institution type Percent with $0 Percent with $1-$9,882 Percent with $9,883-$17,288 Percent with $17,289-$27,978 Percent with more than $27,978 Public four-year Private nonprofit four-year For-profit four-year 17% 14% 40% 25% 32% 6% 2% 13% 20% 8% 65% 11% Source: College Board Page 10 of 11

11 National Drop out rate by debt level Percent of dropouts with $0 Percent of dropouts with $1-$9,882 Percent of dropouts with $9,883-$17,288 Percent of dropouts with $17,289-$27,978 Percent of dropouts with more than $27,978 Public four-year Private nonprofit four-year For-profit four-year 10% 13% 17% 24% 37% 17% 28% 17% 22% 15% 29% 13% 27% Source: College Board National Drop out rate by school type 60% 54% 40% 45% 35% 20% 0% Source: Reuters, CNN Public Four- Year Private Nonprofit Four-Year For-Profit Four-Year Share of students by each school type Percent of students who default at each school type 15% 14.7% 9.5% 12.9% 7.5% 8.3% 75.8% 5.2% 0% Source: Department of Education Public non-profit Private non-profit For-profit Page 11 of 11