Opinion

A Student’s View: Financial Crisis in US Higher Education

on

by Daniel Posmik, contributing opinion writer

Introduction

“Education is the most powerful weapon you can use to change the world!” said the famous South-African freedom fighter Nelson Mandela. Like Dr. Martin Luther King Jr., he understood that no bomb on this planet can impact humans the way knowledge can.

Knowledge is not only the key to scientific advancements, but also the only way to gaining a sense of self-awareness. Without knowledge, the doors to personal growth, reflection and most importantly the ability to reason stay shut. They stay shut and inarguably rob individuals of a large portion of their potential, which is often described as the path to happiness. 

My name is Daniel Posmik and I am a second-year student at the University of Cincinnati. I am an international student from Munich, Germany that became interested in this country mainly because of civil rights icons like MLK. After spending a year in the beautiful state of Ohio as a high school exchange student, I was even more fascinated with American culture. Being a student-athlete, I thrived in the US athletically, academically and personally. I loved how warm and welcoming the people were and I was fascinated with every yet so tiny aspect of the American way of life. It did not take me long to realize where I want to live happily one day. With this dream in mind, I decided to leave Germany after graduating from high school and come back to Cincinnati to double major in International Business and Economics. 

Daniel Posmik

While the term happiness is a highly subjective and deeply philosophical concept, the term education is not. While I am not saying that education equals happiness, I must admit that it is a major part of the quest thereof. With this logic in mind, who should receive this privilege of education in a fair, democratic society?

In Germany, the answer to that question is: “The best, the hardest working and the individuals that earn the highest GPA during their high school qualification time” 

In the United States, the answer is much plainer and shorter: “The people who can afford it!”

Higher Education Budgets in the U.S.

In the United States of America, there are over 5,000 colleges and universities.[1]You will find everything from a small, private Christian schools to massive public institutions. They are all different and unique in their character, but the vast majority of them have one thing in common: They are run like businesses. 

They are driven by a quest for profit, which is evident when looking at some of the most recent statistics. In the academic year 2018-2019, the average cost for attending an in-state public institution is $9,716. Private institutions come with a price tag that is 73% of that at a staggering amount of $35,676.[2]

Between 2005–06 and 2015–16, prices for undergraduate tuition, fees, room, and board at public institutions rose 34 percent, after adjustment for inflation according to the National Center for Education Statistics (NCES).[3]With this trend being the reality since the 1980s, our current student debt is reported to be $1.56 Trillion in 2019 with 44.7 million people owing money to credit lenders.[4]This number is greater than Mexico’s entire Gross Domestic Product (GDP) in 2017 and a little less than half of Germany’s. Student loans now make up the largest chunk of U.S. non-housing debt.

With the rising cost of higher education, education inequality is an important issue. A promising student that is born into a poor family has in fact a considerably worse chance to attend college than a below-average performing student whose family can support him financially. This is why Theresa Mooney of Teach For America condemns the term “Achievement Gap,”[5] contending that “Opportunity Gap” is more fitting in the light of an educational system that does not offer a future to its hardest-working students, but to its highest paying.

According to the U.S. Bureau of Labor Statistics, the median annual wage of a post-secondary teacher as of May 2018 is $78,470.[6] The lowest 10 percent earned less than $39,760, and the highest 10 percent earned more than $175,110. While this is certainly not “bad” pay in respect to the median national income of $61,372 (2017),[7] it is odd regarding a professor’s high level of educational attainment.

So, if the money is not going in the pockets of the faculty – where is it going?

Much tuition money goes to endowment funds. University’s financial endowments serve as a reserve and tool to provide financial stability. Some of the endowment funds are ridiculously high, though. Harvard had an endowment of $37,096,474,000 at the end of fiscal year 2017.[8]It also has its own company – Harvard Management Company (HMC) – that manages its endowment funds and invests in private assets and hedge funds.[9]Basically, a university turned investor or private bank.

I will further illustrate the answer to the previous question with the help of an article published by Nathan Lewis in the Forbes Magazine in February 2017[10]. Colgate University, an elite liberal arts college in the state of New York, charged a tuition in the amount of $49,560 (annually) for the year 2015/2016 ($62,540 with room and board). While the University spent $162 million in grants, there is also a lot of “strange fluff” to be found in the institution’s statement of revenue. These expenses include $11.8 million paid to outside consultants, $8.0 million in travel expenses, $4.2 million to top officials and $25 million in undisclosed “other expenses.”

Lewis estimates that the total payroll cost of the teaching faculty was, at $41.6 million, less than half of the total cost of employees. He concludes that the cost-per-student of the entire teaching faculty–even with a cozy 10:1 student-teacher ratio–was $14,500 each, for 2,872 students ($41.6 mil total). Keep in mind that these professors are almost all on tenure-track positions and receive above average salaries for the industry standards. 

Looking at the numbers,[11] Lewis also determines that over 50% of employee salaries are in fact going to administrative staff – not the professors. He recognizes the need for some administrative staff and the costs for buildings and student services. Adding 50% of the $41.6 million brings the total cost to $62 million, or $21,700 per student. That is only 44% of the headline tuition of $49,560. 

Colgate University received grants and donations of $36 million and had an endowment fund of $610 million. A university typically distributes 5% of these endowment fund assets (= $30.5 million) to the students as support programs (such as scholarships). The 30.5 million of endowment revenue, plus grants and donations ($36 million) could be directed toward continuing programs.

Keeping this in mind, most – possibly all – of the total $62 million in program costs could be covered by endowment and grant income. That could mean free tuition for everyone, or at least under $10,000 per year, if there was no plethora of counterproductive administrative staff and mysterious, undisclosed “other expenses.”

I am aware that these are a lot of numbers, statistics and facts. But please stick with me as I present to you one more example of how education in the U.S. really works. 

The College Board

The College Board is the organization that administers college level readiness tests and high school AP exams. On its website, they describe themselves as a “dynamic, member-led, mission-driven not-for-profit organization.”[12]What the College Board fails to mention is that these goals seem to assume a role of surprisingly minor importance in their agenda.

The US College Board is in fact a very profitable not-for-profit organization.

Granted, business legalese can be very complicated and misleading with all its different classifications, criteria and terminologies. Nevertheless, I believe it to be odd that an organization classified as a 501(c)(3), a not-for- profit designation, had a yearly revenue of more than $750 million in 2014. According to a Business Insider article published in March of 2014,[13] former president Gaston Caperton made more than $1.5 million personal profit. What makes this contradiction so shocking is that most colleges require a standardized test, like the SAT, for admission.

While the College Board portrays itself as a community-driven, philanthropic entity, it does in fact systematically and ruthlessly exploit prospective college students. The 2019 “Test with Essay” costs domestic students $64.50. Waitlist registration, available to those who miss registration deadlines, costs an additional $51. Changing the date of your test adds a $29 fee. There are other add-on services and fees: The Official SAT Study Guide with DVD ($31.99), the SAT Score Verification Services ($18), and the SAT Online Course ($69.95 a year).

Chadwick Matlin of Slate.com conservatively estimated this combined revenue at around $115 million back in 2006. $115 million for what? Yes, for providing students with a scantron and a prompt for test that they must take if they have any aspirations of furthering their education on the collegiate level. 

As these facts illustrate, not only do universities themselves operate as businesses, but the entire “college prep” industry has followed this trend and saddles more and more students with almost unbearable financial burdens. 

Consequences

American universities are private businesses. This may not seem like a problem at first glance. Businesses mean economic stipulation and economic stipulation means wealth and happiness, correct? As an economics major, I wish it was that easy.

When vital socioeconomic sectors like health care or education are privatized, profit inevitably becomes the primary goal. However, these two sectors are just two examples of areas that cannot, due to their crucial importance to a community’s success and well-being, be guided by the idea of financial gain alone. This is where capitalism in its shapes and forms becomes tricky, as well.

Some people that I have talked to about this subject think of free college as a socialist reform. I wonder if they also think that we currently live in a socialist system due to free high school education? While this not only alienates the issue from the debate entirely, it also proves a lack of knowledge about history, economics and sociology. A free education can and should exist in a flourishing system of capitalist economics.

Unfortunately, it is human nature to disregard the long-term benefits of change in favor of short-term satisfaction. A great example of that is the short-term stimulation of our economy through student loans. However, imagine what would happen if we did not have this unbelievable amount of student debt and we could invest this money instead. We could not only invest in our own future, we could also invest in our society.

How the system is working now is similar to a dog chasing a piece of sausage downhill without acknowledging the pile of food that is located on the top of the hill. As a society, we need to start realizing that the current system of education poses both economic and social threats. Access to post-secondary education in the U.S. has similarities to literacy tests imposed on African-Americans under the Jim Crow laws. Only those with proficiency in reading and writing were granted their vote, even though they did not have equal access to learning these skills.

Every single history book ostensibly labels this practice as racist, discriminatory and unethical. Nevertheless, the current system is not different enough. What about socioeconomically disadvantaged students who cannot afford to go to college due to their parents not having an equal opportunity to reach a certain income? What about the students whose mother cannot possibly afford a $28,400 debt on top of having to provide for food, housing and her children? Similar to the literacy tests, we have what we call a vicious circle. Americans in the lower class are caught in a corrupt system of education that denies them equal opportunity. Here, an education is not earned through merit and hard work. It is purchased on the grounds of one’s financial resources.

As a person who was born and raised in Germany, this logic is a fallacy. How can the U.S. justifiably present itself as a beacon of liberty and justice while denying its own citizens equal opportunity? How can we as an American society proudly talk about the American Dream while denying it to our own brothers and sisters?

“The Student Loan Crisis.” I guarantee you that this term will loom in my children’s history books. They will compare it to events like the Great Recession and the subprime crisis and laugh about our inability to think reasonably. Student debt is holding back our progress as a nation in every aspect.

It hinders social mobility and does not allow our society to be truly competitive. As a football player, this is like losing against a team that has better equipment despite your team being the better athletes. The way education works in the U.S. is slowly but surely eating away the American Dream and the country that we all love. In a long-term point of view, it will not only cripple our society, it will also slash our economy. While the “student loan bubble” is unlikely to burst due to a lack of destructive economic mechanisms, the consequences will be even more painful: It will slowly drag the economy. It already is an anchor that is holding us back from our true potential. Robert Farrington from Forbes states that instead of a massive unwinding of debt with short term pain, the student loan bubble will unwind over decades. That will come with a 1-2% loss of GDP or more during that entire period.[14] Student debt implies predatory lending practices – that are illegal in the private industry – but apparently overlooked in the educational sector. 

This crisis is unlike any other you have faced in your lifetime because the opportunity to obtain an education is the heart of a functioning, democratic society. Without education, this wicked system disarms the people of their most prized weapon at the very instant that they could fight back. The weapon I am talking about is the development of the human mind and education itself. Even though this may sound extreme, the current system effectively manages to keep large parts of the U.S. population artificially unaware. That is like locking away a person in a basement for their entire life and denying them all sorts of knowledge about the outside. They will never know about the sun unless they are told by someone. That person and their children and grandchildren would be kept in the dark forever if nobody decides to help them and show them what lies beyond the realms of darkness.

A Solution

A free education for all? No! A free, or at least affordable education for all who work hard and honestly for it? That is what I demand.

The first step to a fair system of education would be strict federal regulation. In my time in the U.S., I have learned that many Americans see the government as an antagonist. But have you ever thought of the possibility that all the “evil” (i.e. the government repossessing your land or raising certain taxes) results from the private industry controlling the government? Many lobbies – like the fossil fuel industry – are extremely powerful and often exert their power hiding behind government officials of questionable integrity.

No, the government is not inherently bad – it becomes bad once the profit-driven businesspeople start to manipulate the system. My point with this illustration is that the federal government needs to be trusted with control over certain industries. Education, health care, defense and social security are just a few examples.

A strict federal control would entail several provisions. For one, endowment funds need to be capped. I understand that universities must rely on reserves in times of financial struggle. However, having an endowment fund of over $37 billion is completely absurd and unreasonable.[15]

Another provision would be complete financial transparency. Even though public institutions are mandated to make their financial statements public, it was hard enough to find reliable sources for the sake of this article. Many universities, like Colgate University as discussed above, remain very unclear about the precise destination of their financial allocations. Financial transparency will make more people realize how much money ends up in the pockets of executive university officials. They abuse their position of leadership and take full personal advantage by exploiting students financially. Even the University of Cincinnati’s current president- Neville G. Pinto makes $660,000 annually with housing and car benefits included.[16]

Many universities, especially for-profits, also feed off federal funding. Instead of extending this federal aid money to the students, it often ends up in the executives’ pockets.[17]A strict federal regulation will help make wages for professors fairer. Ironically, the students are not the only ones that suffer from how education presently works. Universities spend a lot of money on athletics and administrative staff. Believe me, as a former collegiate student-athlete, I adore college sports. However, they should always be kept separate from the university financially. Modern day college student recruiting strategies are managed similarly to sports. Last year, I worked in the admissions office as a student-worker. I was shocked by the amount of money spent on recruiting and marketing tools. We had to send out an unbelievable number of flyers, brochures and little gifts every day. We even had something called a “swag bag” where we would neatly place all sorts of merchandise, pens and fun UC gear in a bag in order to make the institution more appealing to potential students – or should I say customers.

If universities did not function like businesses in the first place, all these costly projects would be obsolete. Then, these financial resources could be allocated to the educators, supporting both them and the students. If U.S. high school students actually had to compete for a free education, the universities would fill themselves automatically and also get more promising, dedicated and deserving students in the same token.

While regulating education very strictly is important, higher taxes are inevitable sooner or later. Now, before you angrily stop reading this article, there is a logic behind this argument. If taxes are applied correctly and effectively, us taxpayers reap all the benefits from them in a sort of a self-investment process. By paying taxes we are in fact not losing money, we are “buying” things like the bridges, highways and streets we use daily. I believe it to be ironic that we are taken advantage of with how education works now. Universities are feeding off the federal support that ultimately comes from your hard-earned money. With a tax raise and ultimately more honesty, we could sustainably develop education in the United States and propel our nation to a leader in the fields of research, technology and development.  

Conclusion

“Now is the time to make real the promises of democracy,” said Dr. Martin Luther King in his famous speech on Capitol Hill in 1963. As Americans, we lavishly celebrate freedom fighter like him. We identify with his noble quest for freedom as it is deeply rooted in our national identity. Nonetheless, we openly disrespect his values, his ideals and his mission with our everyday actions. We have moved on from a segregated nation in theory. Nevertheless, America is a long way from being fair. It is time to speak up against this system of education that is characterized by inequality and oppression. Some population groups heavily suffer from childhood poverty, crime rates and violence due to simply being denied equal opportunity. It is time to level the playing field and engage in a fair competition that will truly propel the United States to the leader of the free world. In honor of Dr. Martin Luther King Junior, I would like to openly declare that I have a dream myself. I dream that one day, all people regardless of their skin color, their social or economic status will have equal access to a college education. I dream that one day, affluent people cannot cheat their way out of hard work anymore. I wholeheartedly dream, that we as Americans, will in fact stand to the values that we hold so high by finally abandoning the last traces of segregation and discrimination polluting our society.

I challenge you to do something against this wrong – not through violence – but with nonviolent determination in its purest form. When we finally learn that the few exploiting the many has never and will never work in the long run, the U.S. will resurrect as a veritable beacon of integrity, justice and opportunity. While my 20-year-old self looks at the future with both fear and hope, I know for a fact that things can only change through our joint efforts and unshakable commitment. The 2008 financial crisis showed us what happens when we let corporate greed spread like the virus it is. It will alter, destroy and end real human lives. Fellow Americans, let us shape an America that we are truly proud to call our home. Do not let our future childrens’ dreams be suffocated by the weight of monetary greed and evil. After all, nobody other than MLK himself, brought it to the point once again when he faithfully declared: “1963 is not an end but a beginning.”


[1]https://www.washingtonpost.com/news/grade-point/wp/2015/07/20/how-many-colleges-and-universities-do-we-really-need/?noredirect=on&utm_term=.ad4343509650

[2]https://www.usnews.com/education/best-colleges/paying-for-college/articles/paying-for-college-infographic

[3]https://nces.ed.gov/fastfacts/display.asp?id=76

[4]https://www.forbes.com/sites/zackfriedman/2019/02/25/student-loan-debt-statistics-2019/#281d93f7133f

[5]https://www.teachforamerica.org/stories/why-we-say-opportunity-gap-instead-of-achievement-gap

[6]https://www.bls.gov/ooh/education-training-and-library/postsecondary-teachers.htm#tab-5

[7]https://www.census.gov/library/publications/2018/demo/p60-263.html

[8]https://www.usnews.com/education/best-colleges/the-short-list-college/articles/10-universities-with-the-biggest-endowments

[9]https://www.washingtonpost.com/business/harvard-endowment-needs-to-lower-fees-not-pay/2019/06/04/6156d13e-86c1-11e9-9d73-e2ba6bbf1b9b_story.html?utm_term=.e1391b4e6d57

[10]https://www.forbes.com/sites/nathanlewis/2017/02/17/u-s-colleges-where-does-the-money-go/#73e2fc5573ca

[11]http://www.nonprofitfacts.com/NY/Colgate-University-Treasurers-Office-Office-Of-Accounting-Control.html#statementOfRevenue

[12]https://about.collegeboard.org/overview

[13]https://www.businessinsider.com/the-sat-may-have-been-changed-to-help-college-board-maximize-revenue-2014-3

[14]https://www.forbes.com/sites/robertfarrington/2018/12/12/student-loan-bubble-wont-burst/#2d9952736768

[15]https://www.hmc.harvard.edu/

[16]https://www.cincinnati.com/story/news/2018/07/16/heres-how-much-money-university-presidents-make-around-cincinnati/787527002/

[17]https://www.theatlantic.com/business/archive/2013/09/the-reform-of-for-profit-colleges-can-they-give-up-their-predatory-ways/279850/

About Activist Staff

Leave a Reply

Your email address will not be published. Required fields are marked *