This is the third in our three part interview series with American Enterprise Institute education scholars. This week, we focus on higher education.
Jason Delisle is a resident fellow at the American Enterprise Institute (AEI), where he works on higher education financing with an emphasis on student loan programs. Mr. Delisle started his career on Capitol Hill, first in the office of Representative Thomas Petri, then as an analyst for the US Senate Committee on the Budget. His work has led him to study the history and mechanics of federal student loans and other financial aid policies and to recommend budget process reforms for rules covering financial risk in government programs — including working on fair-value accounting for loan programs.
Before joining AEI, Mr. Delisle served as director of the Federal Education Budget Project at New America, where he worked to improve the quality of public information on federal funding for education and the support of well-targeted federal education policies. He was also an informal adviser on higher education reform for Governor Jeb Bush’s 2016 presidential campaign. Mr. Delisle has written for a variety of publications, including Bloomberg View, The Wall Street Journal, and The Washington Post. He has also appeared on numerous national television and radio programs, including Fox Business, National Public Radio, and the “PBS NewsHour.” Mr. Delisle has a master’s of public policy in budget and public finance from the George Washington University and a bachelor of arts degree in government from Lawrence University.
The following has been edited and condensed for clarity. The views shared here do not reflect nor do they suggest the views of the Virginia Review of Politics.
Morgan Lewis: I’m Morgan Lewis and I’m here with Jason Delisle: resident fellow in education policy studies at the American Enterprise Institute, where he focuses on higher education. Jason, thanks so much for talking with me today.
Jason Delisle: Thanks for having me.
ML: Let’s jump right in by discussing a report you released this July titled, “Low-Income Students at Selective Colleges.” In this report, you sought to discover whether the number of low-income students enrolling at top universities is declining or remaining the same. What was the impetus for this study?
JD: The general topic is something in which people in the general education and the higher education policy world are pretty interested. We have this set of very selective colleges in this country and people are becoming concerned about whether these colleges are becoming ever more selective and more expensive. If state flagship universities like UVA are under budget pressures and are, therefore, maybe looking for more out of state students to bring in more revenue, all of these forces would work together to crowd out low-income students at these selective schools.
Because, in this country, we’re very concerned about mobility and equity, we’re concerned if we have these elite institutions without any students from low-income families represented there. It’s an area that people are concerned about and interested in. But, if you look at the narrative that’s out there among journalists and among media and even in some of the policy circles and think tanks in D.C., you see this narrative that low-income students are indeed being crowded out of these schools and that the schools are becoming more economically stratified. When I’ve looked at it informally in the past – not in a research way and not with a lot of data – it didn’t look like this narrative really panned out. So, for several years I wanted to do something where we took a big data set and looked at this in a more robust way than what was typical.
ML: So, what were the primary findings?
JD: The primary findings are basically that the share of students from low-income families enrolled at the 200 most selective colleges in the country hasn’t really changed since 1999, which is as far back as we were able to go with the data. It looks pretty steady. It doesn’t really decline, which is counter to the narrative. These institutions, despite the fact that they’re getting more expensive and that their admissions rates are going down, still manage to enroll about the same share of low-income students as they have since 2000. The contribution here is that we used a dataset that no one has really used for this before. The Department of Education does a big, representative survey every four years of undergraduate college students throughout the country. It has information on how much these students earn and how much their families earn. It’s fairly reliable information because it’s pulling from their financial aid applications, which pulls from their tax returns. We put together five series of this data and tried to see if we could find change.
ML: How do you think the narrative, which was actually false, gained so much traction?
JD: That’s a good question. Well, I think it’s easy to believe that it would be true. It’s what we assume. If these schools are getting more and more expensive and competitive, it makes sense that low-income students would be a shrinking share of their enrollment and that only rich people could afford to go to these selective colleges. Since price and cost are big factors in this narrative, we said, “Well, what is happening to the price at these schools?” With this survey, we’re able to look at the price that students of different incomes pay at the same types of colleges. The price that people usually quote when they talk about higher education is the sticker price. The sticker price is the price when the colleges say, “Well, our tuition is $20,000 per year. But, that’s not actually what people pay. There’s a lot of price discrimination. Institutions of higher education, together with government aid and state aid and scholarships and grants, effectively charge students very different prices, even at the same school, because their financial situations are different. So, we were able to ask, “how much have prices changed at these selective colleges since the year 2000, but for different income groups?”
What we see is that for high-income students (high-income in our study is the top income quartile, so that means families earning over $100,000 a year), prices for those students have increased significantly at these schools. Tuition back in 2000 was around $12,000 a year and now it’s more like $20,000 after we adjust for inflation. That’s for the high-income students.
For the low-income students, tuition is flat. It hasn’t increased over this time period. It’s gone up maybe $500 or $1000, but that’s it. The reason for this is that there are federal grant programs that have kept up with inflation, and state programs and scholarships and also the colleges themselves. Among these 200 very selective schools, there is a lot of financial aid to give to these students, essentially in the form of discounts. You put all that together, and they’ve held the cost down for these students. But, if their costs are flat and students from high-income families are paying more and more, what you actually have is an elite higher education system that has become much more progressive in its pricing structure. Ironically, the folks who are concerned about these institutions becoming more and more elite and economically stratified, are generally on the political left. But, actually what is happening is something they should be happy about: these institutions are becoming more progressive in their pricing structure, charging high-income students more so that they can keep costs down for low-income students. It’s kind of a remarkable feat.
ML: Thank you. As lowly college students, considering grad school, law school, med school, etc., I think we might want to talk about student loans. So, what does it mean to “default” on a student loan and what are the consequences of defaulting?
JD: You default on a loan when you’ve missed many payments. You’re delinquent on your loan if you’ve missed maybe one, two, or three months of payments. In the financial world, after you go beyond that, they call it a default. The federal government has a generous definition of default. They will let you go a full 270 days without making a payment on your loan before they put your loan into default status. That’s what default means.
In the financial world, with auto loans, home mortgages, credit cards, etc., when people default, it’s considered a major signal of financial stress and it’s economically bad. During the housing crisis, people were defaulting on their mortgages, walking away from their homes, and having their cars repossessed. It’s a big deal and so it creates a lot of concern. The interesting thing is that student loan defaults are just kind of a different animal for a number of reasons. One is that the reasons people default on their student loans are just very different than the reasons someone might default on a mortgage. There’s not a lot of empirical, data-driven work on this. There’s a little bit. I’ve done focus groups to get some hypotheses on this.
But, the reason that people default on their student loans is that the student loan is one of the least important things in their hierarchy of payments. You’ve got to pay rent, your utility bill, and your cable bill because if you don’t pay those things, you lose something. If you don’t pay your student loan, what can they really take from you? Some people also resent having student debt much more than they resent having a car payment. It’s psychologically harder to get fired up about paying that particular bill.
ML: You’ve done some research on default rates across schools and programs. What can the default rates tell us?
JD: In the policy world, there is this inclination to use default rates on student loans as a proxy for the quality of the school. The federal government says, “Look, if 30% of the students who take out loans at your school aren’t paying the loans back, there must be something wrong with the school. There must be a quality problem, enrolling people who aren’t prepared, etc. Or, the graduates aren’t earning enough money to support the debt. Again, it’s a proxy. That’s one of the ways that the federal government is measuring the quality of schools. I’m assuming a school like UVA has a pretty low default rate on student loans. I should point out that high default rates on student loans do not tend to occur at 4-year universities. High default rates occur more at for-profit colleges and also community colleges. People who get bachelor’s degrees and who finish college tend not to default on student loans.
ML: Interesting. I keep hearing you and other scholars use the term “wage garnishment.” I probably hear it 20 times a day, but I don’t know what it is. So, what’s wage garnishment and why is it important?
JD: Yeah, we’re doing some research on what happens to people when they default on their federal student loans. One of the ways that the federal government gets its money back if you default on your student loan is that the Department of Education can garnish your wages. Now, you have to be working somewhere for this to happen. If you don’t have any wages, this doesn’t affect you. So, you have to be working somewhere and you can’t be self-employed because if you’re self-employed, the Department of Education can’t garnish your wages since you’re your own boss.
But, if you’re employed at some place like the American Enterprise Institute, and you’re not paying your student loan, the federal government would probably find that out and would send a notice to the American Enterprise Institute to take a portion of your paycheck every two weeks. They would then take that money and use it to pay your student loan. So, your wages are being garnished.
ML: Well, thank you! That’s good to clear up. Just to close things out, if you could give your college self one piece of advice about anything, what would it be?
JD: Oh, I don’t know. I just get this sense that today college kids are really motivated and really ambitious, and I’m not sure that they need the same kind of advice that I needed when I was in college. When they get these kinds of questions, I always hear people say, “Just relax. It’s going to work out.” But, there’s no such thing as risk in hindsight. Hindsight is 20/20 because yes, you knew it all worked out. What I see a lot for young people in college and coming out of college right now is that they want to advance really fast, do all these things, get really good jobs, etc. But, for the first few years when you get out of college and you’re thinking about jobs, try lots of different things. These first few years are more about apprenticeships than they are about getting on some sort of really fast career track.
ML: Thanks for talking with me today Jason! If you want to learn more about Jason’s work, check out his AEI scholar page.