The Sweet Briar Dilemma: Will Predatory Lending Take Down More Colleges?

Mar 16, 2015Alan Smith

After 114 years of educating young women in rural Virginia, Sweet Briar College recently announced that the 2015 academic year would be its last. It’s closing its doors, administrators say, because its model is no longer sustainable.

After 114 years of educating young women in rural Virginia, Sweet Briar College recently announced that the 2015 academic year would be its last. It’s closing its doors, administrators say, because its model is no longer sustainable.

There are plenty of people coming out of the woodwork to explain Sweet Briar's problems. Dr. James F. Jones, the school’s president, claims that there are simply not enough people who want to attend an all-women's rural liberal arts school (though application numbers and some pundits disagree); he blames the discount that the school was giving to low-income students for the institutional budget shortfall. Billionaire investor Mark Cuban says that Sweet Briar has fallen victim to the student loan bubble and that students are unwilling to commit the money to attend, which sounds a lot like the blame-the-homeowner narrative that came out of the 2008 financial crisis.  Others are wringing their hands that small colleges in general are doomed.   

These takes are varied and complex, but they are all missing an important point: that predatory banking practices and bad financial deals played an important and nearly invisible role in precipitating the school’s budget crisis.  

A quick look at Sweet Briar’s audited financial reports (easily available in public records) reveals enough confusing and obfuscating financial-speak to last a lifetime, but a few days of digging did manage to unearth a series of troubling things.  

A single swap on a bond issued in June 2008 cost Sweet Briar more then a million dollars in payments to Wachovia before the school exited the swap in September 2011. While it is unclear exactly why they chose 2011 to pay off the remainder of the bond early, they paid a $730,119 termination fee. For a school that was sorely strapped for cash, these fines and the fees that accrued around this deal (which are hard to definitively pick out from financial documents) couldn't have come at a worse time.  

Just how big a deal are these numbers? The school has a relatively small endowment even among small liberal arts colleges: currently valued at about $88 million, with less then a quarter of that total completely unrestricted and free to spend. But in 2014, the financial year that appears to have been the final straw for Sweet Briar, total operating revenues were $34.8 million and total operating expenditures were $35.4 million, which means that the deficit the school is running is actually smaller than the cost of any of the bad deals it’s gotten itself into with banks. 

All of this puts in a very stark light the fact that the early retirement of debt (in other words, the losses the school suffered on the overall value of the bonds it had taken out because it decided to pay them back early) cost the school over $9 million in 2011 and more than $13 million in 2012. Why did the school accrue these costs? We have no way of knowing if it was bad advice from bankers, negligent trustee members covering a mistake, or a well-intentioned plan that hit at the wrong time.  

What we can say, though, is that a million dollars here and a million dollars there adds up to real money that was desperately needed as Sweet Briar fought to stay afloat.  

We know that Wall Street collects higher fees on risky and complicated deals involving variable rate debt and hedging instruments, like the ones found in Sweet Briar's last few decades of financials, than from fixed rate debt deals. We know that they add on things like credit enhancements, further driving up the costs. We know that those higher fees mean that there is a clear financial incentive to sell schools, municipalities, and pension funds on these risky deals. And we know that it works in Wall Street's favor that someone like me can spend days digging into this stuff and still not be totally sure what the exact costs of these deals are.  

What we don't know is how all these things were allowed to happen at this particular school in this particular timeframe.  

Sweet Briar appears slated to close because it is a small organization without the resources to counter the huge information imbalance that has helped precipitate the financialization crisis. It is closing because it signed some terrible deals to get what must have felt like "needed" money at the time. You can see the reasons: a $14 million bond (with swaps) in 2001 for campus improvements. A $10 million bond in 2006 to pay off other bonds that had revealed their ugly side and were costing the school too much to be allowed to fully mature. But, as has so often been the case in everything from municipal finance to personal home loans, there was a problem in the small print. Like many other colleges, what appeared to be vital and even beneficial deals turned out to be nothing of the sort. Unlike many others, Sweet Briar was already close enough to the financial brink that these ongoing debts made the difference between staying open and closing its doors.  

There are, of course, other very real pressures on Sweet Briar. Lower enrollment numbers do really hurt a school, and there are real questions about how to keep small, rural liberal arts institutions competitive in a higher education economy. None of these issues, however, compare to the fees, fines, penalties, and other losses that are all over Sweet Briar’s books. 

Is Sweet Briar the canary in the coalmine? Banks are certainly making obscene profits on the backs of the swap deals in the UC system, at the University of Michigan, and at American University — and those are the places that we’ve found in our first month of looking. While those schools are solvent enough that these swaps are not pushing them to the brink of closing, they are exacerbating budget shortfalls and passing debt on to students through increased costs. These deals are also clearly making money for many school trustees whose day jobs happen to be with the giant banks. Here I find myself agreeing with Mark Cuban, at least in part: these trends are a part of a vicious cycle of borrowing that is wholly unsustainable, and will eventually lead to a crisis.  

This is why the Roosevelt Institute | Campus Network is working to track the ways in which financial institutions are extracting wealth from our colleges and universities, and make a clear case for demanding our money back. I hope that the storied institution of Sweet Briar can find a way to keep its doors open in 2016, but even if it fails, that failure should wake us up to predatory practices at colleges and universities around the country.   

Questions? Concerns? Interested in my math? Drop me a line.

Alan Smith is the Roosevelt Institute | Campus Network's Associate Director of Networked Initiatives.

Share This

Roosevelt Reacts: What Else Did We Need From the 2015 State of the Union?

Jan 23, 2015

Roosevelt Institute | Campus Network members and alumni weigh in on President Obama's sixth State of the Union address.

Brett Dunn, University of Alabama '17:

Roosevelt Institute | Campus Network members and alumni weigh in on President Obama's sixth State of the Union address.

Brett Dunn, University of Alabama '17:

In the face of strong Republican opposition, President Obama made his stance on many controversial topics quite clear. He outlined his views on topics such as the minimum wage, equal pay for women, LGBTQ+ rights, tax reform and more. These bold and somewhat ambitious goals for change in 2015 will require bipartisan compromise in Congress. It is likely, however, that there will be little correlation between President Obama’s bold vision for the future of the United States and Congress’ actions in the final two years of his presidency. No matter how wonderful or ambitious President Obama’s plans are for the country, the likelihood of any these issues being independently addressed by a Republican controlled Congress is very slim. Yet the president’s plans do not fall on deaf ears. President Obama’s speech gives Democrats in Congress and, more importantly, the American public, ammunition against the Republican’s inevitable inaction, which could potentially help set the stage for the 2016 election.

Chisolm Allenlundy, University of Alabama '16:

It was difficult to miss the amount of politics that happened on Tuesday at President Obama’s next-to-last State of the Union address. What might have been easy to miss, however, was the meaning of it all.

President Obama knows that his days of passing game-changing progressive legislation are over. This is a common position for 4th-quarter presidents to find themselves in, and Obama did exactly what such presidents do when they can no longer effectively push for policy change: they push for culture change.

But most Americans don’t watch the political process so much as they hear about it from media sources, which put their own spin on material. According to consumer watch company Nielson, 31.7 million people tuned in for the SOTU, and even that figure is at a 15-year low. While the president has attempted to set the direction for progressive politics for the next year, policy change will be a struggle, and he needs to reach many more Americans to steer the course on our political culture. 

Tarsi Dunlop, Middlebury College '09:

Middle class economics played a key role in the President’s 2015 State of the Union. He explained that middle class economics is about the policies needed for average American families to get ahead. These policies aren’t handouts, but they make daily life better, easier, more fulfilling. For example, what if students could graduate from K-12 with good grades and know they had the option of going to community college without the staggering cost of debt? Granted, there are certain investments that must be made to make sure that community colleges are, as an institution, prepared for the role the President wants them to serve for our nation’s youth.

The President also touched on other elements of middle class economics: key policy proposals that will help young people, new families, and the elderly. He emphasized affordable day care (right now monthly costs can run higher than a mortgage payment), as well as paid family leave and sick leave. Families shouldn’t have to choose between time with new babies and paid work, nor between working and staying home with a sick child. We need a vision and a budget to help the middle class thrive and it was great to hear concrete proposals in the President’s speech.

Hayley Brundige, University of Tennessee, Knoxville '17:

Obama's State of the Union Address illustrated just how far we still have to go in the fight for gender equality. I was ecstatic when Obama asserted that the right to quality childcare and paid maternity and sick leave are not just “women's issues” — as they are often brushed aside as — but a “national economic priority.” But in the back of my mind, I was dismayed that this concept that is so obviously a human right is still so far from being obvious to our elected officials. 

Noticeably missing from the speech was any mention of preventing sexual assault, especially on college campuses. This was particularly surprising seeing as the administration has made this issue a point of focus recently, creating a White House task force on sexual assault and investigating colleges for Title IX violations. Obama even had a readily supplied anecdote, as campus activist and sexual assault survivor Emma Sulkowicz was literally in the audience. As a college student, I applaud Obama's efforts to make community college more accessible, but it's disheartening for him to not address the importance of keeping our campuses safe. No president on record has discussed sexual assault in a State of the Union address.

Zachary Agush, Wheaton College '12:

Over the years, President Obama has always integrated personal stories into his annual State of the Union addresses to paint a visual about the troubles individuals may be facing or to explain how a certain effort can help spark further growth and development for others. I have always considered that a major strength. This year’s speech focused in particular on young families. The President knows that the new generation is quickly becoming the majority of the nation's population and that the lingering inequalities and economic hardships will definitely make it increasingly difficult for them to have the quality of life they desire. This generation is also going to struggle to maintain Social Security and Medicare for those entering these safety net programs in the coming decade. I think those stories in particular hit some members of Congress, even those of the new Republican majority, that something needs to be done to at least give the next generation a chance at success. I am cautiously optimistic that something may happen - but it will only happen if this Congress can actually stop and think about how their gridlock is directly affecting the next generation. Maybe then, there can be progress.

Sarah Hilton, Wheaton College '16:

President Obama made huge strides for education policy on Tuesday night; even raising the issue of rising college tuition is a positive step forward. However, the President hardly mentioned the K-12 system. He praised rising graduation rates and higher test scores then ever before, but ignored the staggering inequality and lack of student performance when compared internationally. Obama’s two-year community college plan, while economically beneficial for the middle class, shows that our base expectations for education continue to require more time and expense.

The focus instead should be on improving the K-12 system we already have by creating more diverse programs that train students for a variety careers from academic to vocational. Today, about half of students begin community college in remedial classes. We should be making our high schools more effective at reaching students. Vocational training for profitable and interesting jobs can be done in high school, and academic programs should be strengthen to reduce the need for remedial classes in community colleges. Strengthening the underlying K-12 system and increasing vocational training would have an earlier impact on our students’ lives.

Jas Johl, University of California, Berkeley '08:

The main rhetorical touch point for the state of the union was 'middle class economics.' Throughout the address, Obama repeatedly turned to that concept, presenting policy ideas designed to bolster it.  Of paramount importance to the ongoing success of middle class, he argued, would be to make the first two years of community college free for all. This proposal does address some of the symptoms of growing economic inequality, namely rising student debt. Nonetheless, it overlooks the underlying, systemic issues at the core of the problem: the broken state of our current education system. 

As The Institute for College Access & Success and the Brookings Institute have both argued, the majority of those attending community college are already getting their tuition covered through Pell Grants and other means of financial support. I’d argue the more pressing issue is the fact that many of the students who enroll in community colleges are ill-prepared for 4-year universities, and spend the first two years of college taking remedial college (read: high school) courses that they didn't do well in or even pass the first time. Free college doesn’t help a student who isn’t ready for it.

Obama makes the very valid point that making those colleges free would assuage the financial burden of a large number of young adults, and likely precipitate a better-prepared workforce. But a glaring absence in the president's speech was acknowledgement of the fundamental cracks in our institutions, namely, our already free K-12 educational system. Real middle class economics necessitate not just free education, but better education for all.

Share This

Daily Digest - January 15: Free Community College Is "A Better Way" For Financial Aid

Jan 15, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Daily Report (AM950 Radio)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Daily Report (AM950 Radio)

Roosevelt Institute Fellow Mike Konczal discusses his recent article about the benefits of the president's free community college plan. Mike's segment begins at 28:00.

How Congress is Crippling Our Tax Collection System, in Charts (WaPo)

Catherine Rampell breaks down a report explaining how cuts to the IRS budget are impacting its ability to actually collect the taxes that are owed, with fewer staff to investigate tax evasion.

Republicans Use 'Death by a Thousand Cuts' Strategy to Deregulate Wall Street (The Guardian)

Republicans in the House have passed their first bill to weaken Dodd-Frank, and David Dayen says there are more to come as the GOP attaches deregulation to all kinds of unrelated must-pass bills.

Obama Stands At Crossroads On Financial Reform (ProPublica)

Jesse Eisinger says that with Republicans in control of Congress, it's time for the Obama administration to go big to protect the modest reforms created by Dodd-Frank.

As Profits Fall, JPMorgan Rejects Calls To Break Up The Megabank (Buzzfeed)

Matthew Zeitlin reports on recent suggestions that JPMorgan could be more profitable if it were split up. CEO Jamie Dimon instead blames regulators for drops in profits.

We Don’t Just Need ‘More Jobs’—We Need Higher Wages (In These Times)

Leo Gerard, President of United Steelworkers, says that the new jobs showing up on the jobs report aren't enough without higher wages for workers whose wages have been nearly stagnant for 35 years.

New on Next New Deal

Is Inequality Killing U.S. Mothers?

Roosevelt Institute Fellow Andrea Flynn ties the United States' embarrassingly high maternal mortality rates to economic inequality's broader impact on health and mortality.

Share This

Daily Digest - January 12: Free Community College is Simpler Than Financial Aid

Jan 12, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Did Obama Just Introduce a ‘Public Option’ for Higher Education? (The Nation)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Did Obama Just Introduce a ‘Public Option’ for Higher Education? (The Nation)

Roosevelt Institute Fellow Mike Konczal says free community college for all would be easier to run and more popular than means-tested financial aid models like Pell Grants.

Why Is the Financial Industry So Afraid of This Man? (Salon)

Sean McElwee and Lenore Palladino say blocking Roosevelt Institute Chief Economist Joseph Stiglitz from an advisory panel is just one sign of the financial industry's influence over its regulators.

December Caps Off a Year of Strong Job Growth But Stagnant Wages (Working Economics)

Elise Gould looks at the 2014 data and says that while the numbers are mostly positive, it's concerning that at this rate, we won't reach pre-recession labor market health until August 2017.

There's An Awful Side to the Jobs Report (Business Insider)

Shane Ferro says that while the December jobs report was largely good, the drop in average hourly earnings is a sign of trouble, especially with basically flat wage growth since early 2010.

Kicking Dodd-Frank in the Teeth (NYT)

Gretchen Morgenson breaks down the details of a Republican bill that claims to make "technical corrections" to Dodd-Frank, but would actually seriously weaken financial reform.

As White House Defends Unions, States Go on the Attack (AJAM)

Republican midterm victories at the state level will mean more anti-union "right to work" laws and other policies that weaken the labor movement, writes Ned Resnikoff.

New on Next New Deal

Can Community College Systems and Infrastructure Handle Free Tuition?

Rachel Kanakaole, New Chapters Coordinator for the Western Region of the Campus Network, questions whether community colleges can handle the increased enrollment that will come with free tuition.

Share This

Can Community College Systems and Infrastructure Handle Free Tuition?

Jan 9, 2015Rachel Kanakaole

The President's proposal for free tuition is exciting, but some parts of the plan may need revision if community colleges are going to be able to execute it.

“We don’t expect the country to be transformed overnight, but we do expect this conversation to begin tomorrow.”

The President's proposal for free tuition is exciting, but some parts of the plan may need revision if community colleges are going to be able to execute it.

“We don’t expect the country to be transformed overnight, but we do expect this conversation to begin tomorrow.”

The conversation President Obama’s domestic policy chief, Cecilia Munoz, is referring to is one that we are all familiar with: access to quality education. This extended conversation, which continued today with the president's speech at Pellissippi Community College in Knoxville, Tennessee, includes President Obama’s new proposal to make the first two years of community college completely free for students looking to transfer, or to get an associates degree or technical job training.

The president’s proposal, America’s College Promise, is looking to build a shared responsibility between the federal government, states, colleges. and students across the country to reexamine and reinvest in our education systems. Modeled after similar plans currently being adopted by states such as Tennessee, community colleges offering programs that fully transfer, or provide a degree or job training would be eligible for funding from the federal government to help make tuition free for students. The program would apply to half- and full-time students who maintain a minimum 2.5 GPA and make “steady progress” towards their goals. What exactly “steady progress” means remains to be clearly defined, along with many other details, such as where the federal funding will come from. President Obama says he will release those details in his State of the Union address on January 20.

Even without all of the specifics, I can say that as a current community college student, access to and affordability of classes is crucial in determining whether or not I will graduate in a timely manner. However, it is not solely lack of money that hinders us students from being able to complete a program in two years, but a combination of multiple infrastructural issues such as course offerings, classroom space, and most importantly, proper guidance to navigate the complex systems that are the basis of the college itself. America’s College Promise is not only aiming to provide the always-needed financial assistance, but also requiring colleges to adopt “promising and evidence-based institutional reforms to improve student outcomes,” such as the successful Accelerated Student in Associates Program (ASAP) at the City University of New York.  Programs such as ASAP provide much needed resources such as guidance, counseling, and schedule planning, which are all crucial components to graduating on time.

The Obama administration believes adopting research-backed programs, like ASAP, nationwide, will provide students with the additional help needed to successfully complete their education in two years. While in theory, the blanket adoption of specific programs such as these would benefit some students in some states, it most likely would not benefit all students in all states. Take my campus, San Bernardino Valley College, which is located in the bankrupt city of San Bernardino in Southern California. What works for the population in Knoxville, Tennessee will not necessarily address the needs of students 2,000 miles across the country that are from very different economic, social, and cultural backgrounds. It could also add extra pressure on already stressed community college systems by forcing college administrators, faculty members, and students to learn and navigate yet another assistance program on campus. It seems redundant to force a community college that already has counseling services, academic advisors, and multiple assistance programs of their own to adopt additional programs, instead of encouraging better technical and skills training for those already employed on their campuses in areas such as counseling, advising, and educational planning. Many schools already provide the pathways for that type of guidance and counseling to occur, they just need to be reexamined and reinvigorated instead of ignored and replaced.

Another major question this proposal brings up is one of capacity. Again, using my community college as an example, with close to 13,000 students enrolled full-time, classroom space is already extremely limited, financially and physically. Schools would be pressured to create additional course offerings to accomodate higher enrollment, which is already an issue colleges across the country have had great difficulty with.

So, can America’s College Promise truly be fulfilled? I believe so, but not until a few critical components are reexamined and rewritten. The intention is there, but thankfully this is not a final proposal and is continuing to undergo development.

Rachel Kanakaole is the Chapter Head of the San Bernardino Valley Community College chapter of the Roosevelt Institute | Campus Network and one of the New Chapters Coordinator for the Western Region.

Share This

On President Obama's Community College Plan and Public Options

Jan 9, 2015Mike Konczal

Looks like a smart plan he announced yesterday. I wrote about it, and public options more generally, here at The Nation. I hope you check it out!

Follow or contact the Rortybomb blog:
 
  

 

Looks like a smart plan he announced yesterday. I wrote about it, and public options more generally, here at The Nation. I hope you check it out!

Follow or contact the Rortybomb blog:
 
  

 

Share This

Daily Digest - December 10: Young People Want Political Engagement Across the Calendar

Dec 10, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Millennials Need to Turnout Every Day, Not Just Election Day (Huffington Post)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Millennials Need to Turnout Every Day, Not Just Election Day (Huffington Post)

Joelle Gamble, National Director of the Roosevelt Institute | Campus Network, argues that young people want to be asked not just to show up to the polls, but to be engaged in the political process year-round.

New York's Signature College Aid Program Turns 40, But Falls Short of Meeting Needs (Gotham Gazette)

Roosevelt Institute | Campus Network Leadership Director Kevin Stump proposes ways to update New York State's Tuition Assistance Program, which he argues is woefully out of date after 40 years.

Elizabeth Warren's Latest Wall Street Attack Was Her Boldest Yet (TNR)

David Dayen reports on Senator Warren's speech at yesterday's "Managing the Economy" conference, co-sponsored by the Roosevelt Institute. The senator directly attacked Wall Street's influence on financial policy.

Workers at Amazon Warehouses Won't Get Paid for Waiting in Security Lines (Bloomberg Businessweek)

Josh Eidelson reports on the Supreme Court's decision in Integrity Staffing Solutions, Inc. vs. Busk. The Court held that workers do not have to be paid for time spent waiting for security checks.

Congressional Leaders Hammer Out Deal to Allow Pension Plans to Cut Retiree Benefits (WaPo)

Michael A. Fletcher says retirees on the plans that will be permitted to make unprecedented cuts feel betrayed by this speedy congressional decision.

How Income Inequality Holds Back Economic Growth (AJAM)

A new report examines the significant link between income inequality and slowed economic growth, which cost the U.S. as much as 7 percent of GDP from 1990 to 2010, writes Ned Resnikoff.

New on Next New Deal

Let the Fed Lend Directly to Cities and States to Save Taxpayers Billions

Roosevelt Institute Fellow Saqib Bhatti suggests that allowing the Fed to make long-term loans to municipalities would protect cities from economic crises and promote fair and sustainable development.

The Universal Declaration of Human Rights at 66: How Do We Make the Promise a Reality?

Ariel Smilowitz, Northeast Regional Policy Coordinator for the Campus Network, and Monika Johnson, a member of the Alumni Advisory Committee, call for an expanded approach to human rights, including non-state actors like corporations accepting responsibility.

Share This

Universities Can Prevent the Race to the Bottom for Labor Standards

Dec 1, 2014Alan SmithJulius Goldberg-Lewis

Some of the negative changes in the workplace brought on by new technologies can be countered by institutions like universities setting higher standards.

Some of the negative changes in the workplace brought on by new technologies can be countered by institutions like universities setting higher standards.

The past 30 years have seen a revolution in communication and analytic technology, one that has begun to shape the nature of firms and the types of work that exist in the labor market. Internet communication technology (ICT) allows firms to share information across the world at speeds that are nearly instantaneous and practically for free. With this explosion of information has been a concerted effort on the parts of firms, governments, and individuals to capture and analyze the torrent of information being produced every second.

ICT is driving transaction costs to zero, and with it comes a hollowing out of traditional corporate infrastructure. Tasks that were once cheaper to do in-house can now be outsourced to private contractors in the U.S. or around the world. The firms that are most heralded as ‘the next big thing’ are no longer producers of widgets, but platforms that connect individuals. Facebook and Twitter do not provide content, but provide access; Uber and Lyft are not taxi companies, but rather platforms that connect individual demanders and suppliers. On the other side, incumbent firms are using ICT to develop to-the-minute data on sales patterns, allowing them to track exactly when and where their workers are needed. Whether it’s in the form of surge pricing‘just-in-time’ scheduling, or contracting out nearly every function of a company, the use of ICT has profound and evolving implications for consumers and workers.

With the explosion of technology has come a scramble to achieve maximum efficiency and minimal cost. As production expands horizontally, as opposed to vertically, Millennials are discovering that a life-long career simply can’t exist in a market that’s trending towards more and more freelance and contract work. One result of all this is that Millennials have begun to look to the stories of retirement parties and 30-year Rolexes as anachronistic Mad Men-style stories of an age long gone. We don't think of ourselves as working for the same place for long periods of time, and any notion of a pension or a retirement plan is hard to imagine. 

The second troubling effect of this is a lack of accountability of the largest and most powerful corporations. The old economic model of in-house labor allowed labor disputes, liability, and accountability to be tracked to a single corporate entity. As firms increasingly turn to specialized contractors to build their websites, staff their calling centers and warehouses, drive their taxis, and run their cafeterias, corporate responsibility becomes similarly defuse. When workers lose overtime pay at an Amazon fulfillment center, should the contractor or the parent company be at fault? Should the private contractor hold all the accountability, or should Amazon accept some responsibility? There is no sense that this new wave of "sharing economy" businesses is doing anything other then creating structured marketplaces, and skimming money off the top. This leaves the people doing the work – as Uber drivers and Airbnb hosts – without anything to hold on to. As firms continue to contract, and subcontract, the economic befits to workers shrink dramatically, and there is an increased incentive to cut costs and corners. These cases are just coming to the surface, and no doubt will shape the labor landscape immensely.

It is precisely because of this complex and rapidly changing social situation that anchor institutions like colleges and universities need to take the lead in providing wages and careers that make sense. Anchor institutions, which are generating more attention in the post-recession economy, are those mission-driven institutions that are large sources of capital, purchasing, and employment, and which are tied to their communities. Unlike traditional firms, an anchor cannot move to another country for lower taxes, and they are often public or receive large amounts of public investment. Anchors hold a special place in our society: they are not corporations governed by a single-bottom line reality, and their missions are often directed toward and even mandate the promotion of the social good.

They also have real economic clout: One classic anchor type, universities, account for approximately 3 percent of U.S. gross domestic product, and they employ more than 3 million people. The hospital industry has an even larger impact with some 5 million employees. And these anchor institutions, tied as they are to location, are perfectly positioned to end the race to the bottom that is happening in other sectors. They will be able to reap the benefits from more money being injected in a local community, and they will grow as the social safety net continues to grow around them.

Anchors, working together, can do more than create a few hundred jobs at good wages with a real retirement plan. Anchors working together can set strong city-wide baselines for wages, and serve as a driving factor for economic development, public safety, local purchasing, and quality-of-life initiatives. Further, anchors actually have a values-based, mission-driven call to this work. As Millennials become a greater share of the workforce, it is on us to ensure that the economy of the future is one that promotes responsibility, accountability, growth, and equality. The technological strides of the past few decades have been enormous, and while they have allowed businesses to continue on a race to the bottom, they have also connected and mobilized a generation. In order to shift the national dialogue, the Campus Network has always believed that one must start at the local level. In order to ensure that the businesses of the future work for everyone, it must be shown that they can. The global brand of anchor institutions, from top tier universities to pioneering hospitals, have the soapbox, the moral imperative, and the means to drive this change, and a more democratic economy can begin to grow based on the successes of anchor reinvestment.

Alan Smith is the Associate Director of Networked Initiatives at the Roosevelt Institute.

Julius Goldberg-Lewis is the Midwestern Regional Coordinator for the Roosevelt Institute | Campus Network and a senior at the University of Michigan.

Share This

Leadership Wanted: Governor Cuomo, Homeless Students Need College Support

Nov 20, 2014Kevin Stump

For homeless youth to make it through college, they need extra support, best provided through a government program of homeless liaisons.

For homeless youth to make it through college, they need extra support, best provided through a government program of homeless liaisons.

New York has been among the top 10 states with unaccompanied homeless youth (UHY) filing for federal financial aid for the last three years. In a private report to the National Association for the Education of Homeless Children and Youth, the United States Department of Education, reports that there were 2,215 college students applying for financial aid in New York who indicated on their Free Application for Federal Student Aid that they were homeless last year. This number does not include undocumented youth who are not eligible to apply for federal or state aid.

Unfortunately, these students are often left behind. It wasn’t until last year that New York changed an extremely outdated component of its $1 billion Tuition Assistance Program (TAP) that updated this 40-year-old in-state need-based financial aid program. The change made it so UHY are now eligible for the maximum TAP award of $5,165 that Dependent students are eligible for, versus the maximum TAP award of $3,025 available to Independent students.

In addition to outdated laws that limit the amount of aid they can receive, UHY face a number of other challenges including food insecurity, a lack of adult guidance and support, failure to access available support systems, lack of access to parental financial information, limited housing options, and a lack of financial means to live independently and safely.

New York should create a policy that models the federal McKinney-Vento Act on a college level. This landmark piece of legislation successfully creates safety nets and institutional support structures for K-12 students. By law, every school district in the country, and every school building in New York City, is required to have a liaison who is responsible for coordinating support and resources for homeless and unaccompanied youth. Every year, liaisons are required to undergo training to stay current on best practices to support and assist homeless students. Furthermore, their work has given lawmakers data and information on the best ways to support these communities.

There are more than 130,000 K-12 homeless students in New York. Among those students, nearly 11,000 11th and 12th graders approaching the end of their high school careers. These are only the numbers that are reported and do not account for the possibility of additional students who are in need.

Given the number of colleges and universities, the number of community based organizations and support networks that exist, and the high-level of poverty in New York, the state has the potential to become a leader in creating a framework of how states should build support systems for unaccompanied homeless youth to access and succeed in college.

Governor Cuomo should initiate the policy process to develop a law requiring a homeless liaison at every brick-and-mortar college and university in the state, to ensure that all former McKinney-Vento students are supported during their transition into college and throughout their tenure until graduation. The homeless liaison would be the first point of contact for professionals working with these young people and for the students who experience, or who are at risk of experiencing, homelessness while at college. The liaison would also be charged with coordinating all needed services. In addition, the liaison would be responsible for tracking and reporting all relevant data to help inform future policy regarding homeless college students and develop greater support services.

This kind of support and data-gathering could potentially exist without legislation. However, this issue is a prime example of where the state could do it better and more comprehensibly. With legislative protections and teeth to ensure sustainable and uniformed support is given, as well as appropriate resources for service delivery, training, technology, data collection, and future statewide policy initiatives, the liaisons will be able to provide better support to UHY in college. A statewide policy setting up liaisons would establish an infrastructure that can be used to easily implement future policy.

As economic inequality and homelessness rates remain high, and college attainment continues to be so crucial, it’s critical that New York take action to protect our most at-need college students to ensure that those who are pursuing their dreams don’t slip through the cracks.

Kevin Stump is the Roosevelt Institute | Campus Network Leadership Director.

 

Share This

The UNC Coup and the Second Limit of Economic Liberalism

Nov 13, 2014Mike Konczal

There was a quiet revolution in the University of North Carolina higher education system in August, one that shows an important limit of current liberal thought. In the aftermath of the 2014 election, there’s been a significant amount of discussion over whether liberals have an economic agenda designed for the working and middle classes. This discussion has primarily been about wages in the middle of the income distribution, which are the first major limit of liberal thought; however, it is also tied to a second limit, which is the way that liberals want to provide public goods and services.

So what happened? The UNC System Board of Governors voted unanimously to cap the amount of tuition that may be used for financial aid for need-based students at no more than 15 percent. With tuition going up rapidly at public universities as the result of public disinvestment, administrators have recently begun using general tuition to supplement their ability to provide aid. This cross-subsidization has been heralded as a solution to the problem of high college costs. Sticker price is high, but the net price for poorer students will be low.

This system works as long as there is sufficient middle-class buy-in, but it’s now capped at UNC. As a board member told the local press, the burden of providing need-based aid “has become unfairly apportioned to working North Carolinians,” and this new policy helps prevent that. Iowa implemented a similar approach back in 2013. And as Kevin Kiley has reported for IHE, similar proposals have been floated in Arizona and Virginia. This trend is likely to gain strength as states continue to disinvest.

The problem for liberals isn’t just that there’s no way for them to win this argument with middle-class wages stagnating, though that is a problem. The far bigger issue for liberals is that this is a false choice, a real class antagonism that has been created entirely by the process of state disinvestment, privatization, cost-shifting of tuitions away from general revenues to individuals, and the subsequent explosion in student debt. As long as liberals continue to play this game, they’ll be undermining their chances.

First Limit: Middle-Class Wages

There’s been a wave of commentary about how the Democrats don’t have a middle-class wage agenda. David Leonhardt wrote the core essay, “The Great Wage Slowdown, Looming Over Politics,” with its opening line: “How does the Democratic Party plan to lift stagnant middle-class incomes?” Josh Marshall made the same argument as well. The Democrats have many smart ideas on the essential agenda of reducing poverty, most of which derive from pegging the low-end wage at a higher level and then adding cash or cash-like transfers to fill in the rest. But what about the middle class?

One obvious answer is “full employment.” Running the economy at full steam is the most straightforward way of boosting overall wages and perhaps reversing the growth in the capital-share of income. However, that approach hasn’t been adopted by the President, strategically or even rhetorically. Part of it might be that if the economy is terrible because of vague forces, technological changes and necessary pain following a financial crisis, then the Democrats can’t really be blamed for stagnation. That strategy will not work out for them.

The Democrats (and even many liberals in general) also haven’t developed a story about why inequality matters so much for the middle class. There are such stories, of course: the collapse of high progressive taxation creates incentives to rent seek, financialization makes the economy focused less on innovation and more on disgorging the cash, and new platform monopolies are deploying forms of market power that are increasingly worrisome.

Second Limit: Public Provisioning

A similar dynamic is in play with social goods. The liberal strategy is increasingly to leave the provisioning of social goods to the market, while providing coupons for the poorest to afford those goods. By definition, means-testing this way puts high implicit taxes on poorer people in a way that decommodification does not. But beyond that simple point, this leaves middle-class people in a bind, as the ability of the state to provide access and contain costs efficiently through its scale doesn’t benefit them, and stagnating incomes put even more pressure on them.

As noted, antagonisms between the middle class and the poor in higher education are entirely a function of public disinvestment. The moment higher education is designed to put massive costs onto individual students, suddenly individuals are forced to look out only for themselves. If college tuition was largely free, paid for by all people and income sources, then there’d be no need for a working-class or middle-class student to view poorer student as a direct threat to their economic stability. And there's no better way to prematurely destroy a broader liberal agenda by designing a system that creates these conflicts.

These worries are real. The incomes of recent graduates are stagnating as well. The average length of time people are taking to pay off their student loans is up 80 percent, to over 13 years. Meanwhile, as Janet Yellen recently showed in the graphic below, student debt is rising as a percentage of income for everyone below the bottom 5 percent. It’s not surprising that studies find student debt impacting family formation and small business creation, and that people are increasingly looking out for just themselves.

You could imagine committing to lowering costs broadly across the system, say through the proposal by Sara Goldrick-Rab and Nancy Kendall to make the first two years free. But Democrats aren't doing this. Instead, President Obama’s solution is to try and make students better consumers on the front-end with more disclosures and outcome surveys for schools, and to make the lowest-income graduates better debtors on the back-end with caps on how burdensome student debt can be. These solutions by the President are not designed to contain the costs of higher education in a substantial way and, crucially, they don’t increase the public buy-in and interest in public higher education.

The Relevance for the ACA

I brought up higher education because I think it’s relevant, but I think it also can help explain the lack of political payout for the Affordable Care Act. It’s here! The ACA is not only meeting expectations, it’s even exceeding them in major ways. Yet it still remains unpopular, even as millions of people are using the exchanges. There is no political payout for the Democrats.

Liberals chalk this up to the right-wing noise machine, and no doubt that hurts. But part of the problem is that middle-class individuals still end up facing an individual product they are purchasing in a market, except without any subsidies. Though the insurance is better regulated, serious cost controls so far have not been part of the discussion. Polling shows half of the users of the exchange are unsure if they can make their payments and are worried about being able to afford getting sick. This, in turn, blocks the formation of a broad-based coalition capable of defending, sustaining, and expanding the ACA in the same way those have formed for Social Security and Medicare.

Any serious populist agenda will have to have a broader agenda for wages, with full employment as the central idea. But it will also need to include social programs that are broader based and focused on cost controls; here, luckily, the public option is a perfect organizing metaphor.

Follow or contact the Rortybomb blog:
 
  

 

There was a quiet revolution in the University of North Carolina higher education system in August, one that shows an important limit of current liberal thought. In the aftermath of the 2014 election, there’s been a significant amount of discussion over whether liberals have an economic agenda designed for the working and middle classes. This discussion has primarily been about wages in the middle of the income distribution, which are the first major limit of liberal thought; however, it is also tied to a second limit, which is the way that liberals want to provide public goods and services.

So what happened? The UNC System Board of Governors voted unanimously to cap the amount of tuition that may be used for financial aid for need-based students at no more than 15 percent. With tuition going up rapidly at public universities as the result of public disinvestment, administrators have recently begun using general tuition to supplement their ability to provide aid. This cross-subsidization has been heralded as a solution to the problem of high college costs. Sticker price is high, but the net price for poorer students will be low.

This system works as long as there is sufficient middle-class buy-in, but it’s now capped at UNC. As a board member told the local press, the burden of providing need-based aid “has become unfairly apportioned to working North Carolinians,” and this new policy helps prevent that. Iowa implemented a similar approach back in 2013. And as Kevin Kiley has reported for IHE, similar proposals have been floated in Arizona and Virginia. This trend is likely to gain strength as states continue to disinvest.

The problem for liberals isn’t just that there’s no way for them to win this argument with middle-class wages stagnating, though that is a problem. The far bigger issue for liberals is that this is a false choice, a real class antagonism that has been created entirely by the process of state disinvestment, privatization, cost-shifting of tuitions away from general revenues to individuals, and the subsequent explosion in student debt. As long as liberals continue to play this game, they’ll be undermining their chances.

First Limit: Middle-Class Wages

There’s been a wave of commentary about how the Democrats don’t have a middle-class wage agenda. David Leonhardt wrote the core essay, “The Great Wage Slowdown, Looming Over Politics,” with its opening line: “How does the Democratic Party plan to lift stagnant middle-class incomes?” Josh Marshall made the same argument as well. The Democrats have many smart ideas on the essential agenda of reducing poverty, most of which derive from pegging the low-end wage at a higher level and then adding cash or cash-like transfers to fill in the rest. But what about the middle class?

One obvious answer is “full employment.” Running the economy at full steam is the most straightforward way of boosting overall wages and perhaps reversing the growth in the capital-share of income. However, that approach hasn’t been adopted by the President, strategically or even rhetorically. Part of it might be that if the economy is terrible because of vague forces, technological changes and necessary pain following a financial crisis, then the Democrats can’t really be blamed for stagnation. That strategy will not work out for them.

The Democrats (and even many liberals in general) also haven’t developed a story about why inequality matters so much for the middle class. There are such stories, of course: the collapse of high progressive taxation creates incentives to rent seek, financialization makes the economy focused less on innovation and more on disgorging the cash, and new platform monopolies are deploying forms of market power that are increasingly worrisome.

Second Limit: Public Provisioning

A similar dynamic is in play with social goods. The liberal strategy is increasingly to leave the provisioning of social goods to the market, while providing coupons for the poorest to afford those goods. By definition, means-testing this way puts high implicit taxes on poorer people in a way that decommodification does not. But beyond that simple point, this leaves middle-class people in a bind, as the ability of the state to provide access and contain costs efficiently through its scale doesn’t benefit them, and stagnating incomes put even more pressure on them.

As noted, antagonisms between the middle class and the poor in higher education are entirely a function of public disinvestment. The moment higher education is designed to put massive costs onto individual students, suddenly individuals are forced to look out only for themselves. If college tuition was largely free, paid for by all people and income sources, then there’d be no need for a working-class or middle-class student to view poorer student as a direct threat to their economic stability. And there's no better way to prematurely destroy a broader liberal agenda by designing a system that creates these conflicts.

These worries are real. The incomes of recent graduates are stagnating as well. The average length of time people are taking to pay off their student loans is up 80 percent, to over 13 years. Meanwhile, as Janet Yellen recently showed in the graphic below, student debt is rising as a percentage of income for everyone below the bottom 5 percent. It’s not surprising that studies find student debt impacting family formation and small business creation, and that people are increasingly looking out for just themselves.

You could imagine committing to lowering costs broadly across the system, say through the proposal by Sara Goldrick-Rab and Nancy Kendall to make the first two years free. But Democrats aren't doing this. Instead, President Obama’s solution is to try and make students better consumers on the front-end with more disclosures and outcome surveys for schools, and to make the lowest-income graduates better debtors on the back-end with caps on how burdensome student debt can be. These solutions by the President are not designed to contain the costs of higher education in a substantial way and, crucially, they don’t increase the public buy-in and interest in public higher education.

The Relevance for the ACA

I brought up higher education because I think it’s relevant, but I think it also can help explain the lack of political payout for the Affordable Care Act. It’s here! The ACA is not only meeting expectations, it’s even exceeding them in major ways. Yet it still remains unpopular, even as millions of people are using the exchanges. There is no political payout for the Democrats.

Liberals chalk this up to the right-wing noise machine, and no doubt that hurts. But part of the problem is that middle-class individuals still end up facing an individual product they are purchasing in a market, except without any subsidies. Though the insurance is better regulated, serious cost controls so far have not been part of the discussion. Polling shows half of the users of the exchange are unsure if they can make their payments and are worried about being able to afford getting sick. This, in turn, blocks the formation of a broad-based coalition capable of defending, sustaining, and expanding the ACA in the same way those have formed for Social Security and Medicare.

Any serious populist agenda will have to have a broader agenda for wages, with full employment as the central idea. But it will also need to include social programs that are broader based and focused on cost controls; here, luckily, the public option is a perfect organizing metaphor.

Follow or contact the Rortybomb blog:
 
  

 

Share This

Pages