Should We Stop Referring to Student Loans as "Financial Aid"?

Sep 14, 2012Mike Konczal

Students who take out loans aren't receiving special favors. They're making financial transactions like any other.

Do we make both a conceptual and analytical mistake when we refer to student loans as a form of "financial aid"? Should that term be something to be resisted? Demos' Tamara Draut brought up this point in a conversation recently, and I think it needs to be explored further, because it frames how we speak about student loans.

Students who take out loans aren't receiving special favors. They're making financial transactions like any other.

Do we make both a conceptual and analytical mistake when we refer to student loans as a form of "financial aid"? Should that term be something to be resisted? Demos' Tamara Draut brought up this point in a conversation recently, and I think it needs to be explored further, because it frames how we speak about student loans.

The government records and documents student loans as a form of aid. Here's a list of the "amount of financial aid awarded to full-time, full-year undergraduates, by type and source of aid," and loans are listed right next to grants. When pundits say that "student aid" has exploded over the past decade, and argue that aid is driving increases in tuition, it disguises that the aid that has exploded is a signficant amount of debt for young people.

I've taken out loans and received gifts. When I've signed up for, say, a car loan, I never went "oh you shouldn't have" afterwards, like when I've received a really nice birthday gift. I understood that the creditor wanted to lend me a certain amount of money at a certain rate, and I wanted to borrow it. Full stop. Unless the interest rate charged is purposely manipulated for some reason [1], there's no reason to think of this as aid at all.

Student loans are an economic transaction, the same as if the government contracted out to build a bridge, or hired a person to serve in the military or police force or be a teacher. The money spent here isn't "aid." Hiring someone to build a bridge exchanges labor for cash. Student loans exchange cash now for cash later plus interest. Those student loans would be underprovided without the government, certainly, but in the same way that bridges and law enforcement and other goods would also be underprovided if they weren't done by government.

I think this clarifies some of the issues and responses I'm seeing in the discussion about whether or not higher education is driven by increases in so-called "aid." Megan McArdle wrote in Newsweek, "In a normal market, prices would be constrained by the disposable income available to pay them. But we’ve bypassed those constraints by making subsidized student loans widely available." Let's leave aside the issue that the vision of education constrained by disposable income is Mitt Romney's vision that students should get "‘as much education as they can afford." There's a bigger issue.

I'm not sure what "normal market" means here, but many kinds of markets, perhaps even all of them, aren't constrainted by disposable income. Major, long-term debt fuels all kinds of important purchases, from houses to cars to health care to big-ticket durable goods. Events like retirement or having kids are dictated by longer-term savings decisions. Much of your monthly spending, like your rent or your cell phone, is in a contract that stipulates some future payments must be made regardless of your disposable income. There's a reason economists talk about spending as influenced by lifetime incomes.

Student loans are a way of mitigating a credit constraint, which is different than providing aid. Here it reflects not subsidized demand, but actual demand smoothed over a long time period. That's going to put a lot of demand into play. It shouldn't surprise us that demand is very high when credit constraints are removed. Higher education is one of the most important mechanisms of social and economic mobility we have, and it is also one of the primary ways we have for people to fully develop their talents and capabilities.

If actual demand overwhelms the supply of the system, that's a problem of supply, not demand. And the obvious solution is to increase the supply. Throughout our country's history we've done that in landmark bills that do it through public provisoning paid for by taxation, bills like the Morrill Act and California Master Plan. Now, as that system is left to crumble, we are looking to the private, for-profit sector to fill that gap. I fear that will only exacerbate the cost problems we've seen so far, and the data is looking that way too

But if not as a form of financial "aid," how should we refer to student loans?

[1] There's a narrow, though important, question about whether or not student loans are a "subsidy" because their interest rates are too low or too high. The Department of Education found that (R-10) for ”Direct Loans, the overall weighted average subsidy rate was estimated to be -13.91 percent in FY 2011; that is, the overall program on average was projected to earn about 13.91 percent on each dollar of loans made, thereby providing savings to the Federal Government.” What's a good word for the opposite of a subsidy? Whatever it is, student loans are that. Others argue that there needs to be a higher discount rate used to calculate this, and then you would see a subsidy. Let's assume for this post that the interest rate is seen to be fair by all parties.

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Two Issues with Megan McArdle's Piece on Higher Education

Sep 13, 2012Mike Konczal

Megan McArdle has a new cover story at Newsweek, "Is College a Lousy Investment?"  Is the benefit worth it with rising costs? Several people have addressed the benefit part, particularly Dylan Matthew here and Reihan Salam here.

Megan McArdle has a new cover story at Newsweek, "Is College a Lousy Investment?"  Is the benefit worth it with rising costs? Several people have addressed the benefit part, particularly Dylan Matthew here and Reihan Salam here.

I have a piece about higher education that I'm really excited about coming out in the next few weeks with Aaron Bady for Dissent, so I don't want to spoil it. But for now, I think there are two important things to engage with in McArdle's piece. The costs part is important, because this will likely be the center-right argument going forward, and I think it has problems in an important way. McArdle:

Vedder adds, “I look at the data, and I see college costs rising faster than inflation up to the mid-1980s by 1 percent a year. Now I see them rising 3 to 4 percent a year over inflation. What has happened? The federal government has started dropping money out of airplanes.” Aid has increased, subsidized loans have become available, and “the universities have gotten the money.” Economist Bryan Caplan, who is writing a book about education, agrees: “It’s a giant waste of resources that will continue as long as the subsidies continue.” [...]

In a normal market, prices would be constrained by the disposable income available to pay them. But we’ve bypassed those constraints by making subsidized student loans widely available. No, not only making them available: telling college students that those loans are “good debt” that will enable them to make much more money later.

This is based on something called the Bennett Hypothesis. In the 1980s Education Secretary William Bennett argued that increases in student aid largely just allowed colleges to raise their tuition, capturing all that money. If true, this would be the lowest hanging policy fruit imaginable: save money by not providing aid and lower tuition in the process.

Sadly, there's no evidence for this argument. And I mean "no evidence" not like "there's significant debate" or "reasonable people disagree," but like this has been extensively studied and the general consensus is that it is not true. I spent some time going through this research and couldn't find anything conclusive, and requests from others writing on this haven't been helpful. This could likely be true as it relates to for-profit schools -- there's a study somewhere that indicates this -- which shouldn't suprise us, as for-profits exist to suck up federal subsidies by business design. But it doesn't appear to be true for the vast majority of higher education, and to whatever extent it could be true it isn't a major driver.

 Here's a big post by David L. Warren, president of the National Association of Independent Colleges and Universities, listing all the institutions that have investigated this. Among other studies and experts quoted, here's:

“Regarding the relation between financial aid and tuition, the regression models found no associations between most of the aid packaging variables (federal grants, state grants, and loans) and changes in tuition in either the public or private not-for-profit sectors.”
 
– U.S. Department of Education National Center for Education Statistics, Dec. 2001, Study of College Costs and Prices 1988-89 to 1997-98, Vol. 1
 
“The Commission finds no evidence to suggest any relationship between the availability of Federal grants and the costs or prices in these institutions,” and “has found no conclusive evidence that loans have contributed to rising costs and prices.”
 
– National Comission on the Cost of Higher Education, February 1998, Straight Talk about College Costs & Prices
 
“After the change to the Stafford loan limits beginning in AY 2007-08, the price [of college] … increased at a rate generally consistent with prior years. [...] Overall, [previously conducted] analyses are descriptive and do not necessarily indicate a linkage between increases in the loan limits and changes in tuition or borrowing.”
 
– Government Accountability Office, May 2011, Federal Student Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
This is important, because McArdle's argument allows her to make it seem like government action to provide for higher education is largely counterproductive. Rather than examining the decreasing support for higher education, the difficulty of finding "Baumol’s cost disease" in higher education, the growth of a "hybrid" design for our public education sector, the decrease in Pell grants relative to total college costs, the way that the for-profit industry is taking over for public institutions, or the issue of risk-shifting to the individuals and providing services out of fees instead of taxes - rather than it being a choice on how we provide the essential social good of higher education, and who benefits and who loses from those choices - McArdle can imply that if the government tried to make education more affordable it would backfire and just make the problem worse.
 
This becomes even more of a problem with the second issue, the likely transmission mechanism. Just because aid goes up doesn't mean that prices must go up - the increases in food stamps haven't caused an equivalent increase in food prices. In a follow-up post to her article, she alludes to the microeconomic issue at play: "Vedder’s theory is that, as he put it, universities are raising tuition 'because they can'."
 
In economics-speak, that means that the supply of higher education is inelastic relative to price. If that's the case, then the right course of action is for the government to provide more supply at a cheaper price; i.e., free higher education. JW Mason has argued that if supply is inelastic, "each dollar spent on grants to students reduces final tuition costs less than one for one, each dollar spent on subsidies to public institutions reduces tuition costs by more." Think of it as "the public option for higher education" argument, with the same motivations. This is not a new argument. in 1899, the president of Stanford argued that “if the State makes no provision for higher education there is no other agency on which we can depend to supply it.” That seems as relevant now, over 100 years later, as it did back then.
 

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The Chicago Teachers Union Strike Viewed From the Local Level

Sep 10, 2012Mike Konczal

As of 10 p.m. last night, the Chicago Teachers Union has gone on strike. Here is a webpage for why they are striking, complete with the one-page explanation and the 46-page one. Here's PCCC's summary.

As of 10 p.m. last night, the Chicago Teachers Union has gone on strike. Here is a webpage for why they are striking, complete with the one-page explanation and the 46-page one. Here's PCCC's summary. Here's a local teacher explaining why he is on strike.

As Bill Barclay at Dissent Magazine noted, there was a special bill passed last year that required 75 percent of teachers to vote -- with absentees counted as no votes! -- to strike. Stand For Children CEO Jonah Edelman said at the Aspen Ideas Festival that “the unions cannot strike in Chicago" because that requirement, only required of teachers, was so restrictive. Turns out that this strike got 90 percent of teachers (and 98 percent if you exclude the absentees).

I reached out to two Chicago journalists and writers - Yana Kunichoff and Micah Uetricht - who are covering the situation locally to get their on-the-ground perspectives. A lightly edited transcript of the interview with each follows. I hope to have more coverage of this very important event in the days to follow.

Mike Konczal: Please introduce yourself.

Yana Kunichoff: My name is Yana Kunichoff. I'm a journalist for Truthout, which is a progressive online news magazine. I've written for a lot of independent media, where my focus has been immigration, investigative issues, and social justice activism. I've been living in Chicago for four years now.
 
Why is a strike happening?
 
YK: There are several layers to why this strike is happening. The shallowest, headline news one is because the Chicago Teachers' Union (CTU) and Chicago Public Schools (CPS) were not able to agree to a contract. A deeper reason is because this is one of the first times that an education public sector union has resisted and pushed back against the privatization and changes that have been happening in the education sector.
 
Looking back at bills passed last year and before, they all narrowed what the teachers' union is allowed to strike over. On paper, the biggest questions are on merit pay and seniority rights. But there are all these other points. Rahm Emanuel said in his press conference after the strike was declared that the two points under debate "are not financial." The two big issues under debate, from Emanuel's point of view, are teacher evaluation and principals having the full ability to hire and fire teachers.
 
What's it like for Democrats in Chicago?
 
YK: I don't know how much I can speak to the battle in the Democratic Party. There's an interesting contradiction that exists in Chicago. If you are a liberal in Chicago you support Obama, but at the same time there's a possibility you support the union. I know people supporting the campaign that support the teachers' union, even though someone associated with the administration is trying to smash it.
 
How is the Chicago community as a whole reacting?
 
YK: Chicago is a pretty divided city, with neighborhoods divided by class. I spent today riding my bike around Latino, working-class neighborhoods -- Pilsen, Little Village, and North and South Lawndale. These are areas that aren't doing well in this economy.
 
I'm seeing a lot of cars honking their horns, and police running their siren while they go by a school picket. The people that have to deal with the daily reality of school cutbacks, or mental health clinic shutdowns, or how'll they get home in winter with less public transit, the people who deal with austerity budgets, are in support of the teachers' strike.
 
Chicago is becoming increasingly gentrified, though, with more people who don't rely so much on public services. I'm not sure what they think of the strikes yet.
 
Most people will get their news from nationally-targeted coverage of the strike. As someone from Chicago, covering it locally, what would you like people to know?
 
YK: The charter system is something that started in Chicago but has since been brought national. These kinds of policies that work against teachers aren't going to stay contained to one city. This trend will continue into other cities and states, especially where unions are weak. So this is where the fight is happening. When you are here on the ground, it feels like a strong line of opposition. Opposition to policies that aren't just national but international - think of places like Greece and the more general fights against austerity happening across Europe here.
The national coverage will watch the specific contract terms, though they'll miss that 10 years from now, the specific, narrow terms will matter less than whether or not a union in an American city will have been successful in pushing back in this way. This is a fight over public resources, public jobs, and the idea of a public that isn't discussed by national media as if it exists. Will there be public schools as we understand them in 10 years?
 
I also spoke with Michah Uetricht separately.
 
Mike Konczal: Please introduce yourself.
 
Micah Uetricht: I'm Micah Uetricht, and I'm an organizer for a group called Arise Chicago as well as a freelance writer. I've been covering the teachers' strike in Chicago from the ground.
 
What is the core of this strike about?
 
MU: Last night, at the conference announcing whether or not the teachers were going to go on strike, several reporters asked CTU President Karen Lewis and Vice President Jesse Sharkey about what the core issues were. Both repeatedly emphasized that there weren't one or two core issues but it was instead about the total package. The package included wages, compensation, and benefits, but also the vision of what school reform looks like. CTU started talking about school reform that actually makes schools work for kids.
 
So there are traditional things that unions go on strike for, like wages and benefits, but also the bigger picture vision of what school reform is going to look like.
 
What's the energy like covering this strike from the streets in Chicago?
 
MU: I've been around a lot of strikes and labor actions, but this is totally like nothing I've seen before. I'm about five miles north of Chicago, and I've been on my bike going from actions to picket lines. Every public school I passed had crowds of 40, 50, 60 teachers. The energy is incredible. People were up at 5 in the morning to picket at their school, and then move to phone bank.  It's a big feat of organizing that CTU has pulled off.
 
How is the Chicago community as a whole reacting?
 
MU: The community support piece of the strike has also been incredible as far as I've seen. There's a lot of support from parents, community members and others. There's a group called Parents for Teachers that has been active, and a very vibrant Chicago Teacher Solidarity Campaign. Both have done an amazing job organizing before and during the strike.  People beyond the usual suspects are getting involved in this fight.
 
The city has worked really hard to try and divide parents against teachers, painting teachers as overpaid and greedy and harming students. So I was expecting to see some hostility from people on the streets, but all morning long I saw no stories of negativity or hostility. I'm looking for signs that average Chicagoans are annoyed or angry, but I haven't seen any yet. People I've talked to haven't seen any yet either.
 
Most people will get their news from nationally-targeted coverage of the strike. As someone from Chicago, covering it locally, what would you like people to know?
 
MU: CTU is very vocal in saying that the Democratic Party in Chicago and Rahm Emanuel are not serving their interests. In Chicago the Democratic Party is the major party, and they are pushing this austerity agenda, and so a lot of the future of whether or not unions are afraid of calling out Democrats will be determined here.
 
This is a fight over public sector workers, and we've seen that a lot over the past several years. We saw it in Wisconsin under Governor Walker, for instance. In that fight, the labor movement and the left in general made some serious missteps, and suffered a pretty crushing defeat with the law and the loss of the recall.
 
In Chicago, I haven't seen anyone say this explicitly, but my sense is that they learned from that fight that you have to be in the streets to win these fights. The CTU is incredibly well organized, especially down at the rank-and-file level. That shows when you are wandering around Chicago today, where 40 or 50 people are on every line and more in the streets. The recent laws that push against public sector unions have forced them to organize the entire organization, keeping their membership involved the whole way, and it is paying off today.
 

Note: This post has had slight edits of the transcript for clarification (4:24pm ET, 9/10/12).

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What Does Obama Really Stand For: Community or Small Government?

Sep 10, 2012Jeff Madrick

The president's convention speech focused on the power of community, but the details of his future policies remain sketchy at best.

The president’s acceptance speech in Charlotte last week emphasized his new theme of community and "being in this together." For all its mushy sentiment, this is a major victory for those like us at Rediscovering Government who have been talking about the need to revitalize the discourse about government for quite some time.

The president's convention speech focused on the power of community, but the details of his future policies remain sketchy at best.

The president’s acceptance speech in Charlotte last week emphasized his new theme of community and "being in this together." For all its mushy sentiment, this is a major victory for those like us at Rediscovering Government who have been talking about the need to revitalize the discourse about government for quite some time.

Obama hesitated to sound such a theme in the past. He seemed to run from potential charges of class warfare or favoring big government. He failed to boast about his stimulus plan and some of his investment programs. He hardly talked about his health care program. The conversation in America has changed, of course, partly because of the vice presidential nomination of an extremist, Paul Ryan, who wants to cut government spending to 16 percent of GDP. That’s about the 1950s level. 

But Obama has been moving in this direction for quite a while now. He still avoids the word "government," preferring "community." But he also nicely introduced the word "citizenship." Among Ronald Reagan’s most damaging legacies was, I think, that he undermined the meaning of being a citizen in America. To him, we did not belong to a nation. We belonged only to ourselves. It would be nice to bring the concept of citizen back.

I can’t overemphasize how useful it was for Obama to lay out this old but now new vision. Bill Clinton, who had proudly proclaimed the end of big government in 1996, also said similar things. There is now a distinct us versus them as the election season begins. “Us” is those who want to work together. "Them” is those who treat community as a drug we'll become dependent on. It is probably no accident that the Republican ticket is composed of men descended from rich parents. Lots of rich kids become effective leaders, but many don’t understand how tough it can be to have no one to lean on, to borrow from (as Mitt now famously suggested), or even to be taught by.

But having listened closely to the Obama speech, I am still hungry for more candor. Even a few days later, I have no idea what Obama plans to do over the next four years. We know he will care, and we know he will not take a pound of flesh from the poor or strivers to the middle class if he can help it, but what do we know about his future programs?

He was about as careful as Romney and Ryan were in Tampa to avoid any specifics. Will he propose a new stimulus if the economy teeters, or will he remain dedicated to a narrow deficit-cutting plan even during a weak economy? Does he think there is anything truly commendable about the Simpson-Bowles deficit-cutting plan he had sponsored (if then mostly ignored)? The plan disastrously aims to limit federal spending to 21 percent of GDP, its 40 year- average, even as the population ages, health costs rise, and we know pre-K education is urgently needed. It would cut Social Security sharply. But Obama mentioned it in his speech, and it has become the widely cited “bipartisan” model for fiscal responsibility. The public relations program in its favor is a stunner. It is not really bipartisan at all, of course. Both the Democrat Bowles and the Republican Simpson are devoted and extreme deficit hawks.

What line will Obama hold on Social Security? Will he significantly upgrade his proposals to invest in infrastructure? How about a higher minimum wage? Better labor laws? Is there a potential jobs program in the works? Serious education reform? Will he encourage a lower dollar to help manufacturing and propose ways to create a more level playing field in global trade? Will he propose a serious tax increase to pay for needed public investment and buttress entitlements programs once the economy is righted?

I can’t say it’s bad politics to ignore the details for now. The best case for Obama is that as his health reform law helps more people, he will build American confidence in government. Mitt Romney has already conceded as much, saying he will retain some of Obamacare. With some proof that governmnet helps under his belt, perhaps Obama can move forward. He can add to his health care program with a true public option and perhaps expansion of Medicaid reimbursements to providers, which are too low. He can also adopt more rigid cost controls, drug negotiating procedures, and firmer preventive medicine incentives. A more positive attitude toward government might awaken fresh ideas about educational reform. Perhaps we can put art and music programs back into schools and tackle universal access to the web. Maybe we can even build a universal pre-K system that is cheap and good, one of our most important needs.

I know Romney has only one major idea in his head: tax cuts. If at first they don’t succeed, try again. But of course, tax cuts did succeed for the wealthy, just not for the “community” of America.

What’s really in Obama’s head? Is he a limited government man at bottom, just another Third Way New Democrat? Or is he really a community government man? I don’t know, and that bugs me. Moreover, I am not sure we will find out before Election Day.

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

 

Barack Obama image via Shutterstock.com.

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Middlemen Rejoice: The GOP Wants Banks Back in Control of Student Loans

Aug 30, 2012Tim Price

The Republican platform calls for repealing student loan reform so private lenders can get a bigger piece of the pie.

The Republican platform calls for repealing student loan reform so private lenders can get a bigger piece of the pie.

Since health care reform was passed in March 2010, Republicans have railed against the individual mandate and imaginary death panels. But they’ve also been seething over a lower-profile part of the package called the Student Aid and Fiscal Responsibility Act (SAFRA), which made the government the sole originator of federally backed student loans. Critics have called it a government takeover, with Paul Ryan claiming that “they had the federal government, the Department of Education, basically confiscate the private student loan industry.” (For the record, you can still go get a private student loan whenever you want. You won’t be pulled off the street and tossed into the back of an FBI van.)

If Republicans get their way, this dark age of sensible reform and efficient lending practices will soon come to an end. Their 2012 platform declares, “The federal government should not be in the business of originating student loans; however, it should serve as an insurance guarantor for the private sector as they offer loans to students.” In other words, they want taxpayers to assume all the risk and banks to enjoy all the upside. Their big idea for student loan reform is to roll back change and restore a status quo that already wasn’t working.

Most students can’t afford to pay soaring college tuition rates out of pocket, so the government has a vested interest in making higher education more accessible given that it’s a public good and the key to a more productive workforce. Even the Republican platform concedes that much by stating that the government should continue to back private lenders instead of pulling out of the student loan market entirely.

But there’s no obvious reason why this goal is best accomplished by funneling money through third-party lenders instead of issuing loans directly. Before SAFRA was passed, federally backed student loans were administered through the Federal Family Education Loan Program, or FFEL, a public-private partnership in which the federal government subsidized and guaranteed student loans that were originated by private lenders. This meant that banks received taxpayer money as an incentive to keep interest rates low. The government also guaranteed that it would pay back up to 97 percent of the loan principal if the borrowers defaulted, meaning there was little need for lenders to worry about credit risk. That proved an inefficient way to provide loans, but a great way to prop up banks and waste a bunch of money.

In a rare victory for common sense and genuine fiscal responsibility, SAFRA changed the system by cutting banks out of the loop and establishing the government as the sole originator of federally backed student loans. Proponents of the new system have described it as “a plan as simple as the cheesiest local television commercial: The president will cut out the middle man and pass the savings along to you.” This is projected to save $68 billion over 11 years, which should put a smile on deficit hawks’ eternally frowny faces. The bill also caps student loan interest rates and uses some of the savings to invest in community colleges and provide $36 billion in additional funding to expand and increase Pell Grants. Though we still have a long way to go toward tackling the student debt crisis, these are all important steps that will help make college more affordable and accessible to Americans from all walks of life.

Aside from being smart policy, this new approach to providing student aid has the added benefit of making the relationship between that aid and government action explicit. This counteracts the effect described by Suzanne Mettler in The Submerged State in which government-provided benefits are “hidden” by turning them into tax expenditures or laundering the money through private entities. The result is that people often fail to realize that the government is doing anything to help them. Direct lending helps to ensure that “Get your government hands off my Medicare!” doesn’t find a more youthful counterpart in “Get your government hands off my federally backed student loans!”

All of the above explains why SAFRA was a step forward, but it also explains why Republicans want to take two steps back. Their dark warnings of government takeovers and “Soviet-style customer service” are identical to the arguments they’ve used to attack the broader health care reform package and just as dishonest. For one thing, as Valerie Strauss notes, they’re “conveniently forgetting that the government already pays for it so, by definition, it already IS a government program.” For another, anyone who’s had any interactions with private student lenders isn’t likely to miss the warm and welcoming customer service experience. If there’s a problem with one of your loans, working it out isn’t like popping over to the Genius Bar at the Apple Store. It’s more likely to involve making a lot of phone calls and swigging Pepto Bismol while waiting on hold. The government could do a worse job in theory, but it would probably have to work at it.

Other complaints focus on the fact that switching to direct federal loans has forced private lenders like Sallie Mae to cut jobs, but as noted, those people weren’t really doing anything particularly useful. If Republicans want to do a complete 180 and argue that the government should provide make-work jobs, there are far more useful things we could have them doing. If not, these private lenders sound an awful lot like those moochers conservatives like Paul Ryan complain so much about.

Though the Republicans’ desire to repeal SAFRA is sandwiched into a section of their platform labeled “Addressing Rising College Costs,” their solution would benefit banks while providing no help at all to students. In fact, they’d make things worse by slashing Pell grants and increasing spending on the Department of Defense so that we can send more young Americans off to war instead of college. If the GOP wants to style itself as the teller of hard truths, it should start by acknowledging that having private lenders act as middlemen for student loans is pointless and stop trying to backtrack on what little progress has been made on student loan reform.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter @txprice.

 

Student debt image via Shutterstock.com.

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How Does Education Help in the Great Recession?

Aug 21, 2012Mike Konczal

There's a new report from Anthony Carnevale, Tamara Jayasundera, and Ban Cheah, "Weathering the College Storm," that has attracted some attention in the economic blogs.

There's a new report from Anthony Carnevale, Tamara Jayasundera, and Ban Cheah, "Weathering the College Storm," that has attracted some attention in the economic blogs. Dylan Matthews wrote about it here and again here, with Dean Baker and Larry Mishel adding in critical commentary.

The report looks at who has gained the most jobs since the "recovery" started, a period they benchmark to January 2010. They find that people with bachelor's degrees and some college have gained all the jobs, while people with just a high-school diploma or less haven't gained any jobs over this time period. They also find that about 80 percent of the new jobs created since January 2010 have gone to men.

What should one conclude? Well, one conclusion is that we wouldn't have any unemployment if we had fewer women and more men. Since men are gaining all the jobs, it stands to reason that if we, on net, had more men and fewer women, we'd have a lot more people employed. Public policy should involve job-training programs where unemployed women get boyish haircuts and study movies like the cult 1980s hit Just One of the Guys and other high school movies loosely based on Twelfth Night. They should learn about swagger, sports metaphors, and that thing where dudes treat job requirements as suggestions when they apply for them, while women don't apply unless they have all of the requirements.

You might point out that I must have skipped a step somewhere. When we are so far away from full employment, does this analysis make sense? Instead of actually reflecting the proper allocation of labor this is just reflecting the fact that, for a variety of reasons including discrimination, men are jumping to the front of the queue to take all of the new jobs that are created. But the report seems to go in the other direction and argue that if there were a lot more college-educated workers we'd have more employment; alternatively, the lack of properly educated workers is a check on recovery.

Dean Baker and Larry Mishel focus on the fact that unemployment rates have gone up for college-educated workers and that most of the big net job increases have gone to those with post-bachelor degrees. I'm interested in the issue of line-jumping. How much does growing employment for college-educated workers in this recession have to do with being prepared for a variety of new, cutting-edge jobs that require a high level of education? And how much is education like a zero-sum hedge that puts the person in question at the front of the line for the limited jobs the economy is creating, even if those jobs require less education?

This chart from the report is interesting:

These are numbers since the recovery began in January 2010. Here people with bachelor's degrees have substantial growth in "high education" occupations. But they also have substantial growth in middle-education ones as well. Meanwhile, those with associate degress have significant growth in "low education" occupations. All the while those with high school diplomas are falling out of middle-education occupations. So two big trends are those with a high-school diploma being kicked out of middle-education (and presumably middle-class) jobs, combined with a down-tier move in education -- those with bachelor's degrees taking middle-education jobs and those with associate degrees taking low education jobs.

The 866,000 jobs lost in middle-education for those with a high school diploma or less are largely a function of the job category "office and administrative support occupations" (see Table 9 of the main report). There were 502,000 jobs lost for high-school diploma or less education in this category; if this is excluded it is a significantly different analysis. Bryce Covert and I flagged this category of work as explaining a lot of missing jobs for women and a broader change in the work environment for GOOD Magazine (data supplement here). This is a function of both longer-term trends and a speedup that has taken place in workplaces since the recession, where people are expected to do more with less. Workplaces keep the same amount of work even as they lose their support staff. So these changes aren't just the result of technological change, but reflect the way that recessions are reworking office environments to put more pressure on workers.

There's no denominator in the graphic above. Is the percentage of those with an associate degree working in the low-education occupations increasing, or has it held constant? What do these changes look like? Though not definitive, it would give us a clue as to whether or not this hedge aspect of education, the ability to jump to the front of the line for jobs, even crappy jobs, is in play in this weak recovery. I take education by occupation for all workers over 25, first quarter 2010 and first quarter 2012, from BLS/CPS, using the reports division of education levels, and compare the percentage of each education group in an occupation before and after to see how they are changing:

As we can see, there is a movement downward in education. BAs gain in their share of medium-education jobs, while AAs and some college gain in the low-education jobs.

In a buried part of the report, the authors anticipate this, noting "increased hiring of more educated workers in low- and middle-education occupations raises a valid concern about whether the workers need more education to perform the tasks or whether workers are being 'underemployed' in a slack labor market. This concern is addressed in detail in the Center on Education and the Workforce report, The Undereducated American....The analysis found a Bachelor’s degree wage premium in jobs at all education levels. The simple fact that employers are willing to pay more for educated workers suggests that they see added benefit in such workers."

I'm willing to believe this, though it still wouldn't directly address the underemployment issue. However, the analysis cited (page 28) only looks at 2007 through 2009, and doesn't look at people specifically hired in that period, much less the recovery. That premium has a lot to do with differentiation within occupations that analysis isn't capturing, like rookie cops and veteran detectives falling under the same occupation, but the second more likely to have more education and pay. But to the extent that premium exists, it isn't clear that it is going to people who now require some college to get even the most menial jobs our economy is producing.

When the economy is stalled, the limited number of new jobs will create certain winners and certain losers. But the first priority for us isn't to make sure that we help people fight for the scraps of a weak economy; it's that we grow the economy and demand full employment to provide for all.

Mike Konczal is a Fellow at the Roosevelt Institute. Follow or contact the Rortybomb blog:

  

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Is Education a Silver Bullet for Fixing the Economy?

Aug 3, 2012Richard Kirsch

Education is certainly important, but if it doesn't go hand-in-hand with the creation of good jobs, we'll have an economy built on quicksand.

Education is certainly important, but if it doesn't go hand-in-hand with the creation of good jobs, we'll have an economy built on quicksand.

We all know that the key to our economic future is a more educated workforce, right? Here, for example, are the “Guiding Principles” of President Obama’s education policies: “Providing a high-quality education for all children is critical to America’s economic future. Our nation’s economic competitiveness and the path to the American Dream depend on providing every child with an education that will enable them to succeed in a global economy that is predicated on knowledge and innovation.”

Now it’s certainly true that a good education is still the best ticket – other than inheriting wealth – to entering the middle class. In the simplest terms, Americans with a Bachelor’s degree or more earn more than the average wage and those with an Associate’s degree earn less. So it makes sense for us to encourage our children to get a good education. But is the president’s assertion that the path to the American Dream in the new global economy depends on providing every child with a good education true?

As an important new report underscores, if that is the only path we rely on, our economy will come up way short and so will the great majority of Americans who are striving to live the American Dream – with and without a good education.  

In Where Have All the Good Jobs Gone?, Center for Economic and Policy Research economists John Schmitt and Janelle Jones make a simple and powerful point: over the past three decades, the workforce in the United States has gotten a lot more educated and productive, but fewer of us have a good job. The standard that Schmitt and Jones set for a good job is pretty basic: earning the median wage for men of $37,000 a year and having some sort of health insurance and retirement fund at work. Of course, that isn’t a lot of money, and with most workers forced to pick up a bigger share of shrinking health benefits and pensions giving way to 401Ks, not a lofty benefit plan. Which is what makes the results of the study so striking. Even though the typical American worker is twice as likely to have a college degree than 30 years ago, the share of the workforce that has a good job declined, from 27.4 percent to 24.6 percent. The kicker here is that the decline occurred at every education level, although it was worse for those with a scanty education. But even workers with a four-year college degree or better were less likely to have a minimally decent job.  

The CEPR researchers take the data a bit further to make two compelling points. If we had not increased our educational level, it would have been a lot worse: only 17 percent of workers would have good jobs. The second point is that if job quality had kept up with increases in education, then 34 percent of workers would have a good job.

I want to throw one more scary statistic into this brew before drawing the implications for building an economy that will work for everyone: most of the jobs that will be created in the next decade don’t require much of an education. Of the 10 occupations expected to create the most jobs, eight of them require a high school degree or less. There will be almost four million job openings for retail clerks, home health aides, and the like compared with one million for nurses and college professors, the only two jobs in the 10 that require more than a high school degree.

These numbers foretell an economy where even workers with a good education are barely making it and most Americans don’t have a prayer of living the American Dream.

The guiding principle for a different economic path is making the middle class the engine of the economy. Our economic policy must be driven by a commitment to make every job a middle-class job, regardless of the educational level of the worker. That means sharing our economic progress broadly, not concentrating it among a shrinking sliver of the rich.

As the authors of Where Have All the Good Jobs Gone? point out in the first paragraph of their report, we have gotten a lot richer as a nation – 60 percent richer – over the 30 years in which good jobs dissolved. A more educated workforce, and an increase of about 50 percent in physical capital growth, led to a big jump in productivity. If that growth in productivity had been shared fairly, that $37,000 median wage would be a lot higher: $68,000 by one calculation. Even by a more modest measure, if inequality had not increased, median family income would be $9,000 more. By either calculation, if that extra income were in the pockets of Americans – instead of sitting in the investment portfolios of the super-rich and big corporations – the economy would be booming.

There are a host of policy solutions to build an economy in which our growth is broadly shared. A huge step would be to increase unionization. The manufacturing and construction workers of the mid-20th century didn’t have a high school education – they had a union. We should boost pay for low-income workers by increasing the minimum wage and enforcing wage laws so that employers pay workers for overtime and meal breaks and don’t steal their wages or pretend they are independent contractors. We need to use public dollars to invest in job creation, from construction workers to school teachers, all with good wages and benefits. And yes, we should make it possible for many more of our young people to get a good and affordable education. But whether they get that education or not, all workers should get enough to live a dignified, secure life so they can take that path to the American Dream. 

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

 

Screaming college grad image via Shutterstock.com.

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The "Pain Funnel" and the Harkin Report on For-Profit Schools

Aug 1, 2012Mike Konczal

Senator Tom Harkin (D-IA) has finally released his major report on for-profit schools, the result of two years of studies and investigations. It's a telling look into the numbers in the for-profit college industry and the growing future of higher learning amid a collapsing public sector. It gives us a reason to reexamine some of the deregulation that took place around this industry during the George W. Bush years. The report also also clarifies one of my new favorite metaphors, and that is the role of the "pain funnel" in our new system of higher educaiton.

Senator Tom Harkin (D-IA) has finally released his major report on for-profit schools, the result of two years of studies and investigations. It's a telling look into the numbers in the for-profit college industry and the growing future of higher learning amid a collapsing public sector. It gives us a reason to reexamine some of the deregulation that took place around this industry during the George W. Bush years. The report also also clarifies one of my new favorite metaphors, and that is the role of the "pain funnel" in our new system of higher educaiton.

There's some great metaphors for understanding how higher education has been created by the government throughout the years. There's the "democracy's college" of the 1862 Morrill Act, which sought to "promote the liberal and practical education of the industrial classes in the several pursuits and professions in life" by making sure public higher education would spread westward across the nation and be broadly accessible to all, including women, not just the rich or connected. There's the "Master Plan" of California, the culmination of a moderate Whig Republicanism and progressive liberalisms that no longer exist, which guaranteed those who wanted to study would be able to do so in a way that emphasized mobility -- one could move up or down in the three-part hierachy of education institutions. And this Master Plan was government planning, an explicit goal to create a certain amount of supply at a center price. 

Instead of government planning, we now have the for-profit industry. And one of the things it brings to the table is its aggressive recruitment techniques, one of which is called the "pain funnel." The Harkin report uncovered a for-profit recruiter's handbook from ITT that included this sales technique. As the Harkin Report notes, "After a recruiter located a prospective student’s pain point, the 'pain funnel' presented a number of questions that the recruiter can ask that are progressively more hurtful. In 'Level 1' a recruiter asks prospective students, 'tell me more about that' or 'give me an example.' In 'Level 2' the recruiter asks 'What have you tried to do about that?' The highest level asks a hurtful question to elicit pain." There's even a chart of the pain funnel from the recruitment materials:

I bring it up because this pain funnel approach to recruiting higher education students was brought up earlier last year by Harkin, and ITT immediately turned around and denied that it was actual company policy. Harkin's team went and interviewed the recruiter in question, and she said that "at quarterly district meetings I did pain funnel training for nearly every top recruitment representative, financial aid coordinator, dean, instructor, department chairs, all functional managers, all college directors and the district manager for the entire Southern California District, the largest district in the country... In October 2009, I wrote up a BEST OF THE BEST (BOB) submission to HQ that included the same 'Pain Funnel and Pain Puzzle' and how proper usage of this tool can bring a prospect to their inner child, an emotional place intended to have the prospect say yes I will enroll." Yup.

It's amazing how quickly we've gone from using government resources to enact the democratic visions of the Morrill Act, the GI Bill, and the California Master Plan, three of the greatest pieces of legislation our country has passed, to using government resources to enact a vision premised on eliciting pain. Through a funnel.

Because government is creating this vision. Government resources pay for it all. Eighty-seven percent of revenues at for-profits come from federal or state sources, including student loans and pell grants. Dylan Matthews has more on this. Though they teach around 10 percent of students, they take in about 25 percent of total Department of Education student aid program funds. These numbers are on the rise and show little sign of slowing.

Given that government is funding the basis of this system, what's the benefit of this privatization of public services and the introduction of the profit motive? Where's the innovation? The general claim for the privatization of government services is that you can get the same quality for a much cheaper price. The profit motive rewards those who go after inefficiencies, finding ways to make the same thing cheaper. When Mitt Romney praised for-profit colleges as the solution to higher education problems, he explicitly noted that it would “hold down the cost of education.”

But that is a significant failure. For for-profit schools, "Bachelor’s degree programs averaged 20 percent more than the cost of analogous programs at flagship public universities... Associate degree programs averaged four times the cost of degree programs at comparable community colleges... Certificate programs similarly averaged four and a half times the cost of such programs at comparable community colleges."

It's at the low end, i.e. community colleges that are particularly hit by state-level austerity, where this is even worse. The report finds that "for comparable diplomas, tuition at for-profit colleges ranges from 2 to 20 times the tuition at local community colleges." These for-profit schools have worse employment outcomes than community colleges as well. And there's significant dropout rates. Are there any advantages to us spending our valuable resources this way rather than expanding public community colleges? A former Poet Laureate, Kay Ryan, once said of public community colleges, "I can’t think of a more efficient, hopeful or egalitarian machine, with the possible exception of the bicycle.” Compared with the boiler room techiques and massive debts of the "pain funnel," I think the bicycle vision is the better one.

Why are we choosing to pay for higher education this way? How do we make sure that the demand for higher education is met? The government took steps to deregulate the way funding goes to for-profit schools under the George W. Bush administration, and the results are a disaster. Meeting the demand for mass higher education after the Civil War has never been a private phenomenon, either for profit or nonprofit. It has fallen to the public sector to ensure broad, accessible higher education for all.

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How Turning the Public School System into a Market Undermines Democracy

Jul 25, 2012Elizabeth Stokes

Citizens shouldn't be seen as merely consumers choosing from an array of options, but active participants in collective decision-making.

Citizens shouldn't be seen as merely consumers choosing from an array of options, but active participants in collective decision-making.

Backing Governor Chris Christie and Commissioner Chris Cerf’s unrelenting push for more “high-quality school options” in New Jersey, the Department of Education recently approved nine charter schools to open in September, bringing the total number of charter schools in New Jersey to 86. This move is part of a broader trend toward the marketization of education policy – the incorporation of market principles into the management and structure of public schools, as well as voucher programs to subsidize alternatives to public schools. These market principles include deregulation, competition, and the unqualified celebration of “choice,” all of which are embodied in the charter school movement. Despite claims of greater efficiency, innovativeness, and responsiveness, however, the growing rhetoric around choice needs to be more closely scrutinized before we wholeheartedly jump on the charter school bandwagon.

Market-based school reform is focused on the idea that by structuring schools like business enterprises, we can inject them with stereotypical private sector virtues like innovation and efficiency. According to this view, this is sorely needed because “traditional” public schools are supposedly ineffective. By removing barriers to entry for different types of educational organizations, market-based reformers believe we can incorporate some healthy competition into the state-run system and overcome drawbacks allegedly caused by the state’s monopoly control. This approach positions parents and students as consumers of education, free to choose which types of schools best meet their individual needs and preferences. The rhetoric of “choice” implies that marketization will enhance liberty as well as efficiency.

This approach reconfigures our understanding of what is “public.” While traditional conceptions of public education define “public” according to who funds, owns, and governs the system, under the marketized model public education is considered “public” to the extent that a public made up of individual consumers is provided for. Indeed, this is considered to be one of the great advantages of the marketized model. Whereas public schools are forced to be all things to all people, which requires using what Milton Friedman once called "cumbrous political channels" to try to reach agreement, marketized models will supposedly eliminate messy conflicts and streamline the process into a neat consumer-provider relationship that better responds to individual needs.

There are several problems with this model from the perspective of both efficacy and, more importantly, democracy. First, despite the grand intentions behind marketized programs, they do not get better results on average than traditional public schools. A study conducted by the Center for Research on Education Outcomes (CREDO) at Stanford University found that 17 percent of charter schools reported academic gains that were significantly better than traditional public schools, 46 percent showed no difference from public schools, and 37 percent were significantly worse. Additionally, introducing supposedly tough-minded material incentives to improve teacher performance, such as giving higher "merit" pay to more successful teachers and threatening to fire less successful ones, has yielded no measurable benefits for children and, instead, tends to divide and demoralize teachers.

Other studies have found that the competitive incentives designed to drive innovation in the classroom are not operating as intended. Instead of improving teaching and learning practices, market incentives have driven an increase in schools’ marketing and promotional activities – that is, advertisements that better sell their products. And as marketing is most effective when aimed at specified groups, schools usually beef up their academic achievement statistics by targeting families of higher-achieving students, thereby contributing to increased student selectivity, sorting, and segregation.

Efficiency considerations aside, the real problem with championing marketized models in education and other areas is the damage it does to democracy. We should not be upholding a model based on turning citizens into consumers. Democratic citizenship does not simply involve an individual’s choice from a platter of options. Rather, it requires active participation in collective decisionmaking.

The problem with marketized models is that in the process of providing individuals with private “choice,” citizens are necessarily deprived of public choice – that is, the opportunity to discuss, deliberate, and act in concert with others. While advocates of marketization claim that it eliminates many of the protracted disputes that currently impede the effectiveness of schools, disputes aren’t always such a bad thing from the standpoint of democracy – especially when they deal with matters of genuine common concern like the education of future generations. Even if conflicts do arise, the opportunity to debate and engage in a democratic give-and-take with neighbors is a vital aspect of political education and empowerment. As Alexis de Tocqueville observed in the 1830s, it is only through participation in the exercise of power over collective outcomes, and the practice of thinking about and acting on public issues in public arenas, that people can develop the skills and commitments necessary to be citizens. Removing public education as a site for political education simultaneously removes yet another stake citizens have in our democracy.

Of course, this is not to say that there is no place for anything that is not a “traditional” public school. On the contrary, a variety of independent alternatives can certainly complement a healthy public school system and contribute to diversity and innovation. That’s particularly true when they represent initiatives led by local community members rather than corporate franchises. But that is very different than using public money to undermine and dismantle public education itself as a genuinely public enterprise.

The trend toward increasing privatization and marketization means the increasing disempowerment of citizens. The reconfigured version of “public” advanced by marketized models of education is severely truncated and distorts our understanding of why public education is important. Public education is not simply service delivery. It is also an expression of community and shared responsibility that helps shape the character of a society. We should value public schools not only for educating our children, but also for their role as local institutions where citizens can congregate and practice democracy.

Elizabeth Stokes is a Roosevelt Institute | Campus Network Summer Academy Fellow, co-leading its newest project, "Government By and For Millennial America.

 

School hallway image via Shutterstock.com.

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Magnet Schools: A Happy Medium Between Creativity and Accountability for School Choice

Jul 19, 2012Amy Baral

 

For those interested in school choice but worried about resources and accountability, magnet schools may provide a solid third option.

 

For those interested in school choice but worried about resources and accountability, magnet schools may provide a solid third option.

My previous posts on school choice have focused on two distinct types: the first, encompassing inter- and intra-district school choice, simply allows parents a choice of existing schools either in their home district or within a greater regional area. The second type, charter schools, creates an entirely new set of innovative and specialized schools that are completely autonomous from the school district. Magnet schools offer a mix of these two options, creating innovative programs within the “typical” public school system.

With charter schools facing their fair share of criticism, magnet schools may be a viable and sustainable alternative. While magnet schools are certainly not new to the education reform debate, they provide a school choice option that offers innovative programs and a diverse student body while maintaining accountability and strengthening neighborhood schools.

Magnet schools were first used as a desegregation alternative to busing. The idea was that if a segregated district could create innovative schools centered on a specialized type of education (for example, a school focused on foreign languages or math and science), a variety of public school students from different neighborhoods and backgrounds would be attracted to it and it would become integrated. Today, magnet schools are viewed less as a desegregation tool and more as a superior public school option for students.

Magnet schools are strikingly similar to charter schools. Both provide innovative educational opportunities and both face criticism from those who worry about the schools hogging resources. Critics of magnet schools worry that magnet schools skim the best talent from the school district, including both students and teachers, while leaving the other schools in the district to deal with less motivated students and teachers. Some critics also argue that magnet schools take resources away from struggling neighborhood schools. If magnet schools take all of these things away, the argument goes, the neighborhood schools are left with the struggling students and fewer resources to help them.

But magnet schools go much deeper than charter schools and may actually be more sustainable. Charter schools operate independently from school districts, which provides them with more freedom and opportunity at the expense of accountability. In the worst cases, charter schools fall into the hands of people whose goal is the financial bottom line and they aren’t held accountable for mediocre performance. On the other hand, magnet schools are an inherent part of the school district. An important distinction between magnet schools and charter schools is that magnet schools operate under the control of the local school district. What distinguishes a magnet school from standard public schools is that its curriculum is based on a common theme and the school can enroll students from across the district or regional area. They create opportunities for innovation within the school district while following the district’s accountability structure.

Magnet schools are a way to provide innovative educational options and integrated schools as a way to boost student achievement. Many magnet schools have innovative curriculums with an emphasis on foreign language, science, math, technology, or the arts. They may also have long school days and stricter codes of discipline. Most importantly, a primary goal for magnet schools was and still is to move beyond the traditional neighborhood school and bring together students from across a school district or geographic area to create a diverse learning experience.

An example of a school district that has widely implemented magnet schools is my home school district, the West Hartford Public Schools in West Hartford, CT. West Hartford has two magnet schools, Charter Oak International Academy (elementary school) and Smith STEM School (elementary school). Charter Oak’s magnet focus is on the international student population and the cultures and societies of the world. Smith focuses on STEM – science, technology, engineering, and math. Both Smith and Charter Oak are located in what are arguably West Hartford’s poorest and most diverse areas, on its border with the city of Hartford.

The magnet school structure of both schools ensures that the children attending them are drawn from the neighborhood but also from the other areas of West Hartford, ensuring greater socioeconomic and racial diversity than if the schools were solely neighborhood schools. Further, the magnet structure of these schools allows them to implement innovative experiences for the students, including extended day (longer school day programs), early access to foreign languages, and early access to hands-on science experiments. Just check out the school profiles for Charter Oak and Smith. West Hartford’s magnet schools certainly have not skimmed talent or funding from the other West Hartford schools, but have instead provided innovative learning experiences in the tough neighborhoods of the town.

For critics of charter schools who are supporters of school choice, magnet schools are an option that allows for innovative programs and a diverse student body while maintaining accountability and strengthening neighborhood schools.

 

Amy Baral is a Roosevelt Institute | Pipeline Fellow performing legal and policy research on the Boston Public Schools, focusing on access to quality education and school choice. She is also a 1st year law student at Boston University School of Law.

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