Educationomics

Date: 4/21/2010

The second installment of Jon McGee’s Provocations is now posted for your recreational reading pleasure.

One viewer of Jon’s video presentation suggested we offer a disclaimer urging that you "ice your ears", while another observed that “Jon is the only person in our field who could take this material and do stand-up with it and get laughs.” I think you'll agree that Provocations is an apt name for the environment Jon inhabits both in his "of counsel" role and on the Hardwick-Day website.

Several of you asked if we could put together a brief written version of Jon’s presentation that you could use with your Trustees and/or President. I’d like to say I anticipated this request, but Jon just happened to have that lined up as the next installment of Provocations. Please take a moment to sign up for automatic email reminders for future installments of Provocations.

Those of you who viewed our Summit focus group with college-bound boys will appreciate this: we offer a Chipotle gift certificate to whoever is first to post a comment.

Now, I promised to summarize the discussions we had about the economy at our private client Summit on Enrollment and the Economy. Here goes.

Our economists agreed that the recession is over, but neither thought there would be any reason to celebrate anytime soon.

Chris Farrell believes that the scare delivered by the financial markets’ near-collapse will create a long-lasting, perhaps generational shift in consumer behavior and economic values of families to something he terms the "new frugality."

He pointed out that pay cuts, which had always been taboo, are now an acceptable additional tool, along with layoffs, as businesses struggle to survive. So even if families have secure jobs, family income is nevertheless diminished even when the employment picture improves.

hris emphasized that people now increasingly value experiences over stuff. You can lose your job and your house, but no one can take away your memories of a great family camping trip or a life-changing college experience.

Ed Lotterman pointed out that prior to the recession, families and colleges considered risk in making financial decisions. Now, there is the added and incalculable risk of uncertainty—uncertainty in terms of public policy and how the economy is evolving. The response is that families as well as business have become more cautious. Families defer purchases, look for greater value, and continue to deleverage. So too with businesses, especially small businesses –many of which are family owned.

Ed was not convinced that the economy would not slip back into recession and acknowledged there were still credit problems and drags on economic growth—European housing values, sovereign debt, Greece and other countries, and huge state deficits in the US unchecked now as stimulus money runs out and as government confronts many unfunded mandates and underfunded pension obligations.

But Ed's major observation was that we are in an extended restructuring of our economy which adds to the uncertainty. The role of government is changing (expanding). Taxation will change (perhaps both in magnitude and point of collection). The risk/reward environment for business is changing. Major changes in public policy are, for now, likely to drive major changes in vast segments of the economy—health and automobile manufacturing for example. Technological advances continue to roil personal habits as well as business practices.

I appreciated that rather than pretend to offer a crystal ball, Ed simply advocated that we understand that uncertainty will affect personal and organizational behavior. Until people and businesses have a stronger basis for planning, economic growth and employment will be continuing problems.

Jamie Wolfe warned us not to expect a return to the days of easy borrowing. Due to tighter credit restrictions, families who can qualify to borrow will probably be those least likely to need it.

The current average FICO score for borrowers of alternative student loans is 745, up from 680-700 a couple years ago. Eighty percent of these student loans now require a co-signer. Interest rates for private loans have gone from 3-4 percent to 9-10 percent, and could reach 15 percent. Who will borrow on these terms? And why should private lenders write new student loans when they can buy previously packaged loans for 50 cents on the dollar?

Finally, what happens when the federal government can no longer “borrow” money at 0 percent and lend at, say, 8 percent? At that point, the “savings” in student loans that supported the health care legislation disappear as does the additional funding for Pell grants drawn from this interest rate spread.

Jay Kiedrowski (former MN State Finance Commissioner, senior executive at Wells Fargo for 15 years, and currently head of the public/nonprofit policy center at the U of MN’s Humphrey Institute) described state budget deficits—cause and magnitude. State-level factors include falling tax revenues, disappearing stimulus funds, lopsided demographics, and unfunded pension obligations. However you feel about the recent national health care legislation, health care casts a very long shadow over state budgets.

Implications for public higher education are of a greater magnitude than for private colleges, but grant programs for students attending private colleges have already experienced many cuts across the nation. Need-based programs have become “part of the solution” so far in California and Minnesota where these programs serve students enrolled in both public and private schools.

Major cuts have been and will continue to be delivered upon public systems, creating a wider quality gap with the private sector and leading to greater out-of-state recruitment and more efforts on the part of flagships to adopt the University of Michigan high tuition/high aid/low state involvement model.

In the near term, we will see more attempts by municipal governments to pry more money out of private institutions such as the recently proposed taxes on students, tuition, property, endowments, and/or increases in “voluntary payments” in lieu of outright taxes.

We will continue to observe economic developments at The Summer Seminar, June 9-11 in Minneapolis.

Chris Farrell and Jamie Wolfe will be back to give us real-time economics and student-loan financing updates. Jamie in particular will talk more about efforts to promulgate debt management programs and creative approaches to institutionally-based financing.

Tim Ranzetta, founder of Student Lending Analytics, will also join us. SLA is an independent research and advisory firm that provides analytical and objective information to increase the transparency of the student lending market. SLA advises financial aid administrators on lender selection by employing a rigorous and comprehensive process augmented by proprietary customer research on lender performance.

Margaret Drugovich, President of Hartwick College, will talk to us about how Hartwick’s 3-year degree program is working and reflect on her transition from chief enrolment officer to college president.

The ever-popular Amanda Lenhart, senior research specialist with the Pew Internet and American Life Project, will also join us again, and Katie Elfering from Iconoculture will provide an update to her stunning presentation of two years ago.

We’ll have Anya Kamenetz, author of Generation Debt & DIYU: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education. You’ll get a free copy of her book.

Todd Rogers is the head of several policy institutes that work with political organizations to learn about what works and what does not in their voter contact programs. He will share the insights he’s gleaned from this work that pertain to college recruitment.

For all the fierceness of this winter, it’s been a warm and early spring in Minnesota; the ice went out on Lake Minnetonka weeks ago. The Twins are playing outside in a beautiful new ball park and have the best record in baseball (at the moment). They’ll be playing the Kansas City Royals should you want to add that to the best program going—The Summer Seminar.