MONEY College

Principal: Colleges’ Chintzy Financial Aid Offers Betray the American Dream

150331_FF_CollegeChintzyOffer
iStock

Colleges and states are expecting students to take on an insane amount of debt.

Editor’s note: One of the nation’s leading public high school principals, a 2014 winner of the prestigious Harold W. McGraw Jr. Prize in Education, wrote this after viewing the financial aid awards sent by colleges to the seniors at his Philadelphia magnet high school. Two-thirds of his students at the Science Leadership Academy are minorities, and one-third are considered economically disadvantaged.

This year has been a fantastic year for Science Leadership Academy college acceptances. We’ve seen our kids get into some of the most well-respected schools in record numbers—and many of our kids are the first SLA-ers to ever get accepted into these schools.

Whether or not they are able to go to is another question.

Today, I was sitting with one of our SLA seniors. She’s gotten into a wonderful college—her top choice. The school costs $54,000 a year. Her mother makes less than the federal deep poverty level. She only received the federal financial aid package with no aid from the school, which means that, should she go to this school, she would graduate with approximately $200,000 of debt.

She would graduate with approximately $200,000 of debt—for a bachelor’s degree.

Now, how in good conscience could a college do that? I’ve sat with kids as they’ve opened the emails from their top choice schools. Watching the excitement of getting into a dream school is one of the real joys of being a principal. It’s just the best feeling to see a student have that moment where a goal is reached.

And as amazing as that moment is … that’s how horrible it is to sit with a student when they get the financial aid package and counsel them that the school just isn’t worth that much debt.

I sat with my student today and pulled up a student loan calculator. I showed her that $200,000 of debt would mean payments of $1,500 a month until she was 52 years old—and then we pulled up a budgeting tool so she saw how much she would have to make just to be able to barely get by.

(Are you in the same situation? Here’s how to negotiate for more aid.)

Then we looked at the state schools she’s gotten into, and we talked about what it would mean to be $60,000 in debt after four years, because Pennsylvania has had so much cut from higher education that Penn State is now $27,000 / year—in state, and we’ve noticed that their financial aid packages have dropped by quite a bit.

So we have to tell the kids to apply to the private schools because the aid packages the kids get from private colleges are sometimes significantly better than what the public schools are offering. Kids have to apply to a wide range of schools and hope. And then we sit down with kids and help them make sane choices, as the $60K a year schools send amazing brochures and promises of semesters abroad and pictures of brand new multi-million dollar campuses, all while promising that there are plenty of ways to finance their tuition.

(Check out Money’s lists of the 100 Best Private Colleges For Students Who Don’t Want To Borrow, 25 Most Affordable Colleges and the 10 Colleges With The Most Generous Financial Aid.)

Dear colleges—you are doing this wrong.

It doesn’t have to be this way. When I was a teacher in New York City even as recently as ten years ago, I felt that kids could go to amazing and affordable CUNY and SUNY schools if the private schools didn’t give the aid the kids needed. But Pennsylvania ranks 47th out of 50 in higher ed spending by state, and as a result, seven of the top 14 state colleges are in Pennsylvania.

And as private colleges hit times of financial crisis and public colleges become more tuition dependent, students are being asked to take out more and more loans, which is putting a generation of working class and middle class students tens—if not hundreds—of thousands of dollars in debt to start their adult lives.

The thing is—I still powerfully agree with those who say that a college education is a worthwhile investment. And on the aggregate, it is true – especially because the union manufacturing jobs of the last century have been lost. But when we look at the individual child, and the choices that kids and families are being asked to make, we have to ask how we can ask kids to take that kind of risk and take on that kind of debt.

Of course, all of this is exacerbated for kids from economically challenged families and for kids who are the first in their families to go to college. And if you are thinking about leaving a comment about kids getting jobs in college to help make it affordable, you show me the job market for college kids to make $30,000 a year while in school full-time. I must have missed those listings in the morning paper.

A college education can—and should—be a pathway to the middle class.

Colleges should have a moral responsibility to offer sane packages that don’t saddle students with unimaginable debt to start their adult lives.

Work hard, go to college, live a meaningful life. That is what we hear promised to children all the time from President Obama to parents across America.

Colleges and universities have to be honest and fair agents in that dream. Asking students to take out $30,000 and $40,000 of debt a year for access to that dream is a betrayal of the educational values so many of us hold dear.

Chris Lehmann is the founding principal of the Science Leadership Academy, a Philadelphia public high school. This story first appeared on his blog, Practical Theory.

MONEY Inequality

New Research Shows Education Won’t Fix Inequality

differently scaled books
Max Oppenheim—Getty Images

A new study shows giving more Americans a college education will help lower-income groups, but won't do much to close the income gap.

There is a growing acknowledgement that inequality is one of the most pressing national issues. President Obama certainly feels that way. In his State of the Union Speech this past January, Obama focused his speech around the issue, framing the debate as a question about the future of America.

“Will we accept an economy where only a few of us do spectacularly well?” the President asked. “Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”

Obama made no secret of his own position, or that education was his preferred method of closing the gap between rich and poor. His address centered around a number of policies that would increase college access for lower-income Americans, including a $60 billion proposal to make community college free for all.

But is education really the solution to inequality that it’s often presented as? A new paper from the Hamilton Project, co-authored by former Treasury Secretary and former Harvard University president Lawrence Summers, argues that the answer is no. Instead, the researchers assert, policymakers tend to conflate two separate issues: helping lower-income Americans become more financially secure and decreasing inequality overall.

Increased educational attainment across lower-income brackets would indeed result in higher income and more economic security for vulnerable groups, the paper finds. But so much income is concentrated among America’s richest citizens that a modest increase in earnings at the bottom end of the income distribution will barely make a dent in overall inequality.

To reach this conclusion, Summers and his co-authors—Hamilton Project director Melissa Kearney and visiting fellow Brad Hershbein—created a simulation in which one out of every ten American men between the ages of 25 and 64 without a bachelor’s degree suddenly graduated from college. (The simulation was restricted to men because less-skilled males have seen particularly steep drops in employment, earnings, and college attainment.)

“To be clear, this would be a tremendous accomplishment,” the researchers note. Creating this many new graduates would be “only slightly less than the observed increase in the college share over the entire 34-year period of 1979 to 2013.”

The authors then randomly assigned each of the newly credentialed Americans an income based on the earnings of actual graduates, and adjusted for the reduced premium a college degree would offer if more workers obtained one. The results show income in the bottom 25th percentile would increase from $6,100 to $8,720, and median income would increase from $34,000 to $37,060, while those with higher incomes were hardly affected.

Despite this significant surge in the earnings—the above increase would be “enough to nearly erase the decline in median earnings between 1979 and 2013, and cut the decline at the 25th percentile by one-third,” according to the paper—inequality barely budged. Under the simulation’s conditions, the Gini coefficient, a metric for measuring income inequality, declined from 0.57 to 0.55. For comparison, the Gini coefficient for the U.S. in 1979 was 0.43.

“Overall earnings inequality would hardly change—and would not come close to 1979 levels—if the share of working-age men with a college degree were to increase by even a sizable margin,” add the authors.

Why does more education attainment have such a small effect? The researchers find that decreasing the portion of the population without a college degree primarily helps those in the bottom 25% of earnings, raising their wages relative to higher income groups. Meanwhile, this scenario would do little to decrease inequality in the top half of the earnings spectrum, where most of the nation’s income disparity is contained.

The authors are clear to note that better access to higher education, whether it reduces inequality or not, is still an important goal. “Our nation should aim to increase the educational attainment and, more generally, the skills of less-educated and lower-income individuals because in the long-run, this is almost surely the most effective and direct way to increase their economic security, reduce poverty, and expand upward mobility,” the paper concludes.

However, the group notes, fixing inequality and growing the salaries of the less-educated are not the same issue, and won’t be solved by the same policies. “These are distinct, albeit interrelated challenges,” the researchers explain, “and the public discourse would be much improved if it stopped conflating them.”

TIME Innovation

Five Best Ideas of the Day: March 31

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Is the sharing economy opening the door for big business to abuse contract workers?

By Jon Evans in TechCrunch

2. With fins off many menus, scientists see a glimmer of hope for sharks.

By Ted Williams in Yale Environment 360

3. The Houthi rebels in Yemen are following the ISIS playbook and crowdfunding their revolt online.

By Vladi Vovchuk in Vocativ

4. It might be possible to create a non-meat burger that helps the environment and improves your health. But will it taste good enough to win over the masses?

By Corby Kummer in MIT Technology Review

5. Medicaid may not be a slam dunk for physical health, but it yields huge returns in quality of life.

By the Mailman School of Public Health at Columbia University

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Innovation

Five Best Ideas of the Day: March 30

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Blue-collar jobs are coming back, and pay well. But women are missing out.

By Mitchell Hartman in Marketplace

2. Ikea is known for affordable, flat-pack furniture. Now they’re selling the U.N. flat-pack refugee housing.

By Amar Toor in the Verge

3. With an eye on the White House, politicians won’t admit it, but the ethanol mandate is terrible policy.

By Josiah Neeley in the American Conservative

4. With billions in profits, tech giants must lead the charge against inequality in Silicon Valley.

By John D. Sutter in CNN

5. Can better customer service make primary medical care affordable and sustainable?

By Margot Sanger-Katz in the Upshot

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY College

Yes, College Costs Are Eating Up More of Your Income

A year of public college costs low-income families 40% of their annual salary now, up from 29% in 2007.

It’s not your imagination, parents: Your kids’ college costs are indeed eating up a higher percentage of your income, a new federal report shows.

The report, which looked at the costs of college in the 2011-2012 academic year (the last year for which data is available) also documents a shocking increase in net costs for America’s lowest earners. That’s raising worries that the poor are increasingly being priced out of college, one of the main paths to a berth in the middle class.

The study found that families with incomes of up to about $31,000—who were the lowest-earning 25% of all American families with kids in college at that time—paid, on average, $12,300 to send a child to a public university, after grants and scholarships were subtracted. That was the equivalent of 40% of that group’s top annual income. In the fall of 2007, that same group would have paid only 29% of their income, a full 11 percentage points less.

For the families in the lower- to- middle- quarter—$69,000 was the midpoint for families with kids in college—net public college costs ate up 23% of the group’s top income, a 2 percentage point hike from the share of income needed by similar families in 2007.

Upper middle class families also saw their net costs rise. Families with incomes of about $111,000 earned more than 75% of all families in the study with children in college. The group with incomes between $69,000 and $111,000 paid about $20,400 (or 18% of top earners’ income) to send their kids to in-state public college, up 2 percentage points from 2007. Families in the top quarter, earning $111,000 a year and up, paid an average of $22,800 for their kids to attend in-state public college.

The data show that when it comes to funding college, “it pays to be rich,” says Margaret Cahalan, director of the Pell Institute for the Study of Opportunity in Higher Education, a Washington, D.C., think tank. The findings, she says, are further evidence that claims the poor are getting more or better financial aid than the middle or upper classes “are simply not true.”

In fact, Cahalan says, the numbers show that financial aid has lagged so far behind rising living and tuition costs that many low-income students are being priced out of college. “Low-income students have to work too many hours to survive, and that is depressing their ability to compete and be successful,” she says. “Many of them end up leaving school because they can’t juggle work and school.”

A growing body of research shows that being priced out of college can have devastating lifetime effects. Workers without higher education are at a disadvantage in the job market and tend to get stuck in lower-paying jobs, according to several reports by the Georgetown Center for Education and the Workforce. A 2014 analysis of the job market, for example, found that just about 28% of all jobs in 1973 required at least an associate’s degree. By 2010, those requirements covered 42% of jobs. And by 2020, 47% of jobs are expected to require at least a two-year degree.

Income quartile
(annual income range)
1st
($0-$31,000)
2nd
($31-$69,000)
3rd
($69-$111,000)
% of top income needed to pay average net price (after grants are subtracted) for 2011-2 at a typical in-state public college 40% 23% 18%
% of top income needed to pay average net price (after grants subtracted) for 2011-2 at a typical private college 64% 34% 26%

Sources: U.S. Department of Education, Money calculations

Read next: How to Find a College That Won’t Drown You in Debt

MONEY Social Security

Why Social Security Benefit Rules Are Making Inequality Worse

Laurence Kotlikoff, an economics professor at Boston University.
Jodi Hilton—The New York Times/Redux Laurence Kotlikoff, an economics professor at Boston University

Benefit rules are so complex that a new book on claiming strategies has become a best-seller. Here’s how to get it right.

If you find Social Security rules bewildering, don’t feel too bad; so do Social Security experts. As Boston University economics professor Larry Kotlikoff points out, the 2,728 Social Security rules, if you print them out, are longer than the federal tax code. Little wonder his new book explaining to how to max out Social Security benefits—Get What’s Yours, co-authored with MONEY contributor Philip Moeller and PBS journalist Paul Solman—landed on the New York Times and Amazon best-seller lists. Kotlikoff recently spoke to MONEY about the program’s shortcomings and the best way to claim benefits.

Q: Why are Social Security rules so maddeningly complicated?

A: The system was designed decades ago by older white males who may have had their own interests somewhat at heart. In any case, it awards benefits unfairly. Single people are at a disadvantage to married couples, who have more types of benefits available to them. Married couples with two earners are at a disadvantage to those with one earner. The disabled are also treated unfairly.

Worse, whether you get all the benefits you are entitled to is a random process. It all depends on whether you understand the complex system, and you get the right information from customer representatives, who aren’t well trained. Americans are leaving billions on the table as a result. But higher-income people are better able to take advantage of Social Security’s claiming options. This worsens economic inequality.

Q: You’re an advocate for entitlement reform, yet you’re also encouraging Americans to max out their benefits. Isn’t that contradictory?

A: I want to expose inequities wherever they are. I’ve written about the nation’s generational inequities [“The Coming Generational Storm“], and the expropriation of money that should go to our kids because of the ballooning costs of these programs. But Social Security rules are a disgrace and unfair to people of all ages. No one should get more benefits just because they know the rules.

Q: Given the program’s funding problems, should younger Americans count on Social Security?

A: The system is 33% unfunded, according to the last trustees’ report. So somebody has to pay to fix it. My co-authors and I don’t agree on how to fix things—there’s a debate about solutions in the book. I explain my preferred solution at the Purple Social Security Plan.

Still, I think people 55 and older will get their full benefits. It’s too difficult politically to change their treatment. Younger people will likely receive something, but they’ll probably pay for it with higher taxes.

Q: What is the biggest mistake people make when they claim?

A: For many households, the problem is claiming benefits too early. If you wait to claim till age 70, you can increase your benefits by 76%, compared with starting at age 62, the earliest age you can claim. By delaying, you have an opportunity to tap a source of guaranteed inflation-proof income at an incredibly low price. That said, many people can’t afford to wait, since they have no other means of support.

Q: Many financial planners recommend claiming based on your “break-even” age—how long it will take for higher benefits claimed at a later age to exceed what you’d get by claiming early at 62.

A: This is a fundamental misunderstanding. People mistakenly look at Social Security as an investment, and they try to figure out the break-even point, when they’ll make their money back. They don’t understand the economics of working longer, or how to value the extra income you get by waiting.

Social Security is insurance—an inexpensive, safe payout—not an investment. You don’t look at your homeowners’ insurance on a break-even basis. You look at the worst-case scenario, which is your house burned down, you have no place to live, and the insurance is there when you need it. The worst-case scenario here is living to 100 and running out of money well before then.

Q: Have you figured out your own Social Security claiming strategy?

In my case, it’s relatively straightforward—I can just look at my own book, and I don’t need to use my claiming software (MaximizeMySocialSecurity). I’m 64, and I’m older than my ex-wife and my fiancée. They’ll both be able to claim spousal benefits on my earnings record. I’m going to wait till age 70, and then collect my benefit.

Read next: The 3 Secrets to Maxing Out Social Security Spousal Benefits

MONEY

This Is What a World Without Women Would Look Like

On March 8, females disappeared from ads to promote the Not-there.org campaign

On March 8, ads, books and magazine covers around New York City looked a bit empty.

Where there were once women—on a Dove soap billboard, on HarperCollins books, on Condé Nast magazine covers, on a phone booth ad for the New York City Ballet, among other places—pictures had been replaced with white space and a URL reading Not-there.org. You can see examples in the gallery above.

The collaborative campaign by the Clinton Foundation and ad agency Droga5 for International Women’s Day was meant to bring attention to a new report from No Ceilings: The Full Participation Project. The initiative seeks to “raise awareness that women are ‘not there’ yet on issues of gender equality.”

This year also marked the twentieth anniversary of Hillary Clinton addressing the United Nations in Beijing to assert, “It is no longer acceptable to discuss women’s rights as separate from human rights.”

On the surface, this clever media stunt taught us that a world without women would be lacking of some serious talent. The stage for the New York City Ballet would be bare. Tennis rackets would just be laying on the court at the US Open. There would be less laughter, without actresses like Amy Poehler and Cameron Diaz. And we may not have won World War II, since it was women—characterized by Rosie the Riveter—who took up the domestic effort to produce munitions and war supplies.

If you got the message and moused your way over to the report, you’d also learn about the great leaps women have made in recent years and the bounds that they still need to make to catch up.

More laws protect women today than ever before, but they are not always enforced. More girls are getting educations, and women outnumber men at colleges—but not in the STEM programs that feed some of the highest-paid industries.

The gender workforce gap hasn’t changed in twenty years, and women are underrepresented in political office and management ranks.

Paid maternity leave is now common for women across the world, but not in the U.S.—one of nine countries in the world that does not guarantee paid leave.

And women spend up to 5 more hours on unpaid domestic work than men.

While the lack of women may have been blatantly obvious on prominent billboards, magazines, book covers and bus posters, the Not There campaign also encourages us to look elsewhere. What about in the engineering programs at college? What about on the Hill in Washington? What about that empty Aeron chair in the CEO’s corner office?

This is part of The Photo Bank, a recurring feature on Money.com dedicated to conceptual photography on financial issues. Submissions are welcome and should be sent to Sarina Finkelstein, online photo editor for Money.com at sarina.finkelstein@timeinc.com.

MONEY women at work

Did Warren Buffett Just Mansplain Politics to Elizabeth Warren?

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Nati Harnik—AP Berkshire Hathaway Chairman and CEO Warren Buffett

There's plenty of reason to be mad at Wall Street, but dismissing women as angry is too common. And it hurts them at work.

“I think she would do better if she were less angry and demonized less.”

Aargh.

That’s Warren Buffett, CEO of Berkshire Hathaway, on Senator Elizabeth Warren and her campaign to regulate Wall Street.

During his interview Monday on CNBC’s “Squawk Box,” Buffett went on to comment on today’s political climate, noting that doing something is better than doing nothing, and that being too hard on people who disagree with you might not be the best way to get something done. “I believe in ‘hate the sin and love the sinner,'” he said.

Now, let’s set aside that his comments implicitly dismiss Senator Warren’s substantive criticisms of Wall Street. And that anger is arguably an appropriate response to much of the shenanigans leading up to the 2008 financial crisis.

Let’s even acknowledge that Buffett makes a fair point: Compromise is good.

But the reason Buffett’s statement induced cringes across the internet has less to do with his plea for political compromise and everything to do with the language he used to describe Senator Warren’s political approach. For women in the workplace and in the public sphere, passion and persistence are too often dismissed as anger and pushiness. And this tendency has a real impact on their careers.

A recent analysis of performance reviews in the tech industry found that 58.9% of the reviews received by men contained critical feedback, while a much higher 87.9% of the reviews received by women did. Women are also more likely to receive personality feedback along with comments on their professional performance. And that feedback was often found to include words like bossy and abrasive when commenting on leadership skills, and emotional or irrational when discussing any objections they make.

Gender bias in language is not new or mind-blowing information. But it does represent a deeply entrenched idea of how women should express opinions or dissatisfaction, lead a team, or even teach a class. Ben Schmidt, an assistant professor of history at Northeastern University, created an interactive tool that analyzes 14 million teacher reviews on the professor ranking site RateMyProfessors.com. Users can type in a one or two-word phrase and see how the term is split between gender and academic discipline. Go ahead and type “bossy,” “annoying” or “pushy” into the box, and watch what happens to the female-designated orange dots. (Hint: They aren’t randomly distributed.)

Sure, Buffett’s remarks were off the cuff, but these are slips that women in the workplace hear too often. And we can’t help but wonder: If Senator Warren were a man, would her approach be characterized as assertive rather than angry, and persistent rather than pushy?

It’s worth noting that Buffett is supporting the presidential ambitions of Hillary Clinton, who’s been on the receiving end of many of these same loaded adjectives. His recent $25,000 donation to “Ready for Hillary” is the first time he’s aligned himself with an independent political group. Which is not to suggest that the Oracle of Omaha is a flagrant chauvinist, or opposed to women gaining positions of power.

Still, inadvertent sexism is, at the end of the day, still sexism. Just ask Twitter:

 

MONEY Wealth

The Super-Rich Have a Racial Wealth Gap, Too

Even at the top end of the economic scale, the financial differences between black and white Americans are big — and they've changed little in 30 years.

MONEY Inequality

Why the Nasdaq Is Back but the Middle Class Isn’t

The Times Square news-ticker announces the NASDAQ composite index topping 5,000 points on March 2, 2015 in New York City. The NASDAQ composite climbed over 5,000 points for the first time in 15 years.
Bryan Thomas—Getty Images The Times Square news-ticker announces the NASDAQ composite index topping 5,000 points on March 2, 2015 in New York City. The NASDAQ composite climbed over 5,000 points for the first time in 15 years.

Why the average American has missed out on the stock market's gains.

The Nasdaq touched 5,000 on Monday and investors are having some heady Y2K flashbacks. The tech-heavy index last approached such lofty heights in 2000, when the stock market bubble had yet to pop. It was time when electronic trading, tech funds and hot IPOs were middle class obsessions. It felt like everyone could get a piece of the action.

There’s some of that boom-boom feeling in air again. (See: Uber, Shake Shack and the growing herd of “unicorns,” Silicon-Valley-speak for start-ups valued at $1 billion.) But while the Nasdaq index has returned to prosperity, this stock rally in general has felt like, in investment blogger Josh Brown’s words, a rich man’s bubble. For one thing, for better or for worse, the percentage of adults invested in the stock market is at its lowest point in decades. The financial crisis forced many middle-income investors to liquidate their stock holdings in order to weather the following years of financial hardship.

150226_INV_GallupPoll

And nobody is under the illusion that everyone’s getting rich.

A study financed by the Russell Sage foundation found that the median household’s net worth declined by $32,000 between 2003 and 2013, from almost $87,992 to $56,335. That means a typical household lost 36% of its wealth in 10 years. Yet in that same 10 year time-span, not only the Nasdaq has boomed back. The S&P 500, the most commonly used indicator of stock market health, is up 60%.

The fact that fewer Americans are invested in the market is only part of the issue. Study co-author Fabian Pfeffer says home equity made up more than half of the median household’s wealth in 2007, just before the housing crash. Worse, the housing market has improved far more slowly than the stock market, resulting in a much slower recovery for middle-income households.

ycharts_chart-5

 

And so volatility has tended to amplify inequality, even when markets eventually bounce back. While the average American was forced to divest from the stock market when shares were (in hindsight now) cheap, wealthier people were not, meaning the latter group has benefited more when the economy improved. Wealthier Americans also had a higher percentage of their wealth outside the real estate market. Pfeffer says the median household in the richest 5th percentile held just 16% of their wealth in home equity, with the rest primarily held in either business assets (49%) or financial instruments like stocks and bonds (25%).

The end result? America’s wealthiest households prospered in the aftermath of the financial crisis as the stock market improved, while the middle class was largely passed over. Pfeffer’s research found the richest 5% of Americans held 24 times the wealth of the median household in 2013, up from 13 times the wealth of a typical household in 2003. In other words, wealth inequality essentially doubled over the last decade.

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