Student Debt: Ripe for Comedy, but No Laughing Matter

October 2, 2014

In a recent segment, Last Week Tonight with John Oliver took on the subject of higher education in a hilarious rant on some rather serious topics, such as state disinvestment in public colleges and universities, skyrocketing tuition, and rising student loan debt. Injecting his signature brand of comedy, John Oliver touched on a number of important issues that we also highlighted earlier this year in From State to Student, the CBP report on higher education funding in California.

Oliver noted that in recent years, states have slashed funding for higher education by an average of 23 percent per student, according to a Center on Budget and Policy Priorities report. In response, public higher education institutions have raised tuition significantly. This is definitely true in California, as the state’s support for the California State University (CSU) and the University of California (UC) has deteriorated in recent decades and remains near the lowest point in more than 30 years on a per-student basis, after adjusting for inflation. This is even after accounting for the small state funding increases both CSU and UC have received in the last couple years. At the same time, tuition and fees have risen dramatically as state support has dwindled, remaining near historic highs at both CSU and UC, even after adjusting for inflation.

As Oliver points out, one of the consequences of state cuts for higher education and increased tuition is that students are being forced to take out ever-larger student loans to pay for school. The total amount of student loan debt now exceeds $1 trillion nationally after tripling in the past decade, surpassing all other forms of household debt except home loans. Shining some comedic light on the increasing pervasiveness of student loan debt, Oliver quipped that “it has surpassed Bob Marley’s greatest hits album as the thing seemingly every college student has.” Unfortunately this broader trend has not bypassed California, as a growing share of CSU and UC students are graduating with increasing amounts of student loan debt. This is a strong indicator that public four-year higher education is becoming less affordable and less accessible for many high school graduates in California.

As we discussed in From State to Student, these trends have fundamentally altered how higher education costs are shared between the state, on one hand, and students and their families, on the other. Whereas the state once paid most of the cost of public higher education in California, years of budget cuts and tuition hikes have shifted more of the costs to students and families, especially at CSU and UC. This cost shift potentially puts the state’s economic future at risk, as a well-educated workforce is critical to California’s future prosperity. At current rates, California will not produce enough college graduates to meet the demands of the state’s economy in the years ahead.

In his concluding remarks, Oliver commented that “our leaders have decided that, while [higher] education is incredibly important, it is not important enough to actually pay for.” Stay tuned in the coming months as we issue further analysis and commentary that explore these issues — and what they mean for public policy in California — in greater depth.

— Phaelen Parker

How Should California Spend Nearly $2 Billion?

August 25, 2014

The state of California is poised to direct an estimated $1.8 billion over the next four years to new and expanded tax breaks for specific industries and businesses based on actions recently taken by state lawmakers, or actions pending and likely to be approved by state lawmakers in the coming days. These include:

  • Nearly $420 million in tax breaks for aerospace companies — specifically targeted to Lockheed Martin and Northrop Grumman — that are competing to build the next generation of stealth bombers, an incentive package approved by the state Legislature and signed into law by Governor Brown earlier this month;
  • Expansion of a state tax credit for film and TV production — from $100 million to $400 million annually — that is currently working its way through the Legislature; and
  • Efforts to lure Tesla Motors to build a new “gigafactory” in California, which are likely to include tax credits to help meet Tesla’s demands that state and local governments help pay for 10 percent (estimated at $500 million) of the cost of construction. The legislation, expected to emerge in the coming days, is also likely to exempt Tesla from some environmental (CEQA) requirements.

All told, these actions stand to commit the state to nearly $2 billion over the next four years in targeted tax breaks for business and industry.

We think that California would benefit more from investing this money in vital public systems and services. While we don’t question that state leaders should place a high priority on boosting employment and expanding opportunity, we do question whether these new and expanded credits and incentives are the best strategy for meeting those objectives. Consider just a few alternatives for the state’s $2 billion:

  • Phasing in a refundable state Earned Income Tax Credit (EITC) to further leverage the federal EITC, which would boost the incomes of working families most in need of assistance, raising thousands Californians out of poverty each year;
  • Continuing to restore the 110,000 subsidized child care and preschool slots (nearly one-quarter of the total) cut since 2007-08 that help working parents find and keep jobs and build a foundation for children’s success; and
  • Making a down payment on reinvesting in the economic engines that are the state’s higher education systems, for which state General Fund spending per student has declined significantly over the last three decades.

All of these alternatives, among others, are proven winners at helping working families to prosper, while the evidence on targeted tax breaks for businesses is mixed at best.

As state leaders clamor to give away tax credits to high-profile businesses and projects, we should all be asking the question “How should California spend nearly $2 billion?”

— Chris Hoene

Statement from Chris Hoene on the Newly Announced Budget Agreement: “Only a Very Small Step Toward Much-Needed Reinvestment”

June 13, 2014

The California Budget Project (CBP), a nonpartisan public policy research group, released the following statement from Executive Director Chris Hoene on the budget deal announced by Governor Jerry Brown and legislative leaders today:

“The budget agreement announced by the Governor and legislative leaders today moves our state only a very small step toward much-needed reinvestment in California’s families and communities.

“The increased funding for state preschool is important and will help expand early learning opportunities for low-income children and mitigate the harmful effects of poverty. But beyond this, the budget deal includes no significant new support for many core public services and systems that were hit hard by years of cuts, such as child care slots, higher education, and safety-net services for low-income seniors and people with disabilities. The budget deal also leaves in place deep cuts to health services for low-income Californians, such as a sharp reduction in payments for doctors and other providers who participate in Medi-Cal.

“Providing sufficient funding for key state services is always critical, but it’s especially so with poverty and long-term unemployment still so high. Given the need to help more individuals and families share in California’s economic recovery, it’s disappointing that this budget agreement fails to strike the right balance among paying down debt, saving for a rainy day, and boosting support for core public systems and services, and that it also falls short of laying out a clear vision for investing in our state’s future.”


The CBP will release additional commentary and analysis on the budget agreement in the coming days and weeks.

Increased Student Loan Debt Creates Ripple Effects That Could Hinder Economic Growth

May 29, 2014

Our recent Budget Brief on funding for higher education, From State to Student, shows that a growing share of students graduating from California’s public four-year institutions — the California State University (CSU) and the University of California (UC) — are doing so with higher levels of student loan debt, partly due to an ongoing shift of higher education costs from the state to students and their families. At UC, for example, undergraduates who took out loans graduated with an average of nearly $20,000 in student loan debt in 2011-12 — a level that is almost $3,000 higher than in 2006-07, after adjusting for inflation.

This trend is certainly not unique to California. Nationwide, an increased share of young adults are taking out student loans to help pay for their higher education. Furthermore, the average amount owed in student loans by those who do borrow has also risen. In only a decade, from 2003 to 2013, the percentage of 25-year-olds with student loan debt increased from 25 percent to 45 percent, while the average balance owed nearly doubled from around $10,600 to $20,900.

Of course, student loans aren’t necessarily bad. They can help bring higher education within reach of many low- and middle-income students and are a sound investment in one’s future. Also, some programs, such as federally subsidized low-interest student loans, help provide critical access to higher education for millions of young Americans, including many CSU and UC students. And, we know that college graduates have significantly higher average lifetime earnings and face lower unemployment rates than do those with only a high school diploma. In fact, over the past generation only Californians with bachelor’s degrees, on average, made strong wage gains, providing clear evidence that a four-year college degree is closely tied to economic opportunity and mobility.

However, the high level of student loan debt could actually be stifling the nation’s economic recovery. A new report by the Federal Reserve Bank of New York shows that, with escalating education costs contributing to soaring student loan debt, young adults — particularly those with student loans — are significantly more likely to hold off on purchasing homes, cars, and other big-ticket items than they were a decade ago. Worsening the situation is the high unemployment and underemployment rates that young college graduates continue to face. The combination of economic uncertainty and increased student loan debt burden has reduced the amount of money that many young Americans are willing and able to spend on a variety of purchases — thus creating a drag on overall consumer demand.

It’s not just that declining state support for CSU and UC may be creating ripple effects that threaten California’s economy in the short term. Failing to invest in higher education could put our state’s long-term economic future at risk. California is projected to face a shortfall of 1 million college graduates by 2025. Furthermore, a study last year by the Economic Policy Institute (EPI) demonstrated that states with a well-educated workforce are more likely to have strong economies and foster broadly shared prosperity.  The report noted that:

“(P)roviding expanded access to high quality education and related supports — particularly for those young people who today lack such access — will not only expand economic opportunity for those individuals, but will also likely do more to strengthen the overall state economy than anything else a state government can do.”

To help strengthen pathways to economic opportunity for low- and middle-income Californians, policymakers should rebuild state support for CSU and UC and recommit to providing an affordable, quality higher education that is accessible to all eligible Californians. Last week, both of the Legislature’s budget subcommittees on education voted to significantly augment CSU and UC funding above modest increases in the Governor’s proposal. This would represent a step in the right direction.

— Phaelen Parker

Decades of Funding Cuts Have Diminished Access to and Affordability of California’s Public Universities

May 6, 2014

A new report from the California Budget Project (CBP) shows that state support for the California State University (CSU) and the University of California (UC) has deteriorated over the past generation, endangering what has historically been a key pathway to economic opportunity and upward mobility for Californians.

From State to Student: How State Disinvestment Has Shifted Higher Education Costs to Students and Families shows that even with a growing state population and increased demand for higher education, state funding per student at both of California’s public four-year universities is down significantly compared to the 1980s. As a result, tuition and fees have skyrocketed, with more students and families having to take on student loan debt in order to afford a CSU or UC education.

From State to Student shows that:

  • State support for CSU and UC has not kept up with the significantly increased demand for higher education in California. Since 1980-81, enrollment has increased by more than 50 percent at CSU and by more than 90 percent at UC. Yet during this same period, General Fund support for each institution has declined by nearly 13 percent, after adjusting for inflation.
  • As a result, General Fund spending on a per student basis at both CSU and UC remains near the lowest point in more than 30 years, after adjusting for inflation. General Fund spending per student at both CSU and UC has fallen significantly in the past generation. At CSU, General Fund spending student in 2013-14 is $6,417, down from $11,240 in 1980-81 — a 43 percent drop. At UC, General Fund spending per student has fallen from $24,045 in 1980-81 to $10,879 in 2013-14 — a 55 percent drop. (All of these figures are in 2013-14 dollars.)
  • Tuition and fees have skyrocketed since the early 1990s — more than tripling at CSU and more than quadrupling at UC, after adjusting for inflation. Between 1990-91 and 2013-14, CSU undergraduate tuition and fees for California residents have risen from $1,376 to $5,472, while UC tuition and fees have jumped from $2,865 to $12,192. (All of these figures are in 2013-14 dollars.)
  • A growing share of students are graduating with increasing student loan debt. In 2010, about four in 10 first-year full-time undergraduate students at CSU or UC took out student loans, the largest share in a decade. Furthermore, undergraduates at CSU who took out loans graduated with an average of $17,150 in student loan debt in 2010-11, while UC undergraduates with student loans graduated with an average of about $19,750 in debt in 2011-12 — both well above pre-recession (2006-07) levels, after adjusting for inflation.

The proposed 2014-15 state budget put forth by Governor Brown earlier this year would increase General Fund support for CSU and UC by $142 million each, the third consecutive year of increased funding for both institutions. However, these increases in General Fund support represent only a small step toward reversing the long-term trend of diminished support.

— Steven Bliss