The Student Debt Paradox

Posted on by Michael Q. McShane

A couple of weeks ago, my colleague Brittany Wagner had some fun with a spokeswoman for the Million Student March and her call for the abolition of all student debt in America.  Apparently not chastened by that embarrassing episode, folks continue to push to either erase current student debt, or make college free in the first place. To buttress their arguments, proponents of such measures often cite the “crushing,” sometimes six-figure debt levels that some students have incurred. 

The important point that these discussions often miss is that it isn’t the folks with six-figure loan debt who are defaulting. By and large, it is low-amount borrowers.  In fact, the average amount of debt from federal loans in default is only $14,014.

How can that be?

Well, think about who takes out large loans to pay for college. We’re talking lawyers, doctors, and folks getting MBAs.  Sure, they rack up a lot of debt, but they also make a lot of money, so they’re able to pay it off.  The people who can’t pay off their debts are the usually the ones who took out loans to pay for a year or two of college but then didn’t complete it.  They incurred the debt and years of lost wages, but will not see the wage premium from that college degree.

The Washington Center for Equitable Growth just released a helpful interactive map that illustrates this phenomenon perfectly. It allows you to search, by zip code, the average loan balance and the delinquency rate of student borrowers anywhere in the country.  As a reference, it gives the median household income of the zip code as well.

Look, for example, at Kansas City’s 64113 zip code. Median income? $113,536. Average loan balance? Extremely high. Delinquency rate? Extremely Low.  St. Louis’s 63105 is the same story, with a median income of $86,031 and extremely high levels of student debt but extremely low rates of delinquency.

At the other end of the spectrum is St. Louis County’s 63140.  There we see a median income of only $21,750 and a low average loan balance, but a high rate of delinquency. The same is true in Kansas City’s 64126, which has a median income of $25,009, extremely high delinquency rate, but moderately low levels of student debt.

When we realize that it is low-amount borrowers who are struggling, our focus should shift from trying to make college free to trying to make college better. Those policy prescriptions don’t fit easily on a bumper sticker, but they’d do a lot more good than the slogans that do.

No Child Left Behind Has One Foot in the Grave

Posted on by Michael Q. McShane

After the pigs got clearing for takeoff and the weather reports from Hell came back with a temperature below 32 degrees, the United States House of Representatives passed a bipartisan reauthorization of the Elementary and Secondary Education Act (ESEA) by a vote of 359 to 64. Most of you know ESEA by its most recent iteration, No Child Left Behind, which has been waiting for years to be reauthorized. The new bill, which now heads to the Senate, is termed the Every Student Succeeds Act.

Education Week has a detailed cheat sheet on the ins and outs of the bill, but the Associated Press’s summary cuts to the core of the issue, “The bill would return to the states the authority to decide how to use students' test performance in assessing teachers and schools, and it would end federal efforts to encourage academic standards such as Common Core.”

I want to underscore just how important this is. In education, as in most policy areas, federal involvement is a one-way ratchet. Federal influence in education has been on the rise since the days of Sputnik, accelerated by President Johnson as part of the War on Poverty, and brought to its apex by No Child Left Behind. This looks to be the first time that trend has been reversed.

The tide is turning because people across the country and across the political spectrum have realized that the federal government is in a terrible place to try and dictate education policy. We have 100,000 schools in 14,000 school districts spread all across our vast and diverse nation. Trying to centrally determine how to hold schools accountable is simply too great a challenge. Those decisions are much better made by individuals closer to children and the communities where they live.

The bill still has to pass the Senate and be signed by the President, but all indicators point to that happening relatively soon. If and when it does, Missouri will have much more control over its educational future, and the hard work of creating a world-class education system without Uncle Sam breathing down our neck can begin.

Physician Survey: Direct Primary Care Growing In Popularity, Particularly With Younger Doctors

Posted on by Patrick Ishmael

Jacqueline DiChiara has a great piece this week about the impact of physician shortages on the future of medicine. Hit the link for the full article, but I want to highlight one section that addresses the growth of direct primary care (DPC) and the interest that doctors—especially younger ones—have in the model.

Seven percent of primary care physicians—i.e. internists, family doctors, and pediatricians—offer direct pay/concierge medicine, reports the Physician Foundation in a 2014 physician survey with 20,000 respondents.
 
Thirteen percent of respondents say they plan to transition to this type of practice to some extent, either in whole or in part. Additionally, 17 percent of those physicians age 45 or younger confirm they will make this transition in due time.
 
Affordable direct primary care may be becoming a more mainstreamed option within both the short-term and long-term future of the healthcare industry.

 

You can find the Physician Foundation's study here. I have talked extensively about why DPC innovations are important not only for patients, but for doctors as well. Patients can generally expect to see cost and access improvements when they join a DPC program; meanwhile, doctors can generally expect to see lower costs and greater control over their practices. Indeed, for many doctors, moving to a DPC model offers them a way to remain in the field of primary care rather than be pushed out of it.

Expanding insurance—as Obamacare has attempted to do—fundamentally doesn't accommodate these cost, access, and professional control priorities. Instead, the Affordable Care Act doubles down on a broken status quo that ignores the system's effect on a host of important policy considerations, including the prices for care paid by patients and the supply of doctors serving the system. Gayle Brekke, a health insurance actuary writing for the Benjamin Rush Institute, captures the quandary well:

In the health care system, when a 3rd party (insurance company, government) is paying the bill from the first dollar of coverage, patients (consumers) do not have an incentive to shop for value. They are not spending their own money at the point of service. In fact, patients often feel like they pay high insurance premiums so they want to consume more health care in order to feel like they are getting value from their insurance coverage.

Until the health care industry grapples with its longstanding cost and, relatedly, access problems, patients will continue to be let down by the system and primary care doctors will continue to get squeezed by it.

The Unspeakable in Full Pursuit of – a Football Stadium

Posted on by Andrew B. Wilson

Oscar Wilde described fox-hunting as “the unspeakable in full pursuit of the uneatable.” We can make the same point about Missouri Gov. Jay Nixon, Saint Louis Rams Football Owner Stan Kroenke, and the Great Riverfront Stadium Hunt.

Nixon and Kroenke are two squires cut from the same cloth – a trophy-hunting governor who thinks he can pick winners and losers and a super-rich developer with a long history of currying favor from government entities.

In this situation, we may debate the question of whether it is worse (i.e., more “unspeakable”) to give or to receive. Here we are talking about the award of hundreds of millions of dollars of taxpayers’ assistance to a hugely profitable sports business that does nothing to advance the public good.

It is at least appropriate that the object of the hunt is made largely of concrete.  Along with the unwarranted subsidies, that makes it doubly indigestible – both from a gastronomic and an economic viewpoint.

County Residents on the Hook for Trolley Folly-Since When?

Posted on by Joseph Miller

Those who read this blog will know that the Loop Trolley is $8 million over budget, and Saint Louis County residents are getting stuck with the bill. We’ve also discussed that, despite the news breaking only a couple of weeks ago, regional officials have planned for overruns since mid-July, and may have known about problems much earlier. As Saint Louis County officials prepare to allocate mass transit funds to bail out the project, it is instructive to look at what the public was told about possible cost overruns during the planning phase—because they weren’t told that county taxpayers would be on the hook.

Flashback to July 16, 2012: On that day, University City held a special meeting on the Loop Trolley, at which Doug Campion (project manager for the trolley), presented an overview of the project. One of the council members asked Mr. Campion how much planners were setting aside for contingency (going over budget) and what would happen if the Trolley’s budget were exceeded. According to the meeting’s minutes:

“Mr. Campion said it would be normal to have between a 10 and 20 percent set up for contingency for the project. At the moment they have a 17.2 percent contingency. Mr. Campion said in the event that something would happen the TDD [transportation development district] could issue revenue bonds against it.”

Later, Mr. Campion reiterated that:

“…if there was an overrun the TDD would float a revenue bond to fund it.”

It is now clear that “something” has indeed happened, and the 17.2 percent contingency was not at all adequate. However, the TDD is not floating a revenue bond to cover the overruns, despite what Mr. Campion said when asked about this exact scenario. Nor did Trolley planners propose a special sales tax for the district or an increase in proposed fares, both of which could have been used to match an additional federal grant for the project. Instead, Saint Louis County is expected to pay for that match (and then some) with Proposition A funds. For those who have forgotten, Proposition A is a half-cent sales tax for mass transit. County residents were told that the tax was necessary to save bus service and improve existing transit so that people could get to work. Would voters have approved such a tax if they had known millions would be peeled off for pet trolley projects?

Saint Louis County residents were told that the Loop Trolley project would cost $43 million, and that construction contingencies were well in place. They were told that federal government and TDD revenues, not county taxes, would pay for the project and any cost overruns. They were told that Proposition A funds were about getting people to work and improving essential transportation. And now they’re being told to forget all that. 

How to Prevent Teacher Pay Inequity from Worsening

Posted on by James V. Shuls

Veteran teachers make considerably more than novice teachers. A recent report by Marguerite Roza of the Edunomics Lab at Georgetown University noted that Missouri teachers at the end of their careers make 137% of what a teacher with a master’s degree and 10 years of experience makes. This ranks Missouri 14th in terms of having the “steepest” salary schedule. In other words, we are back-loading teacher pay.

Roza points out that rewarding teachers in this manner has serious implications for teacher recruitment and retention, fiscal sustainability, and pension obligations. High-quality college graduates with high-paying alternatives may steer clear of education. Similarly, young teachers may be more inclined to leave the profession because of low salaries.

Teachers are primarily paid via a salary schedule, which gives standardized raises to teachers for each additional year of service and each additional postgraduate degree earned. The problem is that a salary schedule often gives teachers a raise that is set as a percentage of what they make, not a predetermined dollar amount. This leads to larger end-of-career increases, because the raises compound over time. For a teacher who starts at $40,000 per year, a 3% raise at the end of the first year will mean a $1200 increase. But their second-year raise will come to 3% of $41,200, which works out to $1,236. Keep projecting the numbers out and each year’s raise just gets bigger and bigger.

In addition, school districts often give cost-of-living (COLA) raises. These too are often awarded on a percentage basis, further widening the pay gap between veteran and novice teachers.

I highlighted this in a post a couple years ago. In which I wrote:

Take, for example, the salary schedule for a teacher with a master’s degree in the Parkway School District. In his or her first 10 years, a teacher in Parkway only receives a 17 percent pay raise. Between their 11th and 20th years, they receive a 51 percent pay raise. The difference is $20,000. It is no wonder we have difficulty retaining new teachers. The system is designed by veteran teachers for veteran teachers. After all, veteran teachers are usually the ones who serve on salary bargaining committees.

Parkway School District Salary Schedule

Teachers are unique among professionals in this regard. Using U.S. Census Bureau data, Roza calculated the earnings trends for teachers, lawyers, doctors, accountants, and computer programmers. Compared to these other professions, teacher pay is significantly back-loaded.

Comparison of pay schedules

I have written a number of times about the need to revamp how we pay teachers (see here and here). In this report, Roza doesn’t go that far. Rather, she offers a simple solution to slow down the growth in inequity between junior and senior teachers—a fixed-dollar pay raise. Instead of awarding COLA’s on a percentage term, districts should award the same dollar amount to teachers at every step of the pay schedule.

Regardless of your preferred method of reform, Missouri will struggle to attract and retain great young teachers until we stop back-loading teacher salaries.

Kansas City’s War on Voters

Posted on by Patrick Tuohey

The Show-Me Institute has written extensively about efforts by government officials in St. Louis to keep the public from voting on a proposed new stadium. But the war on voters is spreading, and here is Kansas City, the battle is becoming pitched.

In a special and "disastrously run" Tuesday meeting, the TIF Commission voted 6 to 2 to move ahead with a deal that would have taxpayers subsidize a project by a wealthy developer so she could charge high rents to a successful architectural firm in a tony part of town. It would have been a 6 to 5 vote, but three commissioners representing Jackson County and the Kansas City Library walked out in protest. (Actually, it could have been 6 to 5 against, but Mayor James replaced one of the commissioners who didn't toe the line.)

Speaking of the decision to revisit a previous vote, the representative for the school district said, 

It is very apparent that this rush to bypass the prior decision of this commission, with no regard for the reasons for the delay, is an effort to stop parents of KCPS students, community groups and the voting public from putting this use of taxpayer dollars on the ballot in April. There seems to be a level of politics at play here that is disheartening.

TIF policy, as frequent readers of this blog know, was designed as a way for municipalities to encourage development in economically declining or blighted areas. In Kansas City, however, "the TIF process is dominated by developers and their attorneys, who dominate campaign contributions to elected officials."  In that respect it is another form of reverse Robin Hood, taking from the working class and poor to give to the wealthy.

How long will it last? One can hardly know. The newspaper of record has its own tax break, so one wonders if it can be counted on to report fully on the matter. Petition efforts have been undertaken to require public votes not only on this TIF deal, but also on the convention hotel TIF. City Hall is fighting those efforts, too. (Cindy Circo, the head of the TIF commission, didn't even bother to hear public testimony before the vote.)

If City Hall is working so deliberately to thwart public input and reward their cronies, who will speak up for the people?

 

 

KMOX Interview on Mizzou’s Problems

Posted on by Patrick Ishmael

Earlier today I had the chance to speak with Mark Reardon on KMOX about my Mizzou commentary, published over at Forbes. You can find the interview here, and rather than force you to Google around for the op/ed, I thought it may just be easier to share the link with you here on Show-Me's blog. I've also written on the subject here.

And as always, your commentaries are welcome in the comments below.

Missouri’s Certificate of Need Law Needs to Go

Posted on by Patrick Ishmael

One of the keys to promoting patient health is ensuring that patients can actually access the care they need. Unfortunately, government regulations often get in the way. One such regulation in Missouri (and other states) is the Certificate of Need (CON) law, which essentially regulates the number of hospital beds a community can have and the sorts of equipment that hospitals can purchase.

CON laws were intended to prevent duplication of services, increase care access, and control costs. However, research and experience over the last forty years suggest that while CON laws do stop new players from entering markets, they don't really reduce cost or increase access to care. That result is intuitive; restricting competition in goods and services, whether in health care or in hamburgers, tends to restrict access and raise prices for consumers because incumbent businesses have less incentive to compete for business based on cost and quality. It's why many states have repealed their CON laws, and why Missouri should follow suit.

It's bad enough that CON laws don't accomplish what they were originally intended to do, but CON laws can also be used by incumbent health care players to keep out competition in areas where people are not getting the care they need. One example of this was made clear in a recent St. Louis Business Journal story about long-term care providers demanding that the state tighten up its CON approval process—ultimately to the detriment of patients:

Representatives from the Missouri Health Care Association and the Missouri Assisted Living Association made a presentation during a recent Missouri Health Facilities Review Committee Certificate of Need (CON) meeting calling for a change in how strictly CON procedures are enforced. According to Nikki Strong, executive vice president of the MHCA, too many long-term care and assisted living projects are being approved for areas of the state in which there is no demonstrated need….

Health Facilities Review Committee member William Krodinger said many projects that are in areas where there does not appear to be a need are approved because they are serving patients with a specific need—such as mental health or memory care facilities. Also, he said some areas look like they have an oversupply of available beds on paper because the numbers include projects that have been approved but not yet built, some of which never come to fruition.

Indeed, some health care providers want the state to act as if phantom projects are meeting the needs of Missourians, which would also protect their business models. That's good for incumbent health care providers, but it's bad for Missourians' health and pocketbooks. Rather than secure Missourians' health care, CON laws can actually imperil it. They need to go.

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