Damming Student Debt: One Liberal-Arts College’s Approach

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Sheila C. Bair is familiar with the hardships that debt can bring. For five years, including during the subprime-mortgage crisis, she served as chair of the Federal Deposit Insurance Corporation. A year ago she became president of Washington College, a 234-year-old private nonprofit institution in Maryland, and she has turned more of her attention to student-loan debt. How can students, especially those from poorer families, get a good liberal-arts education and not pay too high a price for it? She shares her strategies here.

TRANSCRIPT:

RUTH HAMMOND: Hello, I’m Ruth Hammond. Our guest here today is Sheila Bair, the president of Washington College in Maryland, and she’s a former chair of the Federal Deposit Insurance Corporation. And we welcome you here today. Well, when you were chair of the FDIC, you really had to worry about the subprime-mortgage crisis. Now that you’ve made the transition to higher education, I imagine you’re worried about the amount of student-loan debt and what should be done about that. Could you tell us some of your main concerns about that?

SHEILA BAIR: Yeah. So in aggregate, it’s a big problem. I think it’s different depending on institutions and students, but in aggregate it’s a big problem. It’s something I think everybody in higher education needs to be worried about. I do see parallels between the student-debt crisis we’re having now and the mortgage-debt crisis I had to deal with when I was at the FDIC.

I think, as we saw with the subprime-mortgage crisis, the easy availability of debt fed a housing bubble. So home prices kept going up and up and up because it was easy to borrow when you had people, you know, borrowing money for four or five houses as opposed to just one house. And that fed and increased demand and fed a massive bubble. I think you’re seeing the same thing now, somewhat, with driving tuition increases, that it’s been too easy, frankly, for schools to raise tuition, because it’s been too easy for students to borrow to keep funding those tuition increases.

And there again, some schools have been better than others. I have sympathy for the public sector, because I think a lot of the tuition increases there have been driven by cutbacks in government aid, state government aid, but of course they’re shifting the burden to students to borrow to fund that difference. So it’s something we all should be aware of, I think.

What we’ve been doing at Washington College is trying to hold the line on costs. We froze tuition this year. Try to redirect more philanthropy to scholarship funding and do more development around scholarship funding. So more students have scholarships as an alternative, or at least to reduce the amount of borrowing they need to do to pay for their education. So I think those are things that all schools are doing and should be very focused on.

But the parallels are striking. And I especially look at some of the abuses of our student-loan programs by the for-profit sector, and I want to be clear, I think there are some very good for-profit schools out there. They’ve been out there for decades, and vocational education, they have done a fine job. So these newcomers really abuse the system beginning around 2010. I think it’s atrocious the way they took advantage of their students.

But, like abusive subprime-mortgage originators, it was a volume-driven business. So get as many students in as you can, don’t care if they get a good education, don’t care if they get a job. The government’s going to pay for it, we just get as many as we can paying tuition, backed by the taxpayer. And I think so much of that could have been avoided if there was some skin in the game on the part of these for-profit schools. So they would have had to absorb some of the losses that inevitably occurred when that happened. So again, the parallels with mortgage originators doing the same thing, trying to generate as much volume as possible without regard to whether the family could actually afford the mortgage.

RUTH HAMMOND: So let’s leave aside the for-profits for a moment and think of the private liberal-arts colleges. So what’s their ethical responsibility when they’re seeing how much students may have to borrow? And particularly it seems as if the impact on poor students is much higher in the student-loan crisis.

SHEILA BAIR: It is, it is. That’s right, and that’s one of the reasons why we’ve launched a new program called George’s Brigade, which is designed to cover full need, tuition, room and board fees, everything except its incidental expenses. Because the problem tends to be concentrated with lower-income students, and they’re the kids that can least afford this large debt load. So they’re probably first generation. They’re not going to have families, parents or grandparents that can come in and help them pay off that debt. They’re going to perhaps have less financial experience in handling money matters and understanding the true significance of that debt. So the more we can use scholarships and grants, not loans, but scholarships and grants, to help that segment of our student population, I think it’s absolutely imperative that we do so. And that’s what we’re trying to do at Washington College.

RUTH HAMMOND: And it seems that you have been going to donors a lot to try to ask them, what can you do? And you’ve gone to banks too. Why do they seem like a good target for getting them to give money for this particular purpose?

SHEILA BAIR: Well, we have tried to reach out to corporations, including financial institutions, a lot them I have a pre-existing working relationships, so I know them. We’ve also tried to expand our base with foundations. There are many foundations that have a big interest in first-generation students. So we’ve tried to be across the board.

I think with banks in particular, they — at least the responsibly run banks — understand this overhang of debt is not good for their business. Because they can’t borrow for a house or a car later if they’re struggling with all the student debt or starting a business. And it’s a drag on the economy too. There’s no doubt in my mind that this large overhang of debt is making it harder for students to go out and fully participate in economic life, because they’re hunkered down and getting a safe job with a safe paycheck so they can pay that student loan down.

So everybody is impacted by this. Again, the same situation we had with the mortgage crisis, everybody is impacted by this directly or indirectly. It is hurting our economy, and it’s impairing that the futures of our young people. So we should also be worried about it, banks included.

RUTH HAMMOND: So I’d like you to talk a little bit more about this George’s Brigade. That’s a program in which you have a few inner-city students together apply, and if one is accepted, all will be accepted. They’re accepted as a group. This is the first year of that program. What problem were you trying to solve by setting up such a program?

SHEILA BAIR: So those two things, as we researched this and looked at studies of first-generation programs and some of the experiences of other schools, it seemed like the two biggest drivers when a first-generation student did not succeed in college was financial aid — it was too expensive — or they felt socially isolated. They didn’t feel like they were a true part of the college community.

So with scholarship funding, we’re trying to cover the financial piece of this, and with the feeling a sense of social isolation, we decided to formally structure a program that would allow them to apply in self-selected groups. So working with their high-school counselors, select other students who they know, they can apply as a group. If they ask us to, we would evaluate them as a group.

Everybody still needs to meet admissions standards, but there’s flexibility within those standards. And we felt that if you had a group with a couple of really, really, really star students, and others that perhaps did not excel as well with traditional metrics like GPA, that them coming in together as a cohort, knowing each other being able to find support to each other, would help us be a little more flexibility in our criteria. And so this is our first year.

I think it’s the only — it was inspired by the Posse Program. It’s a little different from Posse. Posse selects the groups, and the kids may not know each other as they enter school. With this program, it’s smaller. I hope some day we can be a Posse school, but for now we’ve tried this step, which is to let the students self-select smaller groups and come to our school with friends they already know. And we think and hope that that will help their transition.

It’s very tough, for any college students it’s tough. I remember I was miserable my first few months at college. It’s just scary. It’s so different. And so having a friend to share it with, we think, is going to really help get them off to a good start. But also we have a lot of programs to make sure that they fully experience our community. Our entire community welcomes them, they will be part of our community, and I really have high hopes for this program. I want them to have a very successful experience at Washington College.

RUTH HAMMOND: And so how did you get the word out about this?

SHEILA BAIR: So yes. So we, through our networks, we were, since I only started in August, we didn’t really launch the program until October and start earnestly until November. So we were a little late in the recruitment cycle. So I think next year we’ll get started a little earlier. Nonetheless, we have found 16 outstanding students, and we did this through high schools we already worked with and organizations like College Bound that proactively help colleges, that recruit and find students that would be a good fit for their educational experience. So we partnered both with high schools as well as the nonprofit organizations that do this kind of work. And we want to expand those networks as we build the program.

RUTH HAMMOND: And how large is your largest group?

SHEILA BAIR: Our largest group I believe — so the applicants were between three and seven. We’ve ended up, even though we admitted the group, not everybody in the group ended up coming. So I think I would have to check in terms of the kids are actually coming. I’m going to say three or four, but I can check and get back to you.

RUTH HAMMOND: OK. And is there anything special that you really need to do if you want inner-city young people to come to a college that’s in a more remote area?

SHEILA BAIR: Yeah, so I think it’s important that they come to campus. These students came to campus at least twice. And I think they need to fully understand the location, the atmospherics. Chestertown is a town of 5,000 people. It’s a lovely historic community. We’re close to urban centers like D.C. and Philadelphia and Baltimore, but nonetheless, most of your existence is going to be in our small campus in a very small town. So making sure that students come and see that and understand it and are comfortable with it, I think that’s important. We also launched a pre-orientation program for them. We had a summer advising day, so they’ve been back to campus once already and will be coming early for a pre-orientation in August. So I think those are the kinds of things that will, again, help with the transition, their familiarity with the campus. But I think it’s very important for them to understand exactly what the school is, to make sure there’s no disappointment or fallen expectations when they come and the school is not what they expected to be.

RUTH HAMMOND: Well, thank you for being here today.

SHEILA BAIR: Sure, it’s been my pleasure.

RUTH HAMMOND: We appreciate your being here.

SHEILA BAIR: Thank you.

Ruth Hammond is editor of the People section and the Almanac; follow her on Twitter @RuthEHammond; or email her at ruth.hammond@chronicle.com