Tuesday, June 01, 2010

Student Loans

This weekend's New York Times had a fascinating and personally relatable piece on burgeoning college student loan debt. I say relatable, because my wife and I can relate to six-figure student loan debt. And it's nice to see student loan debt painted in such stark terms. Yes, significant student loan debt can impoverish those with modest salaries and yes, there's no escaping the specter of debt that can not be discharged through bankruptcy. But while the Times piece focuses on minor solutions to this student loan debt crises- mainly more counseling and financial advising- the Times neglects the two biggest problems which have led us down this road: The exploding costs of a college education and social norms that value a college degree at all costs.

Anecdotally, I can say with certainty that the cost of college has gone up drastically. When I graduated high school in 1998, the "expensive" schools were in that $30,000 a year range. Today, the expensive schools are in the $50,000 a year range, which far outpaces the rate of inflation. And at some point you have to wonder how much is too much. Why should the cost of a four year college education be more than the purchase of a starter home? Other than the same bureaucratic over run that's plagued both health care and government spending, I don't have any good ideas as to why college costs have increased so dramatically. But unlike health care and government spending, college students are direct consumers of the product they're buying and they do have all the information at their fingertips to make financially sound decisions. But like Ms. Munna, who's featured in the Times story, young people in America are not making sound decisions in regards to their financial futures.

So why this collective madness? I blame a culture that has elevated college education to a degree that far outweighs and tangible and monetary benefit. High school students are specifically told to dream high and the entire college process is designed to help students attend the most prestigious university possible, not the schools most suited to their particular financial situation. If you think about it, it's a uniquely American situation. We have an egalitarian mindset when it comes to college in general, but our system of funding is anything but egalitarian.

The value of a college education is two-fold, but we tend to fold those ideas right into one another. There's the monetary value of a college education itself and the earning potential one gains from a college education and then there's the intrinsic value of education. One is difficult to calculate and the other is downright impossible, yet we constantly seem to get these two very separate concepts muddled together. Take Ms. Munna, the subject of the Times piece. Generally speaking, there is a lot of value in the prestige of an NYU degree and in the right field, it may be possible to capitalize on that value. But Ms. Munna majored in religious and womens studies, not exactly the springboard to a lucrative career. For folks with money, the intrinsic value of that education might well be worth it. But for someone faced with a lifetime of debt, you've got to ask whether such a person would have been better off studying the same thing at a less expensive state school.

Our system of college education is not egalitarian, but elite universities have a vested interest in maintaining that egalitarian image. Why? Because without it, elite universities wouldn't be elite. They'd have to drastically reduce their size or start letting in rich dummies to make up for the loss of bright middle class students. And remember, it's elitism and success that drives our higher education system. Competition between schools isn't about who can offer the best value, but about who can attract the highest caliber of students. The "value" offered by state universities is really only a result of the flow of state tax dollars and any other schools which try to advertise their value are generally seen as somehow substandard.

The point is there needs to be more encouragement for young people to make sound financial decisions. And of course it's unfair that plenty of poor and middle class students would be unable to attend particular universities, but that's life. You simply can't maintain a system of private universities if student tuition is fully subsidized by the state and there's something inherently wrong with our current system that saddles students with massive student loan debt for the rest of their adult lives. The truth of the Ivy leagues and similarly elite schools is that they've maintained their status through the influx of the non-rich. Whatever images we may have of elite universities as the province of the rich would simply not be true if all the bright poor and middle class students chose to go somewhere else. And that's why we need to change attitudes and perceptions. The more successful students that chose inexpensive alternatives, the more elite schools will need to cut costs in order to retain talent and remain elite.


Blogger McMc said...

Not that there's some sort of conspiracy here, but you often see TV shows and movies neglecting a realistic college selection process in favor of a character shooting for the stars. Obviously the "dumb" characters are stuck going to the awful safety schools, but any time a character is relatively smart they are somehow Ivy League material. Remember James Vanderbeek getting a full financial scholarship to Brown in Varsity Blues? Yea, that would happen in real life...

Take even one of the more realistic shows when it comes to this stuff: Friday Night Lights. In the most recent episode, the daughter of the head coach was filling out applications for college. Her list of colleges was ridiculous (NYU, UC Berkley, Brown, Mount Holyoke, Amherst, etc) and there were about 8-10 listed. Naturally she says the University of Texas with the most disdain (like the great local, cheaper option would be such hell) but throughout all of this, there was no mention of tuition or even application fees. Fees for all the schools she listed could easily cost $1000 alone, and this is a family that had trouble writing a $3000 check just a few weeks ago.

Again, it's not a conspiracy, it's just show writers wanting to elevate the status of one of their characters. Still, makes you wonder if it's the same thought process going through a kid's head today: just aim high and hope it all works out.

2:29 PM  
Anonymous rose said...

What do poor people and young people tend to have in common? They live in the present, they don't save, they engage in risky behaviors and they don't plan well.

These are people that are systematically biased towards debt accumulation. Widespread errors in judgment are used as justification by nanny-staters for all sorts of regulation designed to protect people from themselves (i.e. forced enrollment in social security, drug laws, transfat bans etc.) So maybe there's a case for policies that discourage young/poor people from accumulating debt.

But the reality is that the government does the exact opposite. We subsidize student loans for the young. And we subsidize mortgage debt for the poor (or technically, we subsidize it for just about everyone).

You hit on a lot of good points which I agree w/ and won't bother talking about. But just to try to answer one question you posed:

You said, "Other than the same bureaucratic over run that's plagued both health care and government spending, I don't have any good ideas as to why college costs have increased so dramatically.But unlike health care and government spending, college students are direct consumers of the product they're buying and they do have all the information at their fingertips to make financially sound decisions."

I think it boils down to what I was talking about above, that 18 year olds simply live in the present and psychologically can't do cost-benefit analysis when costs aren't felt RIGHT NOW, but rather are incurred decades down the line (especially when everyone in their lives is telling kids that "you can't put a price on education"). With out cost-sensitive consumers, sellers don't have an incentive to be efficient.

Take two colleges with total 4-year cost difference of 60k. Offer that 60k to a kid to go to the cheaper college. He'll take it every time. Yet we all know many people who went to some 40k per year private school to get a degree in spanish (or some other nonsense), with a GPA of 2.7, whose job prospects would be identical with a degree from some subsidized state school.

So I guess that's the really long way of saying that there's strong grounds for nannying 18 year olds, because they truly aren't yet capable of making decisions for themselves, but our government, school system and culture is nannying them in the exact wrong direction- and their inability to act as rational consumers, combined with these outside influences, undoubtedly has something to do w/ college costs.

2:48 PM  
Anonymous rose said...

One other thing. I believe Obama 1)views college as a birthright, 2) believes free college would help the prospects of America's poor and 3)is going to try to increase higher ed entitlements during his term(s).

In my opinion, from my experience at UConn, about 3/4's of college grads graduate with no valuable skills whatsoever. I think engineering, computer sci., and math majors get real skills. Maaaybe top-notch law/econ majors as well (I learned very little, graduated with no skills). But I think your average 3.0 GPA student, whose major ends in the word "studies", basically graduated with nothing useful whatsoever. And their benefit in the job market comes basically from simply having a degree, directly at the expense of the non-college grab, but basically a zero-sum game.

Does anyone believe that the folks who aren't attending college right now, who would be able to attend after Obama is done, would be engineers and software programmers? Or are we gonna just produce thousands of more humanities majors, which will simply flood the market with even more unskilled college grads.

This was an unorganized rambling, but I think Obama's ideas on college education are further proof that he's stupidly idealistic and misdiagnoses most every major problem this country has.

3:07 PM  
Blogger lonely libertarian said...

McMc - That's a perfect example of exactly what I'm talking about. It's not a conspiracy, it's that these are the values that penetrate our culture. What we see on t.v. reflects the priorities of the real world process.

Rose- As a libertarian I hate to come out in favor of nannying adults, but in a way, I have. The thing is, the college selection and application process are part and parcel of our education system. And since we already have teachers, counselors, administrators- our entire education establishment and the culture that flows from that- weighing in on on the relative merits of college, so all we're arguing for is for some common sense and basic financial knowledge. So yes kids are stupid, but we're not helping them.

As to Obama, I'd agree with you and all it's going to do is further increase the costs of college. And I don't mean to say there's no value in a liberal arts education- There is a value intellectually speaking, but I'd say the vast majority of liberal arts majors aren't bettering themselves significantly and are getting their degree strictly so they can check off that box when it comes time to get a job- Yes I'm a college graduate. And it's sort of silly we have that box in the first place, but for the vast majority of college students looking to check that box, they'd be better off spending $20,000 than $200,000 on their education.

3:37 PM  
Anonymous rose said...

"The thing is, the college selection and application process are part and parcel of our education system. And since we already have teachers, counselors, administrators- our entire education establishment and the culture that flows from that"

Are you sort of saying that the education establishment isn't neccessarily organic, but rather is a product of government? In other words, what would education look like if the government had always limited itself to financing it, rather than running it itself?

As we've talked about numerous times, and you talked about again here, the education establishment is left. And what I (and I think you) mean by "left", is that their worldview is anti-business, anti-profit, pro-arts, pro-service. (It's taken for granted that a brilliant kid could do more good for the world in a social service job than in business. Educators, especially at the college level, view themselves as morally superior to businessmen.)

There's a tradeoff between learning stuff that's "enlightening" and learning stuff that's useful. Elightening stuff might make us more sensitive, compassionate, and open-minded. Useful stuff makes us more productive and more able to earn a consistent living. And since there's only so many hours in the school day, there's a tradeoff between the two.

I wonder, in a society where schools were run exclusively by private enterprises (and therefore truly run by consumers choices) whether we'd spend a whole lot more time on math and science and much less time psychoanalyzing Holden Caufield.

It seems to me that the old commy ideas about perfecting human beings and society still influence education pretty heavily.

But hey, if there is happiness research showing that the enlightened english major who is waitering at the age of 30 with $150k of college debt is happier than the mechanic with job security and savings, then maybe it makes sense to Barack's plans make sense.

In short what I'm trying to say is that it's irrational to spend $160k to buy an education that doesn't make you particularly useful. And kids willingness to do it partially reflects shortsightedness and partially reflects the attitudes of the establishment and culture (mcmcs example).

5:11 PM  
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1:22 AM  
Blogger lonely libertarian said...

Rose -

The education establishment is certainly pro-left and it's certainly a result of the heavy hand of the government. But even though I love that Holden Caulfield line, I'm not sure that a more market-based education system would provide significantly more math or science education and less study of art and literature. In a true market system, folks could get a high quality liberal arts education for a decent price, so the idea that the $50,000 a year school is worthwhile for some skilled degrees, but not liberal arts degrees would be rendered essentially meaningless.

There is value in a liberal arts education and there is value in public education. These ideas stretch back to Jefferson and all the way to the Enlightenment, with the idea being that well-rounded, educated, and knowledgeable citizenry strengthened the democratic system and served as a bull work against tyranny. You see the results of a poor education system today with our two-tired system of politics that cuts everything down a bright line. It's led many on the left to embrace the public education system and defend it, as is, not matter how lousy it actually may be and has led many on the right to criticize public education and reject the intellectual and academic elite.

I suppose my point is that our culture and all the anti-market forces working against education have worked to effectively drive the price of a liberal arts degree well beyond any actual value it holds.

The problem is, as I mentioned before, that we've lumped this Enlightenment value of a liberal arts education with the actual monetary value of of a college degree in the marketplace when these are two distinct and incompatible ideas. And of course it's irrational, but this is exactly what kids are taught, this is what parents are taught, and this is the message we get from the media and the education establishment.

11:39 AM  
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6:28 PM  

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