Since the late 1970s and early 80s, student loans have become a heavy component of paying for college for most Americans. The assumption early on was reasonable: a college education generally pays for itself in terms of long-term earning potential.
Fast forward to the mid-1990s and beyond. Universities, in hopes of competing for these growing tuition sources, began massive recruiting efforts. The efforts ranged from more and more opulent facilities to greater diversity in program offerings. The concurrent phenomenon was the growth in “for-profit” institutions, like Strayer, University of Phoenix, Walden, and others who were also competing for tuition dollars. Both resulted in record numbers of entrants into college, but also a perception in the business community of degree programs that were of questionable value.
The average undergraduate now starts out their career with roughly $36,000 in debt, the average Master’s degree student is in excess of $71,000. A significant percentage have been unable to keep up with debt payments. Recent calls to forgive debt are met with a lukewarm reception at best, which is understandable – why should taxpayers foot the bill for someone else’s decisions? The risk for student loan payments lies squarely with the student, and in the case of default, with the lending institution or taxpayer, depending on the type of loan and who the underwriter was. Note in all this discussion, there is one entity that bears no risk, and enjoys nearly all the benefits: the universities.
A recent Wall Street Journal article exposed the levels of debt graduate students at Columbia University have been incurring in their Film Studies program. Most, if not all, ended up having zero prospects for jobs in the film industry while graduating with over $100K in debt. It highlights the fact that the education institution bears no risk whatsoever. Columbia can continue to promote and offer worthless degrees at exorbitant prices, and not have to worry about any consequences. It’s time for that paradigm to change.
Rather than forgiving student debt, I would propose a risk-sharing approach with the education institutions. For example, any school that accepts money from student loans, must be a cosigner on that loan, and if the loan goes into default, share in the repayment of that debt. Further, they must guarantee that for every degree conferred, that a graduate will be placed in a job that pays at least 80% of the national average for graduates with that degree.
This leads to the next requirement: full disclosure of job prospects. Schools must publish the average placement rate of graduates for every degree program and their average annual salary.
By making university institutions assume financial risk, we are rethinking the value of certain degrees, and in my opinion, valuing them more honestly. If the downside risk to the school is greater than the job prospects for grads, maybe they will rethink their offerings and how many students are accepted.
Obviously, this is a grossly oversimplified proposal, but the essential objective is clear: taxpayers should not be holding the bag for students who made questionable decisions, and schools who were enablers.