By Simon Grey, on January 23rd, 2012
The students’ proposal fits right in. Instead of paying tuition – currently at $12,192, not including mandatory fees, room, board or books – the “UC Student Investment Proposal” would require that students commit to paying 5 percent of their annual income for 20 years after graduating.
…
Students who pay $2,500 a year – 5 percent of $50,000 – for 20 years, would end up paying $50,000 for their education, slightly more than the $48,768 they would pay over four years if UC tuition were frozen at its current level.
On the other hand, students earning $100,000 would pay $5,000 a year, or $100,000 for their education over two decades.
This is basically no different than the student loan scam, except in that it may possibly be cheaper for students. It functions the same way as student loans—you basically have to work for someone else for an extended period of time, making you essentially an indentured servant. This will thus be the its downfall: it’s too direct about enslavement.
By Simon Grey, on January 9th, 2012
Direct and indirect federal subsidy is often offered as the primary reason for the occurrence of the current college bubble. Most effects of the college bubble are traced back to federal funding, in the forms of student grants and subsidized loans, not to mention research grants as well as general academic funding and diversity grants (wherein a college or university receives federal funding for certain campus offerings, mostly related to making women and minorities feel good about themselves). Basically, federal money is the cause of the college bubble.
This view is not altogether incorrect, but it seems to ignore the role of federal regulation and the role of shifting cultural/societal views regarding student self-esteem. The two generally go hand-in-hand and feed off each other, and so trying to delink the two is impossible. At any rate, what’s neglected in the discussion of the college bubble is the concept of grade inflation.
Grade inflation has occurred primarily for two reasons. First, as mentioned before, the relatively recent self-esteem movement has encouraged the dumbing down of the general curriculum in order to make subpar students feel good about themselves. The history of this movement is dodgy, relative to political intervention. There is no doubt that the government has latched on to the self-esteem movement, but it is not clear if the government was the first mover. Even if it weren’t, private desire and public policy has basically become a self-reinforcing feedback loop, so the point is basically moot. At any rate, the effects of the self-esteem movement are clear, in that students perform moderately well, relative to the world (see Steve Sailer’s take on PISA scores, eg.), while being told that they are highly intelligent. Fortunately, the self-esteem movement does not have as much momentum as it once did, at least from my perspective.
Second, the government has certainly played a role in grade inflation due to the increasing federalization of public schools. The federal government loves uniformity, particularly of outcome, and school outcomes are no exception. As my recent book review pointed out, in brief, the increased bureaucratization of public education has led to a situation where students perform better on an admittedly arbitrary class at the expense of learning things that aren’t on said test. NCLB, in particular, is responsible for this recent effect, and it is part of a larger trend. This trend has led to the inflation of grades in two ways. First, the decreased role of non-test subjects has led to less classroom time dedicated to them, which means that grades in these subjects are based on a smaller sample size of work, and teachers are likely to cut kids slack when grading (at least in my own experience). Second, teachers have cheated on the tests in order to make sure that the kids do well, which sometimes makes students seem smarter than they would otherwise.
Primary and secondary education simultaneously suffered from dumbed-down curriculum and grade inflation, shortchanging intelligent children. They needed some way to fight back and prove their higher intelligence and cognitive abilities, which is where college comes in. While direct federal subsidy of post-secondary education is blamed for the current college bubble—and rightfully so, I might add—this is not the whole picture. The dumbing down of public education has also contributed to the need for college because it now provides the surest means for intelligent students to finally get ahead.
If education is viewed as a way to signal work fitness, then a high school degree has become essentially meaningless. Graduating from high school is no longer a guarantee that one is proficient in math and can speak and write in plain, understandable English. Many colleges tacitly admit this fact with their offering of basic remedial courses. Thus, having a high school education no longer signals that one can be counted on to be a reliable employee.
Thus, intelligent students have two options: drop out of or avoid high school, or go to college. The former is not a good signal for future employment prospects, and thus should be avoided by all but the most entrepreneurial of intelligent students. The latter option—going to college—is the most viable option to demonstrate employment fitness. Thus, intelligent students can no longer simply graduate with good grades at the top of their high school class, they must also get a post-secondary education of some sort as well.
Therefore, while the current increases in college enrollment are undoubtedly the consequence of direct and indirect federal subsidy, it is both foolish and dangerous to ignore the effect of the self-esteem movement and federal regulation, and how both have distorted the signal of secondary education. As such, popping the college bubble won’t be as simple as ending federal regulation. Popping the bubble will also require federal deregulation, and a more appropriate view of the role of self-esteem in a child’s educational development.
By Simon Grey, on December 30th, 2011
In Academically Adrift, Arum and Roksa paint a chilling portrait of what the university curriculum has become. The central evidence that the authors deploy comes from the performance of 2,322 students on the Collegiate Learning Assessment, a standardized test administered to students in their first semester at university and again at the end of their second year: not a multiple-choice exam, but an ingenious exercise that requires students to read a set of documents on a fictional problem in business or politics and write a memo advising an official on how to respond to it. Data from the National Survey of Student Engagement, a self-assessment of student learning filled out by millions each year, and recent ethnographies of student life provide a rich background.
Their results are sobering. The Collegiate Learning Assessment reveals that some 45 percent of students in the sample had made effectively no progress in critical thinking, complex reasoning, and writing in their first two years. And a look at their academic experience helps to explain why. Students reported spending twelve hours a week, on average, studying—down from twenty-five hours per week in 1961 and twenty in 1981. Half the students in the sample had not taken a course that required more than twenty pages of writing in the previous semester, while a third had not even taken a course that required as much as forty pages a week of reading.
One of the subtle cultural shifts arising from the education bubble has been how people are inclined to view college. It used to be that people went to college for an education. Now people go to college in order to ensure having a good job later on.* In essence, the role of college has shifted from education to credentials.
As such, it should not be surprising that colleges dumb down both their admission requirements and their curriculum, for the goal is not education. Rather, the goal is giving students customers a piece of paper that says they are smart. This claim doesn’t have to reflect reality in any meaningful way because most students don’t bear the direct costs of their “education.” Therefore, students are considerably more willing to spend their parents’ money and their future income on degrees that become less and less valuable.
Basically, then, the dumbing down of academic standards is proof of the education bubble because the free and cheap money subsidizes marginal students who would otherwise have no business being in college. This subsidy is then seen in the dumbed-down curriculum, for students expect to have something to show for the time and money they’ve put into college, and it’s easier to satisfy customers by giving them a degree regardless of their actual accomplishments.
*One thing that always puzzles me is how parents think that four to six years of extended adolescence is better for their children’s future than having an actual full time job is. But that’s for another post.
By Simon Grey, on December 5th, 2011
From Bryan Caplan:
Many educators sooth their consciences by insisting that “I teach my students how to think, not what to think.” But this platitude goes against a hundred years of educational psychology. Education is very narrow; students learn the material you specifically teach them… if you’re lucky.
Other educators claim they’re teaching good work habits. But especially at the college level, this doesn’t pass the laugh test. How many jobs tolerate a 50% attendance rate – or let you skate by with twelve hours of work a week? School probably builds character relative to playing videogames. But it’s hard to see how school could build character relative to a full-time job in the Real World.
At this point, you may be thinking: If professors don’t teach a lot of job skills, don’t teach their students how to think, and don’t instill constructive work habits, why do employers so heavily reward educational success? The best answer comes straight out of the ivory tower itself. It’s called the signaling model of education – the subject of my book in progress, The Case Against Education.
According to the signaling model, employers reward educational success because of what it shows (”signals”) about the student. Good students tend to be smart, hard-working, and conformist – three crucial traits for almost any job. When a student excels in school, then, employers correctly infer that he’s likely to be a good worker. What precisely did he study? What did he learn how to do? Mere details. As long as you were a good student, employers surmise that you’ll quickly learn what you need to know on the job.
In the signaling story, what matters is how much education you have compared to competing workers. When education levels rise, employers respond with higher standards; when education levels fall, employers respond with lower standards. We’re on a treadmill. If voters took this idea seriously, my close friends and I could easily lose our jobs. As a professor, it is in my interest for the public to continue to believe in the magic of education: To imagine that the ivory tower transforms student lead into worker gold.
What makes the college bubble so problematic is that it is essentially inflationary. College degrees can be considered a form of currency in the labor market, wherein one purchases a salary with not only one’s labor but one’s college education as well. Obviously, this mechanism is not as direct as, say, buying milk at a grocery store, but the effect is similar.
The labor market, then, relies on college degrees to indicate a prospective employee’s fitness for the salary being offered. Certain types of degrees generally pay better than others, certain colleges’ degrees pay better than others, certain grade point averages are worth more than others, etc. Someone who receives an MBA from Harvard while maintaining a GPA of 4.0 will generally earn more than someone who receives an Associate’s degree from ITT Tech while maintaining a 2.0 GPA. This should make sense, as the quality of student varies by institution, degree, and grade, and there are ways to sort this. The college bubble, then, serves as a form of inflation because it distorts the signal that a college has in the labor market.
Basically, as is well known, the college bubble is the result of massive governmental interference in the post-secondary education market. The federal government offers direct subsidies of education costs (e.g. the Pell Grant), and also makes college loans a very enticing offer to lenders by guaranteeing the loans. With direct subsidies and easy credit, prospective students have a very strong incentive to go to college. Furthermore, with this much money on the line, colleges have a very strong incentive to accept more students.
The effects of this bubble, as noted before, are seen primarily in signal distortion. This occurs because employers now have a larger labor from which to select workers. This generally seems like a good thing, since employers can now offer lower wages, but this is not always the case because some potential workers are perhaps not as well-qualified for their position as others. The problem with using college degrees as a qualification is that, at this point, there isn’t enough data to sort the good from the bad. When there were a limited number of college-educated labor candidates, the quality was considerably better since colleges had an incentive to maintain quality control. This is no longer the case because the federal government is paying colleges, indirectly, to simply pass out degrees to young adults with no regards for their qualification.
Thus, the lower wages that have resulted from the increased pool of labor applicants can be thought of as a risk premium. Because there are more college-educated people in the labor supply coupled with increased variance of abilities without there being an increase in the sharpness of the signal generally associated with a college education, and because American labor is tightly regulated with regards to discrimination (particularly as it pertains to firing employees), there is consequently more risk associated with hiring someone because the chance that person a company hires turns out to be a bust, as it were, is considerably greater. Given the costs associated with firing incompetent workers, particularly if they are in a union or minority, employers have an increased incentive to mitigate that risk by offering lower wages.
As such, the most problematic aspect of the college bubble is the consequences that come with signal distortion. Because the supply of college educated labor has increased with a matching increase in demand for said labor, and because a college degree isn’t nuanced enough as a single, there will be an increase in the number of people who are overpaid and an increase in the number of people who are underpaid. This happens because the signal sent by a college degree is roughly the same for everyone who has one.*
Some people will be underpaid because their aptitude is such that they would ordinarily deserve more pay than they are currently receiving but, because it is now more difficult to tell who has what levels of aptitude, they must take a pay cut. The reverse is true for those who are overpaid. Basically, the inflation in the number of students undermines meritocracy, thereby distorting the pay scale. Thus, the current bubble has introduced not only distortion, but market failure on a large scale.
The irony of the current college bubble is that its existence is largely predicated on the belief that a college education makes one more intelligent. This claim is laughable on its face because it does not begin to account for the self-selection bias inherent in this sort of activity. Do students learn because they go to college or do they go to college because they like to learn? This is a crucial question because if the answer is the latter, then it seems likely that those who do go to college would become just as knowledgeable if they lived in a library for four years.
At any rate, the college bubble has had the nasty effect of giving diplomas to those who have no desire to learn, and have undermined the meritocracy that once was a college education, thereby depriving those who are truly above average from an income that would properly reflect this fact. This, then, is the lamentable effect of the college bubble: The attempt to make everyone equal in education has only led to a diminution of standards. We are all idiots now.
* Obviously, a Harvard diploma is still more valuable than an ITT Tech diploma. However, if Harvard’s business school doubles the number of graduates, year over year, the value of a Harvard degree will decline assuming that there is not a corresponding increase in demand for Harvard grads.
By Simon Grey, on November 9th, 2011
Seriously, what’s so difficult about allowing student loans to be discharged in bankruptcy? Today, President Obama is effectively giving college students and their parents his middle finger. Whereas Jobs’ prank was harmless and symbolic, the President’s plan to bail out student loans will derail the entrepreneurial dreams and financial security of countless young people. [Ed. - this claim is utter bulls**t.Bailing out student loans will increase their financial security because they will no longer be slaves to the banks. And, with less debt, they can actually become entrepreneurs.]
By executive order, the President’s unconstitutional “We Can’t Wait – Pay As You Earn” plan modifies the existing Income-Based Repayment Plan so that, effective in 2012, graduates may cap their loan payments at 10percent instead of 15 percent of their discretionary income. Anything remaining after 25 years (formerly 20 years) becomes fundamentally the taxpayers’ responsibility. And, if a student wants to become a public servant (i.e. work for George Soros) his loan will be forgiven after just 10 years.
Obviously, Obama is playing for political points with this plan, presumably to mollify the OWSers, so I understand outrage for that reason. But what I don’t understand is how anyone thinks that student loans weren’t already the taxpayers’ responsibility. The government guaranteed student loans a long time ago, which is one of the reasons there’s a college bubble—private lenders face virtually no risk on the loans. In fact, the government guarantee of repayment is why default was taken off the table as an option: the government didn’t want taxpayers to take it in the shorts.
Neo-con bomb-lobbing aside, Obama’s plan is pretty terrible. It shouldn’t wreck the economy(at least no more than seeding a college bubble would), and it’s better than a jubilee for the loans, but there is still a much better solution available: the federal government should stop guaranteeing student loans and allow them to be discharged in bankruptcy. This way, college student wannabes won’t be as inclined to pursue worthless degrees and banks won’t be as inclined to fund the pursuit of worthless degrees. You don’t need bailouts, you don’t need special debt laws, all you need is the ability to discharge student debt during bankruptcy. Problem solved.
By Simon Grey, on November 8th, 2011
If you weren’t sure about the existence of a college bubble, here’s proof:
When the number of psychology majors increase by 135% over25 years, you can be reasonably sure that there’s a college bubble because a) psychology is not a science, it’s a form of bovine fecal matter and b) economies don’t need psychologists in order to grow and thrive. In essence, more than doubling the number of psychologists in the economy is not going to cause massive growth.
So why are there so many psychology majors? Simple: The ease of obtaining student loans makes it appear that there is more demand for psychologists than actually exists. And why do current students believe there is more demand for psychologists than actually exists? Again, simple: the government has incentivized the extension of student loans by guaranteeing repayment thereof. When a student defaults, the government pays the lender then goes to collect the remaining debt. Sometimes the government uses the banks’ collections agencies to collect the loan, which then makes defaulting on student debt a very attractive proposition for the bank that originated the loan.
So how do we know that the increase in psych majors proves there’s a college bubble? Easy: the government’s involved, and is actively encouraging the pursuit of a college education. Plus, does anyone think that so many would pursue a psych degree if they couldn’t finance it so easily?
By Simon Grey, on November 2nd, 2011
As can be seen above, having a college degree is becoming worth less. And the cost continues to increase. Worst of all, one cannot default on student loans, so those who take on massive loans to fund their education will find that they are essentially slaves to the banks for life if they cannot find a decent-paying job.
I hope we can finally stop with the utterly worthless advice to go to college and pursue a career. The former is becomingly increasingly less correlated with the latter, and we are only doing a disservice to young people if we say otherwise.
Also, my experience has taught me that most of what passes for higher education is nothing more than drivel. Most of what is taught is obvious, wrong, or pointless. If you want to be smarter, go to the library and find good books to read. If you need help getting started, use a search engine to find classics of the western canon. Then imbibe deeply.
In the meantime, forget college.
By Simon Grey, on September 26th, 2011
Freakonomics asked if forgiving student loans en masse was a good idea. Here was their conclusion: 1. Distribution: If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades. The group who has been hurt over the past few decades is high school dropouts.
I guess it would help to define “high income.” Everything I’ve seen suggests that college grads generally start with relatively income when joining the workforce and that it eventually increases over time. And, once you adjust for inflation, grads today are earning less than grads of, say, thirty years ago, on the average. The only way the above claim is true is if one compares the college grads to those with less education. Also note that income growth, though a trend, is not promised to continue indefinitely. Also note that going to college is the recommended course of action, while dropping out of high school is not. In essence, those who have played by the rules, so to speak, are in a tough bind because they have played by the rules. It is cruel to argue that they don’t deserve consideration because they are still better off than those who didn’t follow the rules.
2. Macroeconomics: This is the worst macro policy I’ve ever heard of. If you want stimulus, you get more bang-for-your-buck if you give extra dollars to folks who are most likely to spend each dollar. Imagine what would happen if you forgave $50,000 in debt. How much of that would get spent in the next month or year? Probably just a couple of grand (if that). Much of it would go into the bank. But give $1,000 to each of 50 poor people, and nearly all of it will get spent, yielding a larger stimulus. Moreover, it’s not likely that college grads are the ones who are liquidity-constrained. Most of ‘em could spend more if they wanted to; after all, they are the folks who could get a credit card or a car loan fairly easily. It’s the hand-to-mouth consumers—those who can’t get easy access to credit—who are most likely to raise their spending if they get the extra dollars.
Can we get rid of this whole nonsensical stimulus thinking? All money circulates. Ceteris parabis, the money will be spent at some point. The only concern is over timing, not necessarily net effect. And there is no objective reason to prefer immediate results to delayed results. This point, though technically true, is irrelevant.
3. Education Policy: Perhaps folks think that forgiving educational loans will lead more people to get an education. No, it won’t. This is a proposal to forgive the debt of folks who already have an education. Want to increase access to education? Make loans more widely available, or subsidize those who are yet to choose whether to go to school. But this proposal is just a lump-sum transfer that won’t increase education attainment. So why transfer to these folks?
This is simply asinine. No one thinks that forgiving loans makes education more desirable. People think that the student loan system is fraudulent (i.e. people were talked into loans under false pretenses). The reason most people support loan forgiveness is because they see it as a reasonable redress to the outrages of the system. Also, note that the current system does a remarkable job of subsidizing marginal students, which is the problem in the first place.
4. Political Economy: This is a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money, rather than doing something socially constructive. Moreover, if these guys succeed, others will try, too. And we’ll just get more spending in the least socially productive part of our economy—the lobbying industry.
Don’t or can’t? How many grads have to take on subpar jobs because they can’t afford to wait for better jobs or undertake risky ventures? These kids have been sold a lie, and many they have no recourse (and I mean this literally as they can’t even default out of their loans). The government guaranteed repayment of student loans, and, in order to prevent getting hit in the shorts, has made it impossible to discharge this debt through bankruptcy. As such, banks have little incentive to ensure the loan’s recipient’s ability to repay. In short, the government has created the mess, under the guise of helping the underprivileged. They have turned the underprivileged into slaves. Shouldn’t the slaves be able to lobby their master? Or is that too much to ask?
5. Politics: Notice the political rhetoric? Give free money to us, rather than “corporations, millionaires and billionaires.” Opportunity cost is one of the key principles of economics. And that principle says to compare your choice with the next best alternative. Instead, they’re comparing it with the worst alternative. So my question for the proponents: Why give money to college grads rather than the 15% of the population in poverty?
This is simply stupid. The 15% of the population in poverty already receives money. To the tune of billions of dollars per year. How much more do they need? You’d think hundreds of billions of dollars would be enough to cure poverty, but apparently the federal government sucks worse at charity than it does at disaster relief in a chocolate city after a hurricane.
This is nothing more than a grossly ignorant appeal to emotion. The poor already get money from the federal government. And why are corporations more deserving of billions of dollars? The government has already lined the pockets of their Wall Street cronies through student loans. Shouldn’t this be redressed?
Conclusion: Worst. Idea. Ever.
More like: Worst. Rebuttal. Ever.
However, I don’t find the idea of student loan forgiveness all that appealing, in part because students still deserve to face the consequences of their (admittedly stupid) decision to go to college instead of getting a real job. In order for a lie to work, one party must tell it and another party must believe it. If you believe a lie, you need to live with the consequences. But if you take advantage of those who have believed a lie, then you deserve the consequences thereof as well.
My proposal, then, is very simple: allow grads to default on their student loans. Grads’ credit scores will take a hit, which is a reasonable consequence t their decision to essentially waste four years of their life. And banks would be forced to write a bunch of bad loans, killing their profits, which is a reasonable consequence to their decision to loan money to people that didn’t deserve it.
The current system is broken and remarkably unfair to those it purports to help. Correcting this problem doesn’t require forgiving all students of their loans. Allowing grads who find that a college degree is worthless to default on their loans should be sufficient to clear the market.
By B.P.T., on September 16th, 2011
With increases in college tuition showing no signs of slowing down, despite the recession, students are being required to borrow more and more money to fund their education. Since a report from the US Census values a bachelor’s degree at about $900,000 in additional salary earned when compared to a high school diploma, and a master’s degree at $400,000 beyond a bachelor’s degree, most students are making a wise decision to borrow money now for college, since the costs of the debt are greatly outweighed by the financial benefits of a college degree.
However, given the limits on public student loan amounts put into place by the federal government, it is becoming more difficult to pay for college with public loans and personal savings. The maximum amount that can be borrowed from the government is $31,000 for dependent undergraduate students, $57,000 for independent undergraduate students, and $138,500 for graduate students (and any undergraduate loans count against this total). Given that tuition at many private schools has exceeded $50,000 per year and many professional graduate programs can cost over $100,000, federal student loans are inadequate. This means that the student is responsible to fill in the gap, and the best option for students that don’t have thousands of dollars in cash available is private student loans.
Shopping for private student loans can be a difficult process because there are many more options available, but those options also provide the opportunity to obtain a good deal on student loan debt. We suggest using one of the many private student loan comparison sites that are available online to find the lender that suits you best, and our research found that Discover private student loans offered attractive rates, the option to defer payments while in school part time, a graduation bonus, and numerous other perks. Even if you do qualify for public student loans, current rates and terms for private loans make them an attractive option, so keep them in mind when looking at your options for next semester.
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By Simon Grey, on June 9th, 2011
Kenneth Wright of Stockton, California was almost knocked down by a S.W.A.T. team breaking down his door one morning. He says they then handcuffed him and put him in the back of a police car.
Federal agents confirmed that the Department of Education was behind the raid on Wright’s house. They were in search of his estranged wife, who had defaulted on her loans.
The rich rules over the poor, and the borrower is the slave of the lender.
Quite simply, if you owe Uncle Sam money (seeing as how Uncle Sam guarantees the loans, this would essentially be the case) then this sort of thing can happen to you. As a slave, you have no rights. Your owner can do whatever he wants, and there is no recourse for you as a slave. Think carefully before you sign the dotted line.
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