2011 December 04 Sunday
Glenn Reynolds: Make Colleges Guarantee Student Loans

Even a partial guarantee would provide colleges a great incentive to make students more useful to the job market.

For higher education, the solution is more value for less money. Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years -- but with the school that received the money on the hook for all or part of the unpaid balance.

Up until now, the loan guarantees have meant that colleges, like the writers of subprime mortgages a few years ago, got their money up front, with any problems in payment falling on someone else.

Make defaults expensive to colleges, and they'll become much more careful about how much they lend and what kinds of programs they offer.

Such a reform would make colleges extremely focused on imparting useful skills to students. Even if the colleges were on the hook to refund 5% of the default they'd become selective in who they admitted, what majors they steered students toward, how they responded to poor student performance, and what career advice they gave students. I would do this: use both carrots and sticks. Provide colleges bonus money if students pay back their loans. At the same time, make colleges pay when students default. Use part of that payment to use as rewards to colleges when the students don't default.

The Dwindling Power of a College Degree

One of the greatest changes is that a college degree is no longer the guarantor of a middle-class existence. Until the early 1970s, less than 11 percent of the adult population graduated from college, and most of them could get a decent job.

Hey, get less choosy on who gets into college and quality drops.

Today nearly a third have college degrees, and a higher percentage of them graduated from nonelite schools. A bachelorís degree on its own no longer conveys intelligence and capability. To get a good job, you have to have some special skill ó charm, by the way, counts ó that employers value. But thereís also a pretty good chance that by some point in the next few years, your boss will find that some new technology or some worker overseas can replace you.

You need skills to make more money. Who knew?

Though itís no guarantee, a B.A. or some kind of technical training is at least a prerequisite for a decent salary.

The future looks grim for most of those who can't handle college-level material. Surely an argument for building up a big border wall and deporting illegal aliens:

Itís hard to see any great future for high-school dropouts or high-school graduates with no technical skills.

But you can make lots of money without a college degree if you are very smart, self starting, self teaching, and willing to spend long hours learning what is valuable and working your way up. I've seen it happen. Unfortunately, few people have all those attributes. Even most of the people capable of learning technically useful skills in college don't have the sense or the patience to do so. Unfortunately, we live in an era of declining incomes with a 7% drop since 2000. The lower ranks aren't getting much of income growth when income grows and even future economic growth is in question. People need much more competitive skills to succeed in today's labor market.

Alex Tabarrok pointed out something extremely important about college education in America: In the last 25 years colleges have increased overall enrollments by 50% while increasing STEM (science, technology, engineering, math) enrollments by 0. If colleges were held financially responsible for producing useful graduates that sort of wasteful nonsense would stop in a hurry. Less would be spent on education and the money spent would be spent in far more constructive ways.

Share |      By Randall Parker at 2011 December 04 06:31 PM  Education Incentives

Stephen said at December 4, 2011 10:04 PM:

But a bankruptcy is caused by an accumulation of factors - education loan + car loan + mortgage + urgent surgery = bankruptcy. Why should the uni be penalised for that?

That said, I'd love to see a major decline in enrolments for degrees with zero public benefit: MBAs.

Dan B. said at December 5, 2011 12:36 PM:

I'm one of those who has the capacity to self start, learn and persist. I recently got a BA but it has done next to nothing for me. What useful technical skills do you recommend I learn and how do I go about making them profitable and marketable? (Maybe you can refer me to a previous article.)

bbartlog said at December 5, 2011 5:01 PM:

You know, instead of having the college *guarantee* the loan, you could have the college *make* the loan. Granted, this would require a certain amount of financial liquidity on the part of the institutions. But it involves fewer agents.

Stephen said at December 5, 2011 5:05 PM:

Do what interests you, otherwise you won't make it through the grind of study and the (worse) grind of working for the rest of your life.

Wait until you have money and think you could use a degree, then study.

Wolf-Dog said at December 6, 2011 11:09 PM:

Randall Parker wrote: "Alex Tabarrok pointed out something extremely important about college education in America: In the last 25 years colleges have increased overall enrollments by 50% while increasing STEM (science, technology, engineering, math) enrollments by 0. "
This is a recipe for disaster. Note that a high percentage of the science and engineering students in American universities are foreigners, and in the past many of them wanted to stay in the US. But more recently a lot more of them are finding good jobs in their countries and they are happily returning home. This can be a very bad for the US, unless the private industry and government subsidise science and engineering education. But it is also important to reward the creation of more science and engineering jobs in the US so that these new graduates stay employed.

Crazy Horse said at December 7, 2011 2:28 PM:

carpenters, plumbers, masons, painters, mechanics and all alike will always have a job. The only reason is that they know how to actually DO something.

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