Half-Baked Policies: Student Loan Reform
Much is made of the role of government in the education system. It's consistently the face of all issues that pile up into the 'need-to-be-reformed' basket, and is consistently never addressed. Last year, Bernie Sanders introduced a progressive plan entitled 'College for All', which posited that a college degree was required for success in a "highly competitive global economy." I disagree with that premise.
Having 'skills' often gets conflated with having a 'degree'. Unmistakably, some skills can only be learned in the pursuit of a degree, which is why employers and recruiters would value having a degree over any other singular line on your résumé. I'd argue that that sentiment places an imperative on secondary education to provide more relevant, useful skills. Seriously, there's history that's useful and math that's useful, but not all history and math are useful. If you're getting a high school diploma, you had better know how to do algebra and how this country was founded, but at no point in your life will you have to invoke your deep understanding of geometry or the Byzantine Empire.
Anyway, fine, let's accept Senator Sanders' premise that degrees are the way to go. I disagree with him once again that simply attending college is sufficient. It's not. Getting *a* degree – as in, getting *any* degree – doesn't quite cut it. Some degrees generate more skills and have more intrinsic value than others. That isn't an elitist claim; we know that because some people are more hire-able based on which degree they have, since that degree gives the employer a baseline of that candidate's skillset.
Quick note: The easy way is to see this is to judge whether people are interchangeable. Say there's someone who graduate from the field I did (engineering, specifically nuclear engineering) and someone who graduated in say political science. Also say that both of them are working nine-to-five jobs and have no other advanced degrees. If you switched the two, would the engineer be reasonably competent in the new position? Would the political scientist? Of course, in many cases the nature and content of the work is different, but we're talking about a 'reasonable' (i.e. a don't get fired) level of competence. If the answer to one of those is no, one of those fields has more value than the other.
Okay, so we've established that degrees matter, and that not all degrees are created equal. Now how do we get those degrees in the hands of students, especially those who can't afford them? Suspend your emotional or social arguments for about 900 words. We'll come back to that. Let's start off with the economics.
If you or your family has the money, great. That gives you the privilege to do whatever you want. If you want to take dad's cash and get your art degree, fine (there's no way to make that sound un-sarcastic, but there it is). You're fortunate to do so. But if you aren't in such a comfortable position, you're going to have to rely on student loans. The tragedy of student loans is that you never quite get out from under them.
One extreme of the how-do-people-pay-for-college is the Sanders plan, where we make college free. I don't think college should be free, partially because it's a privilege (not a right). There are solid arguments to remove inefficiencies (which would definitely drive down the cost), but in the absence of such an action, we have to assume that public schools will continue to run just like the government.
Another Quick Note: The European model is commonly invoked as a standard to strive toward, but lost in that is the tax burden placed on the average citizen, which have income tax percentages that range into the forties. So it's free in the sense that nachos are free at a restaurant – it's built in to the cost of everything else. The money does have to come from somewhere, and even if it's technically 'free' to the student, that probably means it's underfunded. Add that to the scope of colleges and college-eligible students, and making college free becomes entirely unpractical.
The less extreme version of this is a loan. Each student, from the point of view of a lending institution (a bank, the government, etc.), is an investment. As a lender, the interest is the money. As a country, the interest is the student. Ideally, any student who is financially unable to pay for college would secure a loan, graduate, get a good-paying job, and pay back the loan with interest. The student has become a commodity to society who will be in a better position to pay (at least a part of) the tuition for their kid(s), and the lender has made a profit. Everybody wins.
The reason that loans (in general) don't work is twofold. One is that the terms of the loans are shitty, so that the student ends up being responsible for a much greater amount of money than they requested to begin with. Another is that students don't end up getting jobs that pay well enough to repay the loan. There's a way to reconcile both these points.
Let's say the government gives out loans at a very competitive interest rate, but with a bit of a catch. The interest rate a student would receive would be dependent on the profitability of their chosen field or major. Specifically, this would be inversely related to the average earnings of graduates of that field. So the higher-earning jobs (which tend to be available for those who major in Biology, Engineering, Economics, and Nursing depending on where you look) would have a lower-interest rate, such that the amount they end up paying back isn't that much more than the actual cost. If you choose a major where your job prospects aren't quite as lucrative (like family studies, youth ministry, biblical studies, theology, horticulture, culinary arts, parks and recreation, among others), you have to pay a premium on that education since you're not generating enough of a return on that investment. Naturally, this can be normalized against region and school to hone that average earning number even more.
The logic behind this has two major drivers. One is that the tuition is uniform for anyone attending that school. You could be in an entirely different major, but if you spend the same number of semesters, you will owe the same amount. So if you're paying what's effectively a lump-sum, you might as well end up with something that has more value. The other is that we have quite a bit of data on this. Alumni records combined with databases like Glassdoor can provide a comprehensive look at how graduates are paid. Plus, this information is constantly updated, as new data is recorded every year with a fresh set of graduates.
Any other kind of loan is dependent on exactly this kind of premise. If you're getting a loan for a car or a home – which you can argue are more essential to have than a college degree, and are definitely not free – the interest rate is dependent on your ability to pay it back. This naturally factors in your credit and your job. In the case of college students, they don't have a job, so we don't necessarily know whether they have an ability to pay it back.
Yes, this does discourage people from going into fields which don't make as much. But unfortunately, for people who don't have the money, their choices are more limited. If someone is truly passionate about going into a field, they can choose to do so, but they go into it with the knowledge that they are placing a greater financial burden on themselves. If they are gifted enough in that field, they could earn a scholarship to lessen that burden, or work a part-time job to make payments throughout their undergraduate career.
Now for some points of contention. Bring your emotion back for these.
Caveat #1: Is wage history really a holistic measure of 'value'? Shouldn't other things be taken into account?
I'd consider wage as the single most important determiner of value. One of the benefits of capitalism is that the market figures out what's important. If something else were more valuable, then it would be more in demand, and employers would pay more for it, driving up the average wage. So if a particular occupation or field has a low payout, there's a reason for it, and it doesn't behoove young people to continue going into those fields. Moreover, it's the only one that dynamically changes in response to new trends in the job market.
Caveat #2: How do you account for fields that have highly variable endgames?
This applies to majors like theater, where someone could conceivably become a rich and famous actor, but a good number of theater majors will end up working in a field that's not theater-related. Or a major like political science, where some will go on to law and some will go to lesser-paying positions. Part of this is reconciled by using the median income, which is resistant to such outliers as multi-million dollar actors. For the political science example, you'd have to make a sound effort to carry through on your intent. So if you started out by saying you were going to go into law, you'd be obligated to apply to law school.
Caveat #3: Doesn't this restrict flexibility? What if someone decides to change what they want to do?
Well you can certainly do so, but you would be obligated to inform the lender, and as such your rate would change at that time. This could apply to someone who goes into school with the intent to study biology and apply to medical school but ends up going into digital health, which while well-paying, is of course nowhere near even the lower end of a doctor's income. For long-term courses of study like medicine or law or academia, you'd have to express intent to do so. If you deviate from those, the amount of loans you'd already received would be charged additional interest ex post facto to prevent people from cheating the system by inaccurately expressing their academic ambitions. So in a sense it does restrict flexibility in that you're paying that financial penalty, but you're only paying what another student would have for that new degree. If you choose to switch to a field that has better financial prospects, your future loans would be charged interest at the new lower percentage that corresponds to that field, so it works both ways.
Caveat #4: Doesn't this all but guarantee the extinction of certain fields if people are continually funneled to other ones?
Well, kind of. Depending on the type of school you attend, anywhere from 66-88% of students graduate with loan debt, usually around $30k. While that may seem high, look at it the other way: around 12-34% of students graduate without any debt, meaning that they had the means to attend and pay for college (i.e. their family sponsored them) before they began attending college. Consequently, we can conclude that that group of students had the ability to choose what they wanted to study (or at least, their families did). That's a pretty sizeable amount. So if cutting the entrants into a field by a third results in its demise, maybe that field wasn't guaranteed to have sustained success anyway.
Caveat #5: How will we know if a field is valuable enough to keep around if we severely limit access to it?
In that sense, this is a front-running model, where the popular fields get more popular at the expense of the less popular ones. It's a valid point, a lot of fields that are hot today weren't hot a few decades ago, and ones that were drawing large numbers back then may not be the biggest fields of today. But it's also arguable that the interest in a field – or the societal pivot to a given field – is spawned from those not necessarily in that field, but rather those from established fields like business or engineering. Some of the fastest-growing fields (drivers, physical therapists, financial advisors, etc.) aren't because people in those fields made them more popular. For those fields, growth was due to those who invested in ridesharing, the renewed importance of sports medicine, and the accessibility of financial trading. Even if this is a possibility (or an eventuality), I think it's a reasonable one. This is a good way to localize the cost of this policy, one that I'd accept and cut my losses with.