When people talk about the issue of student debt, not many realize that what they're really discussing is the broader system of higher education. And that system is broken, concludes Glenn Harlan Reynolds — one of Reason's panel of higher education experts — but few realize how fundamental the damage really is.
It isn't 100% clear why after being on the path it has been on for decades and even centuries, only now has the higher education system in America begun to derail. As Reynolds point out, Stein's Law predicts an eventual collapse of any unsustainable enterprise – as higher education surely is – but has no insight on when the collapse will take place.
Yet for anyone who follows the issue at more depth than just glancing at political slogans realizes that with as many people now carrying college debt as are graduating college, this collapse has surely begun.
There have been signs that the edifice can't hold up forever, but these warnings were made explicit by Moody's Investors Services earlier this year when it lowered its investment outlook for higher education to negative and expressed concerns that without an overhaul the industry will not remain on sound financial footing for much longer.
How long can it be until even for those who go into professions that promise substantial earnings – like technology and health services – the expense of college will no longer be justified?
Economists like Richard Vedder, a frequent contributor to The Chronicle of Higher Education, think that it won't be long at all. Students who borrow to go to college yet never complete it are still an outsized factor contributing to the $1 trillion in debt weighing down on Americans today, but anyone who think that this problem will be solved if only we invest more in raising graduation rates doesn't realize its true scope.
Students graduating with heavy burdens of student loan debt must choose (if they can) jobs that pay enough money to cover the payments, often limiting their career choices to an extent they didn't foresee in their undergraduate days.
Even students who can earn enough to service their debts may find themselves constrained in other ways: It's hard to get a mortgage, for example, when you're already effectively paying one in the form of student loans. And unlike other debt, there's no "fresh start" available, since student loans generally aren't dischargeable under bankruptcy. The whole thing looks a bit like the debt slavery schemes used by company stores and sharecropping operators during the 19th century.
As Reynolds astutely points out, the prices being charged by colleges for a four-year degree – a price that's increasing at a rate well outpacing the growth in the consumer price index – students no longer have the option of thinking, as many institutions wish they should, of a college education being learning for learning's sake. When the costs could be covered by the students themselves, or when the loans could be paid off in a year or two, it was acceptable that college was only implicitly about improving employment prospects. Once the cost started hitting $100,000 – a sum that is completely out of the price range of most American families – the idea that a degree is an investment which should pay off in higher salaries down the road must become explicit and judged to be true or to be false.
One of the things that will bring those questions to the fore could be the simple market force of competition. A recent report predicts that the number of high school graduates is on the decline with an even greater drop predicted for the coming decade. The demands for schools to justify the prices they charge will become louder because they will be voiced by fewer students looking to find the best investment for their tuition dollars.
Higher education needs to be cheaper, more flexible, and better. It's possible that technology will show the way: With the proliferation of online courses, some offered by major brand-name schools like Harvard, MIT, or Georgia Tech, there's no reason why students should have to go into massive debt. And while an online degree from MIT (when such becomes available) probably won't be worth as much as traditional MIT sheepskin, it may well outperform degrees from many less prestigious brick-and-mortar schools.
Richard Vedder thinks that the government has had a role to play in this drama that saw tuition at most colleges and universities quadruple over the course of less than 60 years. Assistance provided by the government in the form of both direct funding and indirect – in the form of financial and aid and loan assistance – has allowed schools that wouldn't exist in other way to continue functioning and even growing, and has at the same time isolated students from the true cost of college education much like medical insurance has done for experiencing the true cost of healthcare.
This money, which was supposed to level the playing field between rich kids and the poor, has instead caused higher tuition for everyone — something that a former education secretary Bill Bennett predicted back in 1987, commonly referred to as the "Bennett Hypothesis."
This commitment to funding higher education is so embedded in the American ethos that after a temporary decline during the time of financial difficulty brought on by the 2008 financial crisis, state funding for higher education increased in the last two years and is on the way up again, possibly continuing to contribute to the college tuition and loan crisis.
Colleges and universities, echoed and abetted by politicians like President Barack Obama and education-cheerleader groups like the $1.4 billion Lumina Foundation, promote the notion that nearly every American should have a post-secondary education and that we need to regain world leadership in the percent of young adults who have bachelor's degrees. Yet labor market data show that a large portion of those with bachelor's degrees have jobs that do not require a college education. (A forthcoming Center for College Affordability and Productivity study puts the portion at around 48 percent.) There are more than 115,000 janitors, for example, with bachelor's degrees.
The Lumina Foundation recently took stock of its work by releasing a survey that finds that attitudes in the U.S. mirror its mission, as many consider higher education extremely important, with only 3% of over 1,000 adults polled saying that anything after a high school diploma wasn't important.