Why the cost of education should be marked to market

Image attribution: Lumaxart; CC BY SA-2.0

At the undergraduate level, a degree in accounting costs the same as a degree in journalism. Yet, according to the Daily Beast, a degree in Journalism is the most useless degree to have (wiping my forehead, good thing I have two degrees in philosophy!) Having said that, there is a real societal and economic issue underlying education costs. Basically, undergraduates are not getting an education marked to market, which basically means the value is not measured in terms of actual worth.

Skeptics would argue, if degree costs were measured in terms of worth, professors in low-valued fields would not work because the pay is so low. Really. Has that been proven or is that just speculation? From one perspective, life is more than just money, actually, much more than just money and some might just be passionate to share some things in life regardless of compensation. How do I know this? Quite simple, I've been writing for over five years and have a very low income.

What if education were marked to market, what then? For starters, the debt to income ratio of creative types who choose to learn about their fields would be more manageable. That isn't so bad is it? Oh, actually it is for those who only care about money. For those people, who I relate to at a substantial level, follow the smart money. Makes sense, following the arts is not typically being in the path of smart money, unless it's coming from George Lucas, Jean-Louis Gauthier, or William Shakespeare. So if you want to teach art and make a living, have a lot of faith in life. Otherwise, focus on the money ball.

There is another real economic problem to marking education to market however. Specifically, if all education costs were marked to market, only a handful of degrees would really be worth a great deal. In such case, and assuming many degrees would be valued at far less than their actual present costs, the economy would be affected significantly. For example, professors could be on food stamps, perceptions of education could lower enrollment causing the revenue of educational institutions, and the quality of educational programs to decline. If economics is the focal point, then yes, that is a big deal; but what if it isn't?

Economic models are not fool proof, and the field of economics is one of many that applies mathematical formulas to sociological constructs.  This is why economics is not considered a science, and what is not scientific is not absolute, therefore economics is not accurate. Also, measuring worth is not quite that simple as a survey of the career paths of thousands of former students would need to be tracked to create any sort of statistical significance to the valuations. It would also be challenging to isolate the exact influence education has on wealth apart from other variables such as luck, personality, motivation etc.

Even if economics were a science, which at basic levels it is, the scenario does not bode well materially. For example, Jeremy Grantham, a well known fund manager, thinks "grandchildren have no value" because of the unsustainable course of current economic practices according to John Elkington of the U.K. Guardian. Indeed, Grantham has clearly illustrated that constant growth is impossible with finite resources and demonstrates this using simple mathematics. This is reiterated by Henry Blodget of Business Insider who summarizes Grantham's reasoning as essentially this: "One cubic meter of possessions at a growth rate of 4.5 percent per year for 3000 years is equal to 10 to the 57th power."

The economy is a fragile mechanism that millions of people depend on to live and thrive. That's no small potato in an existential world where 'actual living' is a legitimate concern. In such case, humanity and common sense draw lines where economics might not. Specifically, minimum values of educational worth similar to minimum wage of labor. Makes sense doesn't it? No degree is worth nothing, and everybody is on Earth for a reason, so why stand in the way of life when it such a good thing? In other words, undervaluing education is just as bad as overvaluing it because it slows progress, and decreases the quality of education. 

Guest Post: The biggest villains behind today's student loan crisis

Submitted by Elena Verley; syndicated courtesy of Online Colleges 

Image attribution: Online Colleges; ©Onlinecolleges.net

Student loan debt has now reached $1 trillion, and the situation has gotten so bad that there are Americans who are having their Social Security checks garnished to pay off outstanding loan debt. Meanwhile, recent graduates sit in a precarious position of underemployment, combined with doubling rates and rising monthly bills as their loans are sold from one lender to another. It’s clear that we’ve reached a crisis point. But what got us here?

There are several places where we can lay blame: colleges, for becoming so expensive and ignorant of student finance, the government, for restrictive policies and inflating prices with student aid, private lenders with predatory tactics, and even students for allowing themselves to get in too deep. The fault lies not with just one, but all of these student loan villains, who have all done their part to bring us to a very real point of trouble. Read on to learn in detail how each of these groups has played a role in the destruction of student loans.

Colleges

Although students, Congress, and banks are catching a lot of flack for the student loan debt crisis, many are pointing out that the high cost of college that creates the need for so many mind-blowing loan bills is the real problem. Cato Institute research shows it costs just $8,000 a year to educate an undergrad at the average residential college, while most students pay double that: $16,000 at public universities and $37,000 at private ones. What’s making up this major discrepancy? Multimillion dollar sports programs, glowing recreational facilities, excessive administration, and tenured faculty who may or may not actually be teaching are the most likely culprits. It seems that colleges can raise their prices because they know they’ll get paid one way or another, whether it’s through grants, scholarships, loans, government contributions, or endowments. Colleges raise tuition, get more aid, and raise tuition again in a vicious cycle that is not at all beneficial to students.

Financial aid offices

Whether the heart of the problem lies with price of education or not, it seems that colleges aren’t doing a whole lot to make student loans a responsible process. Financial aid offices aren’t known as places that will gently point out to students that perhaps they’ve gotten in over their heads, even though they often have a full picture of just how bad a student’s financial situation has become. Financial aid offices are in a great place to assess the financial situations of students and give them a reality check before they get in too deep. But it sure doesn’t seem like colleges want to do that. Some, like NYU’s VP of Enrollment Randall Deike, believe that it would be “completely inappropriate” for universities to take on such a role, as “some families will do whatever it takes for their son or daughter to be not just at N.Y.U., but any first-choice college.” Others may be hesitant to point out the problem, as it will likely send students to a different, cheaper college and push down enrollment numbers. U.S. Senators Dick Durbin and Tom Harkin are working on a solution to this problem, introducing a bill to require that colleges offer counseling to students who are seeking private student loans.

The federal government

Government intervention into student finance has been well-intentioned, but produced disastrous results. US News and World Report points out that the federal goals of making a college education within reach, while requiring that debts ultimately be repaid certainly seem reasonable and noble, but have not exactly worked out as planned. Where there was once a $2,500 annual limit on federal student loans, there’s now a $31,000 limit for four years. As the federal government pumps out more financial aid to help students afford college, colleges find that they can charge more for tuition, making education less affordable. And just about everyone can take out a student loan, giving colleges no incentive to keep costs down while students continue to rack up five-figure loan bills just to get a four-year degree. Even if students declare bankruptcy in the future their student loan debt lives on, as the government has deemed that student loans are not dischargeable. Beginning in 2014, student loan forgiveness laws will go into effect, capping federal loan payments at 10% of a student’s income, and forgiven after 15 years. This is excellent news for the future, but it doesn’t do a whole lot to help out those who are struggling today. Loans can be deferred, but ultimately, they must be paid.



Lenders

The government isn’t the only one handing out student loans like candy. Once students reach the limit on what they can borrow through federal student loans, they can turn to private lenders with much less favorable terms, but the same non-dischargeable debt. This fills the gap between what the government will provide, and what students need to actually pay for school, but it’s a dangerous situation to be in.nStudents with private loans are often subject to having their loans sold and terms changed, which can alter their loan payments by hundreds of dollars per month. These loans are convenient for students who need them to get through school, but their existence is highly problematic. Lenders like Sallie Mae and Wells Fargo have been accused of making subprime loans to student borrowers, not taking into consideration the risks behind these loans. They’ve given money to students attending schools with low graduation rates, students who may or may not actually finish school, get a job, and have the means to pay back their student loan. What happens then? They just sell off the debt, or, get a government bailout to cover the losses. The five biggest private student loan lenders have made profits reaching well into the billions, but at the same time, were able to get a $112 billion bailout from the government for loans that could no longer be sold.

Students and their families

We hate to blame the victims, but we have to ask: what exactly did students think they were getting into? Why didn’t parents save? Many programs exist. Obviously, many students feel that they don’t have a choice, and student loans, even subprime ones, often mean the difference between getting a college degree and not going to school at all (or worse, dropping out halfway). With big plans to get a great job after graduation, we’re sure that most students feel confident that they’ll be able to pay their student loan bills off without a whole lot of trouble. But why aren’t students more wary of taking on so much debt, especially with poor job prospects? We have to point out that there are often situations in which students could have acted more responsibly, and must bear some of the blame for our unfortunate student loan situation. It is possible to graduate college without debt, even if your parents haven’t saved one red cent. Enrolling at an in-state public college, starting out in community college, hunting down scholarships, picking up part-time work and paid internships, and even living at home are all major ways that students can make their school bills more manageable. Would we be in this situation if more students availed themselves of these options rather than taking a blind leap of faith right into crushing debt?

Ultimately, many parties are responsible for the student loan crisis. As we reach a point of decision, it will be interesting to see if and how colleges, Congress, lenders, and students themselves make a change for the better.