The Uncertain Future of American Colleges: A Roundup of Articles from Around the Internet
(By Jeff)
A quick run-down of a few recent posts from around the internet raise some interesting questions.
1. Frank Bruni's Sunday NYT column entitled The Imperiled Promise of College. Without getting into specifics, Bruni laments the rising cost, declining benefit, and social stratification of American colleges and universities. It's a well-told tale, but worth of repetition to be sure. Towards the end of his monologue, Bruni raises the idea of using incentives to nudge students towards "fields of studies that will serve them and society best."
I don't always try and bring it back to human capital contracts, but when they're relevant, why not? One of the possible benefits of widely using HCCs is an alignment of incentives so the students who are interested in studying subjects which tend to lead to more lucrative careers (though certainly not a perfect indicator, one way to measure a profession's utility to society is by its relative compensation) not only do so but also do so at the colleges and universities which are able to provide the best valuefor the dollar. For instance, if two students earn degrees in computer science, one from MIT (total tuition: $160,000) and one from University of Maryland, Baltimore County (total in-state tuition: $80,000; total out-of-state tuition: $120,000), and get jobs paying $80,000 and $70,000, respectively, right out of school, investors will see the latter student as earning a better ROI and will prefer to invest in her over the Harvard graduate. In effect, this will signal to Harvard that they must either lower their tuition (at least for computer science majors) or their CS graduates must earn higher salaries if they are to be competitive in a HCC finance market. (Side bar: If you aren't familiar with Freeman Hrabowski, the President of UMBC, check out these profiles at 60 minutes and Time.)
People Capital is another peer-to-peer lender like SoFi that offers a way for students to secure loans outside of the traditional lending market. People Capital's innovation is to use personal information such as school, major, GPA, SAT scores and length-of-time to graduation, rather than a student's credit score like commercial lenders, to measure risk and determine interest rates.
(Side bar #2: Business Week has, to my knowledge, the most comprehensive measurement of college ROI data to date. Click here for analysis, data table, and methodology. I hope to write a future post on this topic as well, so do check back if you're interested.)
Naturally, this leads to the question of whether colleges and universities should charge differential tuition rates based on a students course of study. Complications abound, but that doesn't mean it's not a valid question. I predict we'll start hearing much more about this in the coming years as the higher education industry gets increasing amounts of push back about rising tuition and decreasing benefits.
2. For another high-profile inquisition into the benefits of college, see Richard Vedder's Why College Isn't for Everyone in Business Week. My first reaction: I worry about the implications of Vedder's not-for-everyone mindset on education reform efforts that are predicated on a belief that everyone should be able to go to college (a belief that I share), especially in light of the absence of any widely available alternatives to a college degree that allow for even the hint of possibility for upwards social mobility. My second reaction: My first reaction still stands, but Vedder's commentary on the necessity of understanding the limitation of statistical averages in telling a story is incredibly important.
Third, not everyone is average. A non-swimmer trying to cross a stream that on average is three feet deep might drown because part of the stream is seven feet in depth. The same kind of thing sometimes happens to college graduates too entranced by statistics on averages. Earnings vary considerably between the graduates of different schools, and within schools, earnings differ a great deal between majors. Accounting, computer science, and engineering majors, for example, almost always make more than those majoring in education, social work, or ethnic studies.
The phenomenon he's referencing here is that although lifetime incomes averages of college graduates are vastly greater than lifetime income averages of non-college graduates, the variability in lifetime incomes is significant and too-often ignored. In fact, it is this variability in individual lifetime incomes that make equity instruments (such as human capital contracts) far more appropriate than debt instruments (such as loans) for financing education.
(Side bar #3: I recently came across two more interesting equity-based proposals for financing education which I will profile in more depth soon. For now, though, check out this article on CNN that focuses on a early-stage proposal for an alternative to traditional higher education finance at Clarkson University in Upstate New York. The article also briefly mentions an organization called Fix UC which advocates for an entire overhaul of the tuition system throughout the University of California system by very directly utilizing a human capital contract set-up.)
3. Planet Money produced a succinct infographic/text combo entitled What America Owes in Student Loans as a part of its ongoing What America (not sure if this is the official name or not) series. With the caveat that the Planet Money piece relies heavily on averages (see #2 for forewarning), author Lam Thuy Vo presents an interesting counter-conclusion to Vedder's:
But it turns out that the rise in total student debt is not primarily the result of each student borrowing more money. It's the result of more students going to college.
"The main force pushing up the total amount of outstanding student debt is growth in the number of people going to college," said Sandy Baum, an analyst at the College Board.
Average debt per college graduate is rising — but not nearly as fast as total student debt.
Now, it may very well be that both Vo and Vedder are correct, but I wonder what it says about each of them that they choose to interpret the data the way the do?
4. I don't make a habit of trolling the pages of the American Enterprise Institute website, but when a Google search or an article I'm reading points me in that direction, I'm not opposed to exercising my open mind. So, with that introduction, I give you Lights, Camera, Crazy!, a book review of Andrew Ferguson's Crazy U, by Michael Rosen. The book blends, as Rosen writes, "broader cultural, political and economic insights into higher education trends with a deeply person, and surprisingly moving, account of Ferguson's and his son's own experience visiting, applying to, and ultimately enrolling in college." Topics in the book range from skyrocketing tuition, college rankings (I'm getting tired of saying this, but rankings are also a planned topic for a future post), standardized testing and the blogs, brochures, websites, fellow parents and admissions officers that make up the rest of the hellish admissions process.
If there's one thing I've learned over the last few years of being involved in education in various capacities, thought, it's that no other sector of life leads to stranger bedfellows. Somewhat confusedly, I found myself nodding in agreement (though I'm going to tell myself it was only in acknowledgement) during a few passages of the review. Namely:
Much of this obscene acceleration in prices can be laid at the feet of the federal government, which, in a vicious cycle, subsidizes loans, makes direct grants, and offers loan forgiveness, all of which in turn spur higher education institutions to hike tuition further, which in turn necessitates further government aid.
“It’s the same problem that afflicts health care,” Ferguson posits. “A large portion of the people consuming the services aren’t paying for the services out of their own pocket. The costs are picked up by third parties.” One massive, 10-year study Ferguson quotes found that “each increase in Pell aid is matched nearly one for one by tuition increases” among private schools.
I don't know that I completely agree with Rosen's paraphrasing of Ferguson's conclusion that much of the blame "can be laid at the feet of the federal government," and I certainly am not on board with where Rosen seems to be heading that the federal government should stay out of education finance, but I do agree that the mechanism which he describes of increasing amounts of aid being eaten up by tuition increases leading to increasing amounts of aid and so on is alive and well. The single biggest problem is the lack (or extreme delay) of feedback signalling and the use of debt in the first place. One problem is easier to fix than the other and while I have made no secret of being a huge fan of human capital contracts and other equity instruments, I think efforts by companies like SoFi and People Capital to inject some humanity and accountability back into the process are huge steps in the right direction.
Also, the comparison of health care to education with respect to out-of-control costs and using HCCs as a possible solution reminded me of an article I stumbled across recently which proposes to use human capital contracts as a way of reining in medical school debt. This proposal is much more education than health care related, but it's another interesting area of overlap that was worth sharing.
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Note to self: get to work on posts about People Capital, college ranking system, The Clarkson Proposal (sounds like the title of a spy thriller, right?), Fix UC, Business Week's College ROI series.
