Monday, August 17, 2015


In America, the market for higher education blesses students with abundance of choice, ranging from community colleges, four year colleges and universities, and even online programs. With the abundance of choice, comes the burden of deviation of quality, IVY and top tier universities all the way down to online programs, with the highest rates of defaults. In the nation with the largest availability of higher education, it is intuitive that those most recently benefiting from the system will have higher debt than those matriculated much earlier, whom had time to pay their burden down.

The system does well to attract prospective students from across the world, many coming from nations with highly competitive markets with few providers per capita. In fact, fellow students from abroad do far better job of evaluating schools in America that their average counterpart in America in the middle class. Since foreign students pay the highest tuition rates with no access to financial aid, they determine which school best fits their educational profile and can give them the best prospect for a career in their field of choice. The rest of us are too focus on many factors that do little in the end to improve the likelihood of finding employment.

The issues of higher education attracted the attention of those seeking the highest office in the land. In seeking to foster the anger around the cost of education, Democratic frontrunner, Hillary Clinton, proposed putting the cost of a college education on the backs of taxpayers. While questions of effectiveness and affordability are valid, the proposal would further devalue college education, reduce incentives, and distract from the real issue. In the past, the shifting of cost away from the source has negative consequences on both the beneficiary and society.

The more appropriate course of action would be to incentivize cost savings in the education system. The “operational” cost paid for by the students in many times exceeds the value of the education, leading to imbalances between benefits gained from higher education. For instances, covering inflated salaries for tenured faculty, subsidizing overages for athletics, and funding facility upgrades, many not occurring with housing, lecture halls, or student lounges. Determining what costs a college student bears versus what should be funded externally is important. Understandably, college students benefit from many of ventures college undertake, notoriety from sports, research, and publications, but how much should they bear the direct cost of.  

Inclusion of market principles could be used to improve education system. For instance, modernizing regulations for interest rates for student loans provided at institutions to allow borrowers to identify quality of institutions by rates. In doing so, institutions, like online providers, that have higher rates of defaults have incentives to improve placement and quality of education or lose its customer base. Additionally, placing market caps, as is done in the mortgage industry, to limit the extent of variances. Furthermore, performance incentives could be implemented to help reduce rates for those who personally improve their job prospects, internships, community services, and industry organizations.  Also, rates could be adjusted lower for those transfering to programs that do better in placement and instruction. While the approach might appear to be a stretch, it would provide transperancy to improve program selection by students and their family, while encouraging change at the institutions to provide students with what they are paying for, jobs.

Some parts of the student debt problem is simply reality of the times. In times of recession, job prospects are dim for all experienced and new entrants, reducing the ability for new graduates to gain the income needed to cover the upcoming debt payments. In prosperity, graduates find positions much easier, enabling greater confidence that their personal investment. Moreover, the concern over the proportion of student debt held by young people is slightly exaggerated, as recent graduates spent less time in repayment, naturally having a greater portion of debt. In any generation, buying a home, car, gas, and groceries was much cheaper and affordable in the past than it is now. But, making the environment more transparent and incentivized to achieve cost savings is a good step in the right direction.