The rapidly growing debate about the "higher-education bubble" came to a boil earlier this year when new data revealed that student loan debt in the U.S. topped the $1 trillion mark in 2012. In the months following (and with debt already at $1.2 trillion for 2013) educators, students, parents and economists have been struggling to come up with a solution for the debt problem faced by the nation's 37 million student borrowers.
Although student debt is a drop in the bucket compared to the national debt as a whole, student debt has a particularly potent influence on the health of our economy. For instance, economists agree that the housing market may be pushed into dire straits as more and more graduates aren't able to earn the kind of salary they need to afford a house while grappling with years of debt.
The problem doesn't stop there. Students burdened with years of debt are not only less able to participate in the national economy -- they're also a significant drag on it when that debt is paired with unemployment. Unlike the options that exist for mortgage loan borrowers when it comes to loan default, students with college loans are finding themselves with almost no options, since it is illegal to discharge student loans with bankruptcy.
In the face of this economic turmoil, many people have begun to look for ways to financially restructure education. Among the many ideas formulated to solve this problem, one of the most popular for discussion has been the suggestion that certain degrees should cost more than others. However, just how would such a proposal affect higher-education?
Established on the basis of average expected lifetime earnings, under this system, low-earning degrees like the psychology major (where graduates earn a salary of, on average, $32,358) would pay less in tuition than high-earning degrees like computer engineering (where the average starting salary is around $70,300).
In principle, this idea isn't too revolutionary. For example, many schools already micromanage tuition to an extent. While it varies from school to school, it shouldn't surprise you to learn that mechanical engineering students often end up paying more than English students simply because they cost more to educate. As a mechanical engineering student, your tuition may be padded with the cost of paid consultations with patent lawyers, machine shop funding, or any other number of things that an English major has no need for. Some schools have already implemented these types of programs: at the University of Wisconsin, students of the business school pay an extra $500 each semester compared with their peers in humanities programs.
For the economy, this restructuring would mean fewer people with low-earning degrees buried in debt that is likely to far exceed the financial value of their degree. As a result, those who find modest salaries after graduation would be able to more actively participate in the economy. Meanwhile, those with high-earning degrees wouldn't be devastated in the process.
The Effect on Low-Income Students
One obvious objection to this solution is that it's unfair to students. As the price of high-earning degrees increases, students from less affluent backgrounds might be forced to seek low-earning degrees as high-earning ones are pushed out of reach -- which to some, sounds like little more than institutionalized plutocracy. Provost and executive vice chancellor at the University of Kansas, Richard W. Lariviere, is already worried about this trend developing on his campus. Says Lariviere, in an interview with The New York Times, "the price sensitivity of poor students is causing them to forgo majoring, for example, in business or engineering, and rather sticking with something like history." Furthermore, increasing the cost of education is never a popular decision. But there are more serious problems than that.
High-earning degrees are almost by definition the degrees that the U.S. economy depends on the most. Raising the cost for these high-earning degrees may have the unintended side effect of creating a disincentive for students to pursue study in those areas. Thinning out the number of high earning degree holders would likely benefit the people holding those degrees more than it would the economy at large. But if increasing the cost of high-earning degrees isn't a viable option, what other kind of solutions are available for students with high-cost low-earning degrees?
Students Have Power
While the suggestion that high-earning degrees should cost more is a top-down solution to the problem, bottom-up solutions are available as well. Students aren't entirely helpless to defend themselves from tuition hikes. In 2009 the California university system proposed and approved a 32 percent increase to tuition that was successfully beaten back by student protest. Helping to manage the costs of education in the long term may be as simple as getting students organized and involved in their universities.
The Cost of Education
All else aside, the less obvious problem with the suggestion that high-earning degrees should cost more persists in an underlying assumption about the cost of education. College tuition in the United States has risen more than 500 percent since 1985. To put that in context, the average price of consumer goods (commonly known as the consumer price index) only rose about 120 percent in the same time. Regardless of the fact that accredited universities receive no small part of their bottom line directly from the government, universities still behave like for-profit businesses. And like any for-profit business, universities have a profit motive that drives them to charge as much as possible.
One thing that the argument that high-earning degrees should cost more does get right is to recognize that there's a national interest in the availability of education, and that cost affects availability. Therefore, if you're looking for a top-down solution to the problem, it should probably be aimed at driving down the costs of education. However, just how realistic a solution like that may be given the political climate of the nation remains highly questionable.
This shouldn't be reason for panic, though. Even for those who aren't in favor of government intervention, there are solutions available. Perhaps market forces alone would be sufficient to reduce the cost of education if only there was more competition for universities. For example, if independently-accredited professors were allowed to offer classes that could be used towards earning a degree. And this shouldn't seem too far-fetched. After all, if a local professor started offering an English 101 class for half the price of the local university, how many students would choose the university?
Of all those with student debt totaling above 40k, four out of five have private loans with interest rates exceeding 8 percent. Some have argued that a large number of these people are victims of currently-legal forms of predatory lending that grant huge loans to students seeking low-earning degrees. Many of these loans are virtually impossible to dispel with bankruptcy, causing the borrower to become a drag on the economy for years.
One alternative worth mentioning is simple legal reform. This could be as simple as preventing lenders from giving loans that disproportionately outweigh the average expected value of the degree that the loan is paying for. Apart from helping people avoid debt-traps that ensnare the economy, it may also have the effect of influencing how universities price degrees. While the proposition carries some risk (for instance, deterring low-income students from attending a university for fear of not qualifying for a loan), the hope would be that universities would alter prices to bring in additional students. That is, if students seeking an English degree can only secure half as much federal funding as students seeking an engineering degree, universities might have sufficient reason to adjust the price education accordingly.
Others have suggested offering students the same option that Americans with car loans and credit card debt have: the ability to file for bankruptcy. Bankruptcy would be filed strictly for loans taken from private lenders. In his interview with TIME, publisher Mark Kantrowitz, says that allowing students to discharge these loans could have "very positive effects" and may prompt lenders to "be more careful about whom they lend to and how much."
Options for Students
Until lenders, universities and government officials can find a way to address the problem of rising student loan debt, new and incoming students can help themselves by remaining wary of large loan amounts and instead seeking out alternative funding through the use of scholarships and grants.
Despite the fact the average high school senior could qualify for anywhere from 50-100 scholarships, many students do not apply. ABC News reports that millions of dollars of scholarship money goes unclaimed each year -- a shame considering that, according to one Forbes writer, "there are funds available for all kinds of students from all walks of life -- you don't have to be a top performing athlete or win the academic decathlon championship to get them."
Whether a student is pursuing a degree in bio-engineering or English literature, a college degree can be a great investment. However, students from majors with less-than-stellar expected salaries will thank themselves in the years following graduation if they take the time to seek out alternative forms of aid -- and stay away from high-interest loans -- to pay for the ever-increasing cost of tuition.
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