College, Inc.

by mikekarnj on August 11, 2010

university_of_virginia_rotunda_2006

If I had all the time and money in the world, I would spend it on documentaries that create world-shaking change that ultimately shift the ways things are done in culture, society, and the world. My favorite documentaries include The Cove, Food Inc, and The Corporation, and I’m really looking forward to Waiting for Superman, which comes out this fall. All of these documentaries shed an exposing light on things we often overlook – food, business, and education – revealing truths and problems that need to be collectively reformed in order to make the world a better place.

After watching The Lottery, which uncovers the failures of the traditional public school system, I started to think about the shortcomings of the current traditional education system. Since the pinnacle of education is getting into college, I believe higher education has shifted from learning to profit maximization as its core purpose. The pursuit of short-term profit and greed is a common theme in all of the documentaries I have listed, which is what ultimately led to the predicament we are in today.

If I had to produce a documentary, I would shed a light on the inevitable student loan crisis, and the collective action we can do to prevent it from happening.

Much like the Great American Banking Crisis (this is a must read article from RollingStone), I believe we will witness something just as globally shattering with the looming crash of higher education loans. The rising cost of higher education coupled with the diminishing value of college degrees can only lead to a downhill spiral.

But with the credit crisis come signs that the college bubble is bursting, as “consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college,” the Chronicle of Higher Education suggests. Further evidence: The New Yorker aims to deflate creative writing programs, “designed on the theory that students who have never published a poem can teach other students who have never published a poem how to write a publishable poem.” — Freakonomics

Yesterday, the Wall Street Journal published an article that stated that “Americans now owe more on their student loans ($830B) than their credit cards ($827B)… He estimates that $300 billion in federal student loan debts have been incurred in the last four years.”

What?! $300B of the $830B came in the last 4 years?! At this rate, we’ll break 1 trillion in no time. To put this in perspective, the US economy is burdened with $4 trillion of excess mortgage debt, which is equivalent to 30% of GDP (source).

And to make matters worse, the WSJ reports that “defaults on student loans are skyrocketing amid a weak job market for graduates and steadily rising tuition costs. Default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That’s up from 4.6% two years earlier and would be the highest rate since 1998.”

Cortney Munna hoped for the best when she decided to attend New York University. Now she owes $100,000.

From New York Times: Cortney Munna hoped for the best when she decided to attend New York University. Now she owes $100,000.

The New York Times also wrote a great article titled “Another Debt Crisis is Brewing, This One in Student Loans” which goes over this problem in intricate detail.

Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.

Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn’t have a lot of good options for digging out.

One thing to note is that student loan debt is different from credit-card and housing mortgage debt. Student loans can’t be washed away when you file for bankruptcy. “Ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.”

Most students view college loans as “good debt” because they’re hedging it against future earnings. But what happens when you switch careers, get laid off, or work an underpaying job? Do students really want to spend the next 50 years paying off a degree in XYZ that ended up being utterly useless?

Good news is that Obama has already signed the Health Care and Education Reconciliation Act.  “Student loan reform will mean big savings for the US government, but not much change for students until 2014. Instead of private banks issuing loans guaranteed by the government, the government will now become the originator of the loan. The change will eliminate private banks as “middlemen” in the loan process and will save the US government about $68 billion dollars over 11 years, according to the White House.” However, this seems to benefit the government more than the students in our country…

So, what are some other innovative ideas we can implement to curb the increasing education problem for students? Whether you agree with the value of a college education or not, it needs to be reformed and improved. Below are some initial crazy ideas off the top of my head.

1. 2-year Universities: Who made up the rule that we have to attend college for 4 years? By decreasing the amount of time we spend in college, it decreases the amount of loans a student has to take on, so why not spend the 3rd or 4th year interning at a company? Or building a company? Or traveling around the world? I guarantee that students will learn a lot more by DOING something versus SITTING in a classroom.

2. Student Loan Awareness: Most students do not know the terms and conditions of the loans they take on including the repayment process. All colleges and universities should mandate incoming freshman take a 30-minute “entrance loan counseling” class on student loans. As well as seniors that are graduating to take a short session on “exit loan counseling.” A lot of the criticism of colleges is that they just throw students out into the real world with no preparation. This could be a great start.

3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it.

4. Cultural Paradigm Shift: College is NOT the Answer to Success: Yes, it can be a great start for people in different income brackets, races, for the networking opportunities, confidence, etc. But having a college degree will not ensure that you will be 100% successful, or rake in the money once you graduate. College isn’t for everyone.

5. Adopt the Finnish Education Model and Abolish Tuition for Public Schools: According to Wikipedia, “The Finnish education system is an egalitarian Nordic system, with no tuition fees for full-time students. Attendance is compulsory for nine years starting at age seven, and free meals are served to pupils at primary and secondary levels, where the pupils go to their local school. Education after primary school is divided into vocational and academic systems.”

6. Public Service (great idea from Nathan Hurst): More programs like ROTC whereby the government would pay for your education in exchange for public service (teaching, software engineering, accounting, etc).

7. Halt Education Inflation (great point from Matt Lehrer): The best solution I know of is to halt education inflation (http://bit.ly/anl1hM) at the source: the US government / Sallie Mae. There’s no way tuition would be up 10x in 30 years if there wasn’t a huge, mandated buyer and guarantee on student loan debt. Regulate that better and most of the other problems go away.

These are some initial ideas off the top of my head. Would love to hear more from you guys as I think this is a major problem that needs to be addressed in our society. Fire away!

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