Why the President’s College Plan Won’t Work

I’ve been thinking about the President’s recently announced plan to change the federal student loan program. Something about it bothered me and it took Alex’s post below to finally crystallize my objections.

It won’t work. Even if it works, it won’t work. It won’t work because Barack Obama, oddly enough for a Harvard man, misunderstands the nature of higher education and, not oddly at all for a Democrat, misunderstands the nature of the problem with student loans.

Here’s the plan:

The plan, which Obama rolled out as he opened a two-day campaign-style bus tour of college campuses, would create a rating system beginning in 2015 to evaluate colleges on tuition, the percentage of low-income students, graduation rates and debt of graduates.

Eventually, as an incentive for schools to make improvements in these areas, federal financial aid would be awarded based on those ratings. Obama said he could create the ratings system through executive action, but the plan to reallocate federal aid based on the ratings would require congressional approval.

In principle, this isn’t a bad idea. There are a lot of diploma mills out there that give out crap degrees and a lot of schools that really don’t care if your degree is useful or not as long as they get that sweet sweet federal money. So some form of accountability wouldn’t be a bad idea.

But in practice, it will fail. Badly.

Let’s put aside that such a system would inevitably be gamed by the colleges (most likely through grade inflation to bump up their graduation rates). Let’s put aside that rent-seeking universities will make sure that their school doesn’t get hit. Let’s put aside that this will only change how loans are allocated rather than the total amount — so the river of federal money will continue to flow. Let’s put aside that such rankings already exist in many publications. In fact, let’s put aside that the President’s plan is so dumb that even Kevin Drum can point out the flaws in it.

No, the bigger problem is that many people do not go to college to get an education. You can get a fantastic education if you want one. And for many specific professions — science, for example — you can learn a lot (although most of the necessary skills for me were learned in the lab and the library, not the classroom).

But most people go to school for credentialing: to get the bachelor’s degree that is a requirement for a steadily growing number of jobs that have little to do with education. Harvard could be giving out the worst “bang for buck” in America. But people would still line up to go because a degree from Harvard carries a cache in the business world that a degree from East Yachupetz Community College doesn’t (even though community colleges almost certainly give the best education bang per dollar). So let’s just say, for the sake of argument, that you use this system to cut down on student loans to Harvard in favor of schools that are more “efficient”. That won’t happen, of course, since Harvard has about three hundred friends on Capital Hill, but let’s pretend it does. What happens? Does Harvard care? They’ll have plenty of people who can pay. They have tens of billions in tax-free endowment to finance people who can’t. At worst, some people at the margins lose out on getting that ticket to the upper class that is an Ivy league diploma. Net benefit: nil.

Indeed, the exploding cost of education has nothing to do with education — faculty hires have been flat. It has been the result of growing administration and construction designed to make a university degree seem like a more impressive credential than it actually is.

The President has two more speeches to give on this subject but I doubt that he will address the real problem problem here which is that the federal government has slowly become the biggest predatory lender in the country. The simple fact is, as Matt Taibbi points out, we now have a system in which universities can charge what they want and the federal government will lock young people into massive loans for an eternity to pay for it. Loans that can not be discharged in bankruptcy but can tally up penalties and interest rapidly. Loans that are immune from Truth in Lending requirements. Loans that can destroy people’s lives by using powers that private lenders simply don’t have. Loans that make more profit for the federal government than they ever did for industry. The situation is so bad that even Taibbi is capable of seeing the truth:

Bottomless credit equals inflated prices equals more money for colleges and universities, more hidden taxes for the government to collect and, perhaps most important, a bigger and more dangerous debt bomb on the backs of the adult working population.

I believe that the federal loan system has poisoned the education system. It has allowed naive young people take out six figure loans for useless degrees. It has bypassed all the consumer protections we have out there. If a private industry did this, they would be in prison (well, maybe not, given how the Obama Administration has dealt with the crooks in the mortgage industry).

Don’t fix federal loans; end them. Let private lenders subject to the same laws as everyone else take over. Let universities loan money and scale their reimbursement to future earnings of their students. In short, give the lenders and the schools a financial interest in providing a useful and affordable education. Because right now all the interests are aligned toward screwing the students, the taxpayers and the professors in favor of university administrators, big education lobbyists and politicians.

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  1. AlexInCT

    Don’t fix federal loans; end them.

    Wise beyond your years to make that point, Hal. The cost of college degrees and the fact that what they teach you has gone down in quality, is precisely tied to the fact that so much government money acts as a disincentive to do the right things. Get that money out of the system, and suddenly people would really have to be qualified for loans AND get a decent education.

    Of course, the problem then becomes that the people that think life is only good if we all cross the finish line at the same time, and then also with the same goodies, will balk at this plan, because it obviously means that a lot of people that are either unqualified or are wasting time will be told no. And we can’t have that happen, can we, because of the political implications.

    You will never convince the people that feel government is justified in picking winners & losers otherwise anyway. They see that as a bonus, even if it means we piss away money by the hundreds of millions, destroy the lives of so many young people not smart enough to realize they are being used & abused, and most importantly, keep prodcing the drones they rely on.

    About the only tax payer subsidized loans/grants I would be for are those earned by serving the country in the military. Otherwise, get it privately, or skip college. This will restore balance quickly.

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  2. Seattle Outcast

    I tried to explain to a coworker the other day how the economics of ever-larger chunks of money being handed out by the government causes tuition to keep going up, and she just didn’t get it. She didn’t get how Fannie May/Mac also helped create the housing bubble either – that was just “evil corporations” (no, the fact that she works for a multinational company that measures annual income in billion$ didn’t occur to her).

    What I find funny is that the left doesn’t know who to blame as the obvious contributors to the issue (universities and the government) are both “good”, so they can’t be dumped on. Instead they stumble around and see if they can pin the blame on “for profit” universities and trade schools, but when you point out that their absolute favorite schools are privately run entities, they circle back into a state of confusion and throw crap against the wall to see if anything sticks.

    Eventually a guilty entity that is non-PC will be discovered/created, and it will promptly thrown under the bus while it backs over it a few times. When the education finance bubble pops you can be sure the fingers will be pointed at everyone except the guilty parties. Hell, I even expect that anyone that actually paid off their loans, paid their own way, or had rich parents, will be vilified for doing so.

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  3. Seattle Outcast

    Let private lenders subject to the same laws as everyone else take over. Let universities loan money and scale their reimbursement to future earnings of their students

    Can you imagine the outrage when people start getting turned down for financial aid when they start listing their major? “Sorry, we don’t give student loans for liberal arts degrees – our data indicates you have a 95% chance of defaulting.”

    The only people that wouldn’t be screaming are Asian parents, who only pay tuition for medical, legal, business, and engineering degrees. Generally speaking, if you want a degree in something else they won’t pay for it, and will frequently disown you as well.

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  4. hist_ed

    Pretty easy to stop the tuition inflation. Simple top down law: If you increase student costs, your federal aid (of all sorts) will be reduced by the percentage that you increased students’ costs. You could throw in further incentives that impose penalties for higher non-instructional costs.

    The problem (as you pointed out above) is that Obama doesn’t really want to fix this. College administrators and profs are one of the most solid blocks of democratic support.

    Great piece on college economics: http://online.wsj.com/article/SB10001424127887324619504579029282438522674.html?mod=WSJ_Opinion_LEADTop

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  5. ilovecress

    I interviewed this guy the other day – the Mayor of a town called Otorohanga, who is massively inspirational and has cut his towns youth unemployment from over 13% to zero. Now I’m not telling you guys how to run your country :-) – but I think his ideas are really interesting.

    Basically, he recognised that the education that the kids in Otorohanga were getting was designed to give them the most ‘value’ (i.e. get them to University). The kids that wanted to go to uni were fine, and moved away from the area, leaving the kids who didn’t want to go into academia kicking around, aimlessly. The other problem in the area was that businesses were leaving due to a talent shortage. This guy, Dale Williams – a motorcycle mechanic – put 2 and 2 together

    Basically, all he did is ask the businesses what they needed, and then get a technical college to design courses around that, and visit the town every now and again. People who want academia can go, no problem, but if you’re not that type of kid, it isn’t seen as a failure – it’s an opportunity. The national pass rate for technical college is around 35%. In Otorohnga it’s 96% (and that’s because some kids decide to do engineering degrees halfway through).

    Not going to university isn’t seen as a failure – in fact it’s celebrated. You know how University graduates get a day when they dress up in a funny hat and celebrate – well the chippies and sparkies get that too. Once a year they have a massive ticker tape parade where the most recent graduates march down the street to cheers and beers. Zero youth unemployment, hardly any crime, and the graffiti has disappeared.

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  6. Hal_10000 *

    Basically, all he did is ask the businesses what they needed, and then get a technical college to design courses around that, and visit the town every now and again

    I think Bobby Jindal wanted to do something like this in Louisiana. College is great for some people but the idea that it should be a routine for everyone down to janitor is ridiculous. You could provide *free* technical and vocational training to millions for a fraction of what we’re paying for people to major in underwater basket weaving. And they could keep going back for new training as the job market changes and they need new skills.

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  7. AlexInCT

    Basically, he recognised that the education that the kids in Otorohanga were getting was designed to give them the most ‘value’ (i.e. get them to University). The kids that wanted to go to uni were fine, and moved away from the area, leaving the kids who didn’t want to go into academia kicking around, aimlessly. The other problem in the area was that businesses were leaving due to a talent shortage. This guy, Dale Williams – a motorcycle mechanic – put 2 and 2 together

    You know Ilovecress, because I actually lived outside the US and attended school in systems where they actually split the students by aptitude and desire, I saw this first hand, and I think it works miracles. This isn’t about colleges and college tuition costs, but about what highs schools should be like. I probably can be accused of bias since I always ended in the top tier, but I had plenty of friends that would never had made it if school was a one-size-fits-all solution. I think one of the most horrible things we do in the US is this forced a one-size-fits-all approach we impose on people, while internally monkeying around with the classes the kids can and do attend. This need to make everyone feel equal is IMO ludicrous. Some people are smarter than others. Some are harder workers. Some people are having their time wasted being kept in school. They don’t care about learning and feel like it is prison. Them are the facts. Nothing in the universe will change this. There is no single solution, and we should stop lying to kids that they are all perfect snowflakes incapable of anything but success. Same goes for this nonsense that everyone should go to college. Some people simply are never going to be able to pull it off.

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  8. hist_ed

    My affluent suburban district really pushes college. Our closest high school’s principal says it every year to his incoming 9th graders: “There is one reason to be in high school and that is to get in to college.” Drives me nuts. The one year I taught in high school was the year they decided to end the auto shop program. We had kids who loved it and went straight into the mechanic program at the local tech school. As the article I linked to above says, if you have over a hundred thousand janitors with BAs, there is a surplus of college degrees out there.

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  9. ilovecress

    Some people are smarter than others. Some are harder workers. Some people are having their time wasted being kept in school. They don’t care about learning and feel like it is prison. Them are the facts. Nothing in the universe will change this.

    I actually disagree with this. Some people are smarter than others at what they teach in school. Some are harder workers because they see a point in what they are doing. It may be a bit touchy, feely liberal, but I think that the reason you get those types of kids is because not everyone wants to study Keats, and that’s all that’s really offered. The kid that’s good at calculus doesn’t have to sit through woodwork class, but the kid who can put together a motorcycle from scratch is forced to learn the dative form of the German language.

    All kids are capable of success – it just depends on what you define success as. Being a good dad doesn’t need a college degree, but the world needs a whole lot more of them than media studies majors.

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  10. AlexInCT

    I actually disagree with this. Some people are smarter than others at what they teach in school. Some are harder workers because they see a point in what they are doing. It may be a bit touchy, feely liberal, but I think that the reason you get those types of kids is because not everyone wants to study Keats, and that’s all that’s really offered.

    You are right: it is your touchy feely liberal side that keeps you from accepting this. BTW, do not confound intelligence and smarts with schools and learning. I know several genius types that did horrible in school, not because school work and learning was hard, but because they were bored to shit. I myself had a couple of years where school was so slow and boring that I ended up with 7 suspensions. My grades never suffered because I knew better, and it was my only salvation, but I did all sorts of other crazy shit because I was so bored.

    Conversely I know people that simply do not have the ability to process information at all. Anything past a simple 2 step instruction scrambles their brains and leaves them feeling like they were just asked to recite the collective works of Ole Bill from memory. I mean no insult to them. Shit happens. Be it genetics, infirmity, or drug/booze/tobacco abusing mother. I think we insult them when we tell them they are not different or do not have an issue.

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  11. Seattle Outcast

    High school is boring for the people that should have been passed along to other studies. But there is mentality that you “need” four years for college, even if you can test out of it junior high. I’ve known many people that had qualified for their diploma a couple years early, but since they didn’t have the cash for tuition they were denied their diploma and told to suck it up and take BS classes to pass the time.

    And as for being the “best years of your life” I think they’re on drugs when they say this. High school is total fucking hell for half the students, mostly annoying for most of the remainder, and absolute heaven for the small percentage of total fucking losers that peak intellectually at 16 and have shitloads of cash given to them by their parents. Or in some cases, they’re just a teenage whore that relies on their looks to garner them boyfriends with cash. The smarter ones will try to land a wealthy husband, the rest either tend to marry young, work a stripper pole, or both.

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