There is a serious debate taking place in this country about the need and cost of a college education. I want to talk about the cost but not in the same old way you’ve heard 1000 times over. Instead, I want to talk about the broken market in higher education and why, until we address that, we can’t even begin discussing anything else.
In a true free market, we have the option of buying something we want. We can assign a price that’s representative of perceived value. If we cannot agree on price with a counterparty, we simply walk away or look for alternatives. But the dynamics of that situation get turned upside down when the item being purchased is perceived as a must have and the propaganda of a free market is used to justify price gouging and debt slavery.
We place a significant cultural emphasis on the value of a college degree. In the last 30 or so years, that emphasis has extended to graduate degrees. That in turn creates immense pressure on most high school graduates to go to college and beyond. The cultural aspect of obtaining a degree creates a tunnel vision of sorts, blinding young people from the cost implications of taking on student debt. The focus is not so much, “am I getting my money’s worth” and is instead, “I need to pay for this, whatever it costs.” As a result, because of the inability to forecast the future financial pain of taking on so much in loans, we find ourselves in a situation where young people, succumbing to cultural pressure, ultimately become saddled with massive debt.
To be fair, in the world of higher education, loan companies play a crucial role. Without their existence, most people wouldn’t be able to afford college. However, those companies are not education consumers and therefore, they lack any sort of price sensitivity with respect to value. That leaves universities free to set prices at whatever level they like and loan originators are more than willing to pay that price. In that scenario, universities are being paid what they command and loan underwriters are not constrained by cost. They’re simply focused on the profitability of the loans they indiscriminately hand out.
When it comes to higher education, there is a disconnect between price and value. Instead of a free market, the cost of a college education becomes hostage to cultural necessity. All of this is compounded by a lack of consumer bargaining power which ultimately creates a command economy, where prices are not in any way constrained.
The resultant amalgam of price insensitivity, command-based economy and future debt are not insolvable issues. But to get there may take some unconventional methods.
First, we have to acknowledge the costs of higher education are not negotiated in a free market for reasons I’ve already described. Therefore, traditional free market solutions are unavailable. In fact, the only viable solution in a command economy are price controls.
By capping the costs universities are able to charge, we can address the out of control command pricing structure masquerading as a free market. If schools cannot charge more than the education is deemed of value by society, then loan underwriters shouldn’t be allowed to make loans in excess of that value. This guarantees a more reasonable valuation on education and any necessary debt that must be consumed.
I recognize this isn’t going to be a popular position to take with many people. But the way things exist currently is simply unsustainable. And the problem isn’t just in education, we see it in other areas as well, like healthcare (which I’ll discuss at a later point).
Simply stated, crushing levels of debt is an unsustainable way for individuals to live their lives. Nations can do it but you and I cannot. When we are simply working to pay off debt, what is the point? It creates animosity and only further exacerbates the wealth gap between those working to pay back and those working to get ahead.
Good words, Dylan! I have adult child who has so impacted her financial future by striving and gaining a college degree as a working, divorced mother of two small children. Yes, she achieved the status she so desired, that of a teacher, but she is also almost $100,000 in debt due to loan interest , deferred interest, mismanagement of her loan again and again, and the greed you speak of. Biden 's $10,000 thought to her and those like her would not accomplish any meaningful thing except to pay some interest on her loan. I agree the root of the problem is the outrageous fees charged and the emphasis placed on the achievement by our society. Going forward, I would like our government to concentrate on those things, however, for now, to correct past wrongs, just cancel student debt, especially for those in service industries. The wealthy parents paid for their child's education upfront and I am tired of the voices that are still proclaiming that as an injustice if debt is cancelled.
The mess that is American higher education is complex. Yes, the cost to attend college has become absurdly inflated. American obsession with status so fuels the drive to go to college/grad school that celebrities are doing jail time for fabricating their offspring’s credentials to get into perceived “top” schools, while at the other end of the spectrum those whose parents can’t pay out-of-pocket for college are saddled with student loan debt well into their 30s and 40s. The US government, now contemplating a token 10k handout at taxpayer expense, pegs federal loans at 5%+ interest regardless of economic conditions.
Perhaps worse, though, is that many are actually paying for just a ticket to (what they hope will be) a higher quality of life rather than actually gaining new knowledge or skills. Does one really need a master’s degree to be a journalist? Does a hospital nurse need a bachelor’s degree? These used to be blue-collar vocations where one learned on the job, at the feet of skilled practitioners. Now the Ivys offer sticker-shock master’s programs in both while journalism majors toil away for minimum wage at Starbucks and studies show as many as 50% of nurses leave the profession within 5 years due to working conditions.
Oh, and colleges are now expected to provide not only faculty to teach but staff to try to help students cope with record levels of sexual assault, self-harm and suicidal ideation.
Price controls are certainly one possible solution, but may be too blunt an instrument for what ails American higher ed. The patient needs much more delicate surgery. Too bad med school is so expensive.