Is College Worth the Debt?
Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University,
Commentator on “The Right Thing to Do” on The Lucy Ann Lance Show, Mondays at 8:40 AM on 1290 WLBY
There has been a lot of talk about the amount of debt that students accumulate while in college. There are serious questions about the value of a 4-year degree, especially in those majors that do not have direct job prospects. The Department of Education ruled recently to limit federal loans for students at for-profit colleges. There is concern with the high default rate at these institutions versus public and private non-profit colleges. The DOE set three standards and the for-profit colleges would have to meet at least one or lose federal financial aid in 2015. The standards are:
1. At least 35% of recent gradutes must be paying back their loans.
2. Loan payments cannot eat up more than 12% of graduate’s average annual income
3. Loan payments cannot consume more than 30% of a graduate’s average discretionary income.
Was this the “Right Thing to do?”
Let’s look at the issue:
1. The DOE said that 48% of the for-profits failed to meet the 35% repayment rate versus 18% for public and private non-profits.
2. 53% of all for-profit graduates graduate with average debt of over $30,500 versus private non-profits at 24% and publics at 12%
3. Only 4% of for-profit graduates have no debt, private non-profits 28% and publics at 38%.
4. For-profits generally attract poorer students and offer more expensive courses than do private non-profits and publics.
Was this the “RightThing to do?” There needs to be some control over the high default rates and the high amount of debt. However, the association for for-profit colleges sued the DOE and a judge ruled in their favor. The judge stated that the debt percentages used for the test “lacked a reasoned basis and were arbitrary and capricious”. There is no doubt that the percentages for the test were arbitrary—why 35% versus 25% or 50%? However, that still leaves us with the problem. There are trillions in outstanding student loans. Can we afford the defaults in the budget?
We need to seriously question why students do not do a better job of determining the long term cost, feasibility of repaying loans, and number of years to plan until graduation. Why don’t the poorer students select relatively low cost community colleges or public universities to lower their costs and amount of debt? Is there an unspoken rule that students can default on the loans and therefore escape the debt—similar to what we see in the housing market? Just walk from your obligations? We see the same issue in terms of managing the financial costs at public universities. It is closer to the norm to have students graduate in 5-6 years than 4. Don’t the students realize the cost of spending an extra 1-2 years at college in terms of lost wages for that period? We need better education for students entering college. Are the high school advisors helping to plan the financial aspects of college?
Has college become a “luxury” for students who pursue degrees that are not directly related to a career? What are the job prospects for a history major? With thousands in debt at graduation, what are the reasonable prospects for repayment? Another thought–why do we have 4-year undergraduate degrees? Why not 3-year degrees? That is the norm in India–a 3-year degree. If we are concerned about the costs of college, shorten the requiments, concentrate the curriculum on major courses and eliminate the courses that may be “interesting” or “fun electives”. We certainly see companies doing training to meet their specific needs—not taught in college.