Updated (4.30pm)!: Feds, Dems Lead Way in Creating More Student Loan Defaults Via Paperwork Screwups
Instapundit Glenn Reynolds, who has been covering the higher education bubble like nobody's business, has a sharp op-ed in the New York Post on student loan woes. Take a look:
Back when Democrats ran Congress, the president engineered a federal takeover of student-loan processing. Now the Chronicle of Higher Education reports that this is producing huge paperwork screwups that have thrown thousands of borrowers into default, more than doubling the number of defaulters since December….
And Reynolds offers up a way to bring some sanity to a system that gives reduced-price money to colleges (not students!):
Let's give colleges some "skin in the game" by making them absorb the loss, or at least part of it, if students can't pay. Perhaps if students can't pay their loans by 10 years after graduation, they should be allowed to discharge them in bankruptcy, with the institutions that got the loan money on the hook for, say, 20 percent of the loss.
You fix a malfunctioning credit system by ensuring that the people who can control the risks are the ones who face a loss if things go wrong. Obama's interest-rate "fix" does nothing like that. It just pumps more hot air into the bubble.
My one objection to Reynold's op-ed—and it's an objection to a lot of college talk—is the need to constantly bash supposedly non-utilitarian majors such as English, gender studies, and the like. You know, "the humanities," as in, oh what a waste of time. As a proud English major (surrounded by a bunch of them at Reason, by the way), I'll save a full-throated defense of my major for another post. Let me just suggest that majoring in literary and cultural studies wasn't just interesting in and of itself, it helped equip me with a series of analytic and expressive tools that have helped me support myself since I was 18. And as my older son gets ready to start college in the fall, I'm hoping he picks a course of study that is first and foremost interesting to him.
As Reynolds writes at one point:
"College" isn't an undifferentiated product. Some degrees — say in Electrical Engineering — increase earnings dramatically. Others — in, say, gender studies — not so much. A rational lender would be much more willing to finance the former than the latter.
Of course college isn't an undifferentiated product. And college students aren't all the same either. To avoid making bad bets, or charging differential rates based on likelihood of ability to repay a loan in full, schools, banks, governments would be wiser still to consider individual students based on something other than major, wouldn't they? An engineering school dropout will be more costly to them than a gender studies phenom who finishes and gets a job, right? Given that an engineering degree is likely to be worth more in terms of starting salary, from a pure market perspective, wouldn't it make sense to charge prospective engineers more to borrow, since they would likely be willing to spend more for college, knowing they can make more down the road?
To even raise any of these questions is to invite a deluge of related queries: How many people know their major when they apply to college anyway? And what is the function of loans in the first place—not to mention college more broadly? If it is to do something that can be easily replicated in the workplace—say, training engineers or software programmers—why aren't we pushing businesses to actually pay for the selection and training of their workforce? It's bad enough that the NBA and NFL get to cost much of their scouting programs onto taxpayers via college sportss. Why should IBM or ATT or Procter & Gamble or Cargill get to do the same? Why should taxpayers, whether through state-assisted universities or student loan and grant programs, shoulder a burden that rightly belongs not simply to the private sector but to private businesses? If anything, a stronger case (though still a weak one, in my opinion) exists for state-assisted colleges dedicated to intellectual research and disciplines that have no obvious cognate in the business world. If college is simply a high-cost vocational school (or a high-cost signaling device for prospective employers), there is simply no good goddamn reason any tax dollars should support it.
A note on the graphic above: This is taken from the recent study "Hard Times," by some Georgetown researchers and charts unemployment rate by college major. The band listed for each major has three parts. Light green represents a "recent college graduate," which is defined as folks 22-26 years of age; the bluish-green band covers "experienced college graduates" (30-54 years of age); and the olive drab covers people who hold advanced degrees in a subject area. For example, architecture, which routinely tops lists of unemployed majors, has a 13.9 percent unemployment rate for recent grads, 9.2 percent for experienced grads, and 7.7 percent for graduate degree holders. The "Hard Times" study breaks down a lot of data in a lot of different ways and is online here.
Last week, I asked whether new student borrowers should be charged less than older ones.
Update: Glenn Reynolds responds. Here's part of that:
The problem with the humanities isn't an inherent one — you could even teach a stimulating and intellectually rich course on the Occupy Movement — but has to do with execution, and here's where the comparison with STEM comes in. Very few people complete a math or engineering major without learning a lot of math and engineering, but it's entirely possible to major in the humanities and never learn to read, write, or reason with any rigor. The problem isn't inherent to the subject matter, it's a symptom of professorial self-indulgence and laziness, together with the lack of external scrutiny, a problem that is much, much worse in humanities than in STEM.
As the higher education bubble bursts, we'll see a lot more of that scrutiny, and I expect things will improve — though not without a lot of squawking from those whose rice bowls get dinged along the way.