Greg Taylor’s Ethics-Related Publications
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April 23, 2012 Leave a comment
Problems with rapidly increasing student loans, a poor job market for recent graduates and new for-profit competition for the education dollar are generating interesting ideas for educational reform. Is coming of age through a higher educational experience worth a huge debt burden that will stay with you even after bankruptcy? Recent news reports of those with unpayable student debts will be giving some second thoughts about maxing out their student loans and living it up on the leftover “refund” checks after they pay their university bills. Like home ownership, for some, college education may not even be necessary to achieve the American Dream. From a financial standpoint, a university diploma will be well worth the cost for many students. Others with college degrees will work lifetimes in dead-end jobs and have little to show for the time and money invested in education. Results will depend on the effort put forth, the quality of the institution, and the demand for the skills obtained. Default rates are much higher at for-profit institutions than others. Those who default damage their credit and lose many potential job opportunities. For the 20% who eventually default on student loans, the price of a college education may well be too high.
Unfortunately, at 17, many are not in a position to assess the costs and opaque benefits of higher education. They depend on institutional representatives for help. In many cases, especially at the for-profits, there are substantial government-backed incentives for selling services that might not be in the best interests of the student. Could financing education with claims on future earnings instead of debt help align the college’s incentives with the student’s best interests? Adam Levitin and Yves Smith have recently suggested such an approach. With an equity stake, colleges would accept a percentage of enhanced future earnings for a set number of years rather than proceeds from student loans as payments. This could reduce the institutional incentive to enroll students unlikely to benefit financially from education and reduce the number now saddled with difficult to repay student loans.
Over 50 million U.S. student loan balances averaging $17,000 total roughly one trillion dollars. This student loan debt now exceeds the total credit card debt of the nation. The distribution of loan amounts is highly skewed with a median amount of just $12,000. These are current balances on the debts and many have paid the balances down over several years. Over 25% of the 1.6 million Bachelor’s degree recipients from 2008 borrowed over $30,000 and 15% (240,000) borrowed over $40,000. Payments are roughly 1% of the original loan balance each month for 10 years. Therefore, each year, 400,000 graduates will owe over $300 on student loans each month for 10 years. That’s more than a car payment, but without the car. If the rates double in 2013 from 3.4% to 6.8% as suggested in the President’s proposed budget, the payments would increase by 17%.
Presumably, the problem loans have the highest values. While it’s hard to get good student loan statistics, a large chunk of the 22-35 year olds in the US must be struggling with this debt because 9% of U.S. student loans are currently in default, 20% eventually default and 63% will get behind on payments at some point. Default rates vary widely by schools with by far the worst rates coming from the for-profit sector.
Equity Financing
While equity financing seems like a reasonable way to align institutional incentives and to reduce the debt burden, it would drive massive changes in education with consequences that might not be in the best interest of society. With equity financing, we would expect the greatest educational benefits to flow to students most likely to succeed financially rather than to those who succeed academically. Institutions would push vulnerable students into programs where they would produce the highest income. Programs that couldn’t attract or produce high earners would be defunded and eventually die. Directly rewarding universities based on their ability to attract high earners would radically redistribute funding toward top-tier schools. Those catering to the low-earners wouldn’t get resources and would eventually “reform” by changing their target audience or die as well.
What’s wrong with that? A lot. Many youth already define their worth by the size of their paychecks. We don’t need additional institutional pressure in this direction. They get enough from their peers. Doling out education to those most likely to be able to generate high paychecks will increase the already too wide income and wealth gaps. Most of the programs that generate high-income graduates benefit from government-enforced licensure and other market distorting influences. Equity financing would provide one more distortion benefiting those permitted to run such programs. It seems unlikely that equity-financed students would be able to choose a field independent of their ability to repay the costs. There would be too many incentives for institutions to move easily influenced students toward more profitable programs and restrict or eliminate others.
Still, fraud and other problems associated with government-backed student debt are very similar to those associated with government-supported housing loans several years ago. We’re in the middle of an “education debt bubble.” If it continues to grow the inevitable crash will affect society and the education sector in much the same way the 2007 bursting of the housing bubble devastated the housing sector and created economic difficulties for much of society. Continuing to finance higher education with almost unlimited government-supported student debt is not an option.
Short-term Approaches to Student Debt
In the short-term, we should consider measures to share the risks of loan default between lenders, students, and educational institutions. Everyone needs to have “skin” in the game; otherwise, the incentives for predatory lending, “deadbeat” students, and sham educational institutions will erode trust in the entire system. This will reduce total educational funding substantially. There seem to be few realistic alternatives at this point.
Schools with the highest student loan default rates should absorb the bulk of the funding reductions. Much of the for-profit education sector would disappear if government-supported student loans carried reasonable restrictions and shared penalties for default. Others with high default rates would feel the pain as well. To the extent that it affects institutions providing legitimate services to those who might otherwise create a burden on society, states might replace some lost funding with tax revenues.
Despite my concerns about an all-encompassing equity-funding model, we might experiment with it in specialized licensure programs with rigorous admission standards that produce high earners. This wouldn’t have much impact beyond the students in such programs. Limiting equity financing to specialized fields seems unlikely to redistribute money to programs and schools that attract high earners. It seems fair to trade a piece of a medical other licensed professional income stream for state-enforced laws prohibiting competitors without licenses. This is especially true when the supply of licensed professionals is restricted so much that salaries become grossly inflated. Health care is a good example. The American Medical Association and accreditation councils strictly control the supply of physicians and other health care professionals. The lack of competition allows physicians and medical specialists to charge higher prices. Since medical education is very expensive, equity financing would eliminate some of the largest and potentially problematic student loan balances in the system.
Long-term Educational Reforms
In the longer-term, we need to undertake root and branch educational reform at all levels. To some extent, reform being forced upon us with alternative educational delivery and certification models. For those of us mired in the past, we’re still designing educational programs that we hope will meet societal needs then recruit students into these programs. Too often, these students are unprepared for the programs, the institutions don’t remediate, and students either fail or lack basic skills that their credential suggests that they have.
Potential students need good honest advice about how they can help society with the skill sets they possess and can develop. High school guidance counselors, parents and teachers are relatively independent but generally don’t know enough to give useful career advice. University counselors, professors and administrators are more knowledgeable but have incentives that often conflict with the interests of the student. Most students end up driven into mass-produced education and careers by their fears.
Mass Customization of Education
If we moved from a mass production model of education to a mass customization model, then we would focus on the needs of each student and not institutional programs, credentials and ratings. I’d like to flesh out such a model in a future post.
For now, I think one key to mass customization in education and career planning is advising. Starting in adolescence, we need to give people frequent, meaningful individualized feedback on skillsets they have, how these skills relate to potential career choices and interests, and how to develop the knowledge and abilities needed to pursue those interests. Accessible educational options are also needed for mass customization success. A large chunk of the population would have to provide these options. I’m thinking broadly of apprenticeships, mentoring, writing seminars, and other skill-building activities available to relatively few students today. Most communities don’t facilitate this type of interaction. Christopher Alexander’s thoughts on community building would be a step in the right direction.
I would appreciate any ideas or useful references related to mass customization in education. My thoughts are sketchy but I’d like to try to post on the topic.
Update 1: May 18, 2012. Provided more definitive student loan statistics from the Progressive Policy Institute and finaid.org.
January 29, 2012 Leave a comment
After reading a blog post by mathbabe from last summer on the horrors of math contests, I felt it deserved a belated response. I’ve coached secondary school math teams for several years so I have a strong bias that the merits of building competitive math teams outweigh their potential destructiveness. Her post and the many excellent comments address important issues that can mar the experience. However, they missed much of what I believe are essential values built through participation on math teams and competitions:
Math teams share many of these benefits with sports teams and artistic performers.
Math contests challenge bright kids to deal with academic failure – often for the first times in their lives. Those whose self-image is strongly tied to being the “best” in some academic sense will feel bad when they lose. And that’s good. Really good. You’ll rarely find a more teachable moment than working with a bright kid who is devastated because she didn’t make the math team or because she performed poorly on a contest. She’ll never be more ready to discuss what she should really be getting out of the contests and the community (clubs, circles, teams….) that provides enrichment and support for the contests. The resilience developed from these experiences on math teams will help foster healthy attitudes when confronted with challenges and failures as an adult.
Several years ago I heard Bill Russell speak to a group of middle school kids about making sure you don’t define yourself with your career or accomplishments. He never wanted to be known as Bill Russell, basketball player. He spent many hours practicing, playing and earning a living – but it wasn’t who he was. It was one of the most insightful talks about competing and living that I’ve ever heard. He gave the talk at the 2005 National MATHCOUNTS competition in Detroit.
Many fall into the trap of becoming what they do and not developing an identity that transcends their careers or perceived skillsets. Life’s transitions, hardships, and failures can become very difficult to overcome without a healthy sense of who you are. It’s better to learn these lessons by experiencing failures early in life rather than being unprepared for your inevitable academic/professional failures as an adult.
As in sports, there will be some with more “natural” ability than others, but it quickly becomes clear that the best contest performers spend a good deal of time practicing and preparing. Team members often develop expertise in different areas of math and take advantage of this at competitions. The time spent building a strong math foundation will be rewarded when later math-intensive academic studies require far less time to master than for those with weaker math skills.
For those interested and able, there are leadership opportunities on math teams. Participation in contests is often determined by the interests shown by the members. Leaders can play a large role in recruiting new talent, making practices and trips to contests fun, mentoring less experienced teammates and captaining team activities during competitions.
Kids are drawn towards enrichment activities with a competitive element much more than they are to others. Many math circles and camps exist that are not geared toward competition. However, they don’t seem to attract as nearly as much interest as those that build competitive skills. Kids want to know what activities they are good at and how they might fit into a competitive world. By the time they leave elementary school, lots of kids already know that they suck at arithmetic and other academic subjects. Some will respond positively to that knowledge and others will not. Parents, teachers and peers can influence this response. Most have a pretty good idea where some of their skills stand relative to their classmates and they don’t need to attend a math contest to know. It may seem harsh, but for most kids, that’s an important part of finding one’s way on life’s journey.
Just as with sports, math teams and competitions are destructive when kids develop unhealthy attitudes about practice, can’t identify with the competitors and coaches, become arrogant, or develop poor attitudes about winning and losing. Getting women and non-Asians involved is difficult at some schools. I’m gathering my thoughts on attracting females to math teams and may post on this topic in the future. As with sports and arts, there are many challenges in building healthy math teams. Good coaching and support structures can limit the potential damage and maximize the benefits of competitions.
Most American kids with high math ability and interest tend to have minimal enrichment opportunities available within the school. If they aren’t into sports or the arts they’ll find it difficult to place much value on practice and building expertise. Some will breeze through school without significant challenge or any experience with academic failure. The risks for these kids are far greater than risks of developing destructive attitudes about competing.
Useful links:
Pros and Cons of Math Competitions Richard Rusczyk
The Benefits of Youth Sports Jordan Metzyl and Carol Shookhoff