COMMENTARY | Bloomberg Businessweek discusses the latest proposal by Democratic legislators to trim America’s outrageous student debt load: Force colleges and universities to share some of their graduates’ defaulted debt by fining them when too many grads have too much unpaid student loans. Basically, the goal is to curb unwise student lending, and blanket acceptances of masses of unprepared applicants, by institutions of higher education. Recently, colleges and universities have made tremendous profits off of students who borrow and spend lavishly…but quickly drop out. There has been no incentive for schools to trim their own fat – they just want to pack ’em in and collect the money!
Who is to blame for our nation’s college debt problem? Are colleges at fault for admitting too many students, knowing full well that many of them will not land decent-paying jobs? Are students at fault for borrowing too much, pursuing expensive college educations beyond their needs, and languishing on the job market too long when their “dream jobs” do not appear? Are lenders responsible for blindly doling out loans to naive young students? Should high schools share responsibility for inflating grades and graduation statistics and thrusting unprepared students into higher education?
Yes, yes, yes, and yes. But is it fair to have colleges and universities on the hook for students’ and lenders’ bad decisions? Perhaps not, but it is the quickest way to curb America’s college problem…and it uses the principles of free market competition to do it!
Legislation cannot really decrease the demand for college education, but it can reduce the supply. Though heavy-handed legislation like imposing quotas and firm limitations on college admissions would be met with public outcry and condemnation, encouraging schools to tighten their admissions standards to avoid too much defaulted student debt would be more widely accepted. Most people would, optimistically, assume that they could still gain admission under the more stringent standards. The schools, additionally, could save face by claiming their hands were tied by the government.
“It’s not that we want to turn away applicants,” admissions counselors could say apologetically, “but we’re under the gun with these new laws. We can only admit those who are virtually guaranteed not to default on their student debt!”
Schools could use good, old-fashioned innovation to figure ways to reduce defaulted graduate debt: Improved classroom-to-cubicle pathways, closer relationships with local employers, improved course offerings that teach more in-demand skills, or even offering courses on how to craft a good resume and search for a job. Part of the problem facing today’s college graduates is that their alma maters have little incentive to make sure they get hired. Likely, schools could be more effective at assisting graduates on the job market if they had proper financial incentive. In this case, the incentive is the government stick.
Congress takes the heat, colleges trim their own bloat in efficient and innovative ways to avoid the fines, and students realize that the pre-Recession gravy train is over.