Thursday, March 20, 2014

A teachable moment

I’m the product of educators, and am the “black sheep” of the family by not working in academia. I remember my Dad taking on some administrative responsibilities right when the school had to undergo a once-in-a-decade certification. It was a whole all-encompassing review. Having a set of standards across the educational spectrum may rub against my libertarian philosophy conceptually, but it is a practical and important way to ensure consistent quality across the country that I totally support. Making sure schools are able to teach the basics consistently is good public policy. Encouraging citizens to educate themselves is also good public policy. Providing financial incentives (loans, grants, etc.) to make that education accessible are good in theory, less successful in practice. Government as the regulator and primary funder/lender is ripe for conflict. Now President Obama wants (private) colleges to guarantee their results or face de-certification.

Americans now owe more than $1 trillion in student loans, nearly $30K per student. (This is more than Americans owe on their credit cards.)  The debt has increased as the costs for higher education have increased steadily – nearly double 10 years ago.  According to USA TodayA report issued in mid-August by the Department of Education shows that 57% of students received some sort of federal aid, and 41% of all undergrads had taken loans, up from 35% four years ago.”

I’m not sure that it’s the role of government to be in the loan business, especially when the regulate the same industry. But they are. It’s good to know that the U.S. Government has negotiated quite a good rate of return on its money for taxpayers. USA Today's reporting: “The law, regulating interest rates for federal student loans, was passed by Congress and signed by President Barack Obama this summer. It was hailed by politicians on both sides of the aisle as a win in the campaign to combat a rising tide of student loan indebtedness. … In total, the CBO projects the government to clear $175 billion in profit over the next decade on student loans.” As a capitalist I applaud this, as a citizen I'm not sure that students should be such significant financiers of the government.  

It’s not a one-sided payoff.  Median earnings of full time employees are nearly double if you have a college degree. So what’s the problem? Government earns a nice rate of return and students earn more after they graduate. President Obama has decided to add new regulations geared towards making sure that (private) colleges produce a citizen who has the capacity to pay back their loan.

USA Today reports: “Under the new requirements, the colleges will have to demonstrate that graduates' debt load on average does not exceed 20% of their discretionary earnings or 8% of their total earnings. Institutions must also demonstrate that former students' default rate does not exceed 30%. A program becomes ineligible for student federal aid programs if it fails to hit the debt-to-earning standards any two out of three consecutive years, or the institution default rate exceeds 30% for three consecutive years. Colleges could also be disqualified if the institutions are at near failing rates for four consecutive years.”

In short it means that to remain in business and certified schools must know how much their graduates make and whether they’re making their loan payments. It makes the NSA look like the ACLU and puts the college into the position of job-placement rather than educator.  It's incredibly invasive and is powerful evidence supporting why the Government should not be in the business of funding the industry that it regulates.

I have a BFA in theatre. I’ve never earned a full paycheck from my primary area of focus. Does that mean that my university failed? Should the program that I studied at be disqualified because I can’t demonstrate earnings related to my area of study? What about the fact that for the first few years out of college I deferred my payments and scraped along … should my school pay the price for this? Has the nanny state become so protective of people that there is no personal responsibility to educate yourselves, and the blame is on the institution?

The President’s new regulations shift the entire focus of higher education towards having graduates produce paychecks to cover the debt load of going to school. It’s perhaps the least progressive approach to education imaginable. The Bush (43) Administration’s focus on testing seems to be a bastion of educational integrity in comparison to this plan.  Congressional approval isn’t required of these rules – they have been issued by Executive Order.

President Obama tried something similar in 2012. U.S. District Judge Rudolph Contreras invalidated the rules, calling the requirements "arbitrary and capricious," because they weren't based on any economic studies. Now the Administration has economic studies to back up their revised approach.

Too bad the President didn't take the 2012 setback as a teachable moment – learning that education is not about producing a paycheck to pay the government back. He hasn’t. Schools will now have to produce paychecks for students rather than diplomas.

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