College: An Overpriced Scam

Mike Rowe argues Americans are "obsessed with credentialing," and it's costing kids big time.  

“You don’t have to be rich or famous to believe that your kid is doomed to fail if they don’t get a four-year degree. There are millions of parents in the country right now … who genuinely feel that if they don’t do everything they can to get their kid into a good school, they will fail the kid.” —Mike Rowe

Rowe appeared on Tucker Carlson’s Fox News show to address the college-admissions scandal. Yet far better, he explained that college has become the most over-priced scam in the nation, saddling thousands of young Americans with decades of student-loan repayments. Repayments that have forced them to postpone activities like buying a house, getting married, or having children.

Postponements that are now impacting the entire U.S. economy.

“Where’s the outrage for the pressure that we’ve put on a 17-year-old to borrow $100,000?” Rowe asks. “So much of that pressure comes from their mom and dad. It’s well-intended, but it’s kinda tragic.”

Rowe further notes that parental pressure is amplified by high-school guidance counselors, politicians, lobbyists, and employers.

The results? Rowe says, “We promoted the one thing at the expense of all of the others and the one thing just happened to be the most expensive thing.”

Expensive is an understatement. As measured by the Consumer Price Index, the cost of college since 1985 has increased at nearly quadruple the rate of inflation. In a single decade from 2007 to 2017, college tuition skyrocketed 63%, school housing 51%, and textbooks 88%.

As a result, total student-loan debt — now more than $1.5 trillion and counting — is the second-highest segment of consumer debt, trailing only mortgage obligations. Moreover, default rates are now more than 10%, making them the highest segment of household debt in the nation.

In the meantime, Americans trapped by this increasingly onerous dynamic never get around to asking an essential question: Why do most employers require a college degree, even when one is not necessary to perform job-related actives?

One of the main reasons has to do with a 1971 Supreme Court decision in Griggs v. Duke Power Co.. Prior to the ruling, Duke Power restricted workers without a high-school diploma to menial jobs, unless they could pass an aptitude test. Griggs and other black American employees filed suit, claiming that the company’s requirements were discriminatory under the 1964 Civil Rights Act.

SCOTUS unanimously agreed, ruling that employers could only require educational credentials that were reasonably job-related. Furthermore, any company’s educational or testing qualifications that engendered “disparate impact” were in violation of the law.

The implication? In a 2008 paper, “Griggs v. Duke Power: Implications for College Credentialing,” authors Bryan O'Keefe and Richard Vedder explained that many employers, knowing that aptitude testing and high-school diplomas had become legally hazardous, began using college degrees to screen out applicants they didn’t want to hire. “Griggs turned the college degree into a ‘credential,’” the authors explained. “The content of the education did not change, but the degree — the sheepskin — became a necessary first step for a decent job.”

Is it? As columnist (and Yale graduate) Kyle Smith asserts, “An elite-college degree isn’t an instrument or a tool; it doesn’t have to lead to anything. It’s a status symbol in itself.”

More troubling, colleges are also the places where “a single orthodoxy about the origins of man, about American history, and about how America should be governed” is now imparted to the nation’s Ruling Class, as Boston University professor emeritus Angelo Codevilla explains.

Yet the most salient aspect of this ongoing scam is revealed by columnist Mark Hemingway. “Credentialism creates the illusion of knowledge and capability where none exists,” he explains.

Rowe heartily agrees. “Seven million jobs are available now; most of them don’t require a four-year degree,” he states. “They require training. And yet we’re obsessed, not really with education, you know. What we are obsessed with is credentialing. And so people are buying diplomas. And they’re buying their degrees. It’s a diploma dilemma, honestly. It’s expensive. It is getting worse. It’s not just the kids holding the note. It is us.”

“Us” is the American taxpayer who bears the ultimate burden for any and all student-loan defaults. Thus, colleges themselves, which bear no burden whatsoever, can raise costs with impunity.

Enter Democrat presidential candidate Elizabeth Warren, who promises to “fix” the problem — from exactly the wrong end of the equation. Rather than take on the entire government-backed, taxpayer-underwritten student-loan program that fuels the cost spiral, she proposes what amounts to rank vote-buying: Warren pledges to cancel almost all student-loan debt for 42 million students, which would cost taxpayers a staggering one time payment of $642 billion.

Following that shakedown, she proposes “universal free college,” paid for by her “Ultra-Millionaire Tax — a 2% annual tax on the 75,000 families with $50 million or more in wealth.”

That Warren is comfortable promoting the idea of borrowing money and not honoring one’s commitment to pay it back is bad enough. Yet the utter failure to control costs — and the nerve to use to the word “free” as it relates to those costs — is astounding. Americans might ask themselves how a Harvard professor can be as morally bankrupt and economically ignorant as Warren appears to be.

In 2016, University of Tennessee law professor Glenn Harlan Reynolds addressed the credentialing dilemma, stating, “If you want equality, the best thing to do is to ban employers from asking students where they went to school and, perhaps, even if they went to college at all.”

The quality dilemma? Require colleges to publish data on student graduation rates, the level of debt they’ve accumulated, and what they earn after graduating, so potential enrollees know exactly what they’re getting before they go into debt.

The pricing dilemma? Make colleges partially liable for all student-loan defaults, incentivizing them to offer students the marketable skills that would prevent such defaults. Despite what people like Warren believe, “skin in the game” is the best cost controller there is.

Most important, a national conversation must be engendered to disabuse Americans of the long-orchestrated fear that the only choices they have are college or eternal mediocrity. Eternal indebtedness is closer to the truth — which might even be tolerable if it were a genuine education one was receiving in return.

Far too often, it’s not. “Since the 1970s, it has been virtually impossible to flunk out of American colleges,” Codevilla explains. “And it is an open secret that ‘the best’ colleges require the least work and give out the highest grade point averages.” Why? Because “our ruling class recruits and renews itself not through meritocracy but rather by taking into itself people whose most prominent feature is their commitment to fit in.”

And what has that “commitment to fit in” precipitated? An arrogant, “credentialed” Ruling Class that has given America a $22 trillion national debt, manufactured tribalism, un-winnable wars, and defenseless borders, all while holding “deplorable” Americans in utter contempt.

If college is the “answer,” Americans are asking the wrong questions.

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After 20 Years of Reform, Are America’s Schools Better Off?

On the surface, statistics show significant improvement. But if you dig a bit deeper, the status quo begins to look a lot less desirable.

Twenty years ago this spring, George W. Bush announced that he was forming an exploratory committee as a precursor to his first run for the presidency. In the announcement, he pledged to improve America’s schools, “set high standards, and insist on results” so as to “make sure that not one single child gets left behind.” An era of ambitious education reform had begun.

Two decades later, after sweeping efforts that included No Child Left Behind, Race to the Top, and the Common Core, are our schools better off? The answer is less reassuring than one would hope. On the whole, it’s certainly possible to find some evidence of improvement — but progress is easiest to find in the metrics most amenable to manipulation.

State tests in reading and math do appear to demonstrate that schools have significantly improved over the last 20 years. Between 2005 and 2009, as No Child Left Behind took full effect, the share of students who proved to be proficient in state tests rose by 1 to 2 percent per year. Over the next six years, state assessments were too varied to allow for meaningful comparison. But the same trend — with the share of proficient students increasing by 1 to 2 percent each year — did reemerge after 2015, when standardized Common Core tests became widely used. And high-school-graduation rates also skyrocketed, from 71 percent in 1997 to 85 percent in 2017.

Good news, right? Not exactly. The politicos and state education officials claiming credit for these gains are the same ones who choose state tests, define what qualifies as “proficient,” and monitor graduation rates to guard against funny business. The results are tied into state accountability systems, where lousy results can produce practical and political headaches. Thus, policymakers have both the means and the incentive to inflate the numbers any way they can.

Fortunately, the U.S. also regularly administers the National Assessment of Educational Progress (NAEP) to a random, nationally representative set of schools. Because the NAEP isn’t linked to state accountability systems, it’s a good way to check the seemingly positive results of state tests. From 2000 to 2017 (the most recent year for which data is available), NAEP scores showed that fourth-grade math results increased 14 points, which reflects a bit more than one year of extra learning. Eighth-grade math results also demonstrated significant improvement, increasing ten points in the same period. Fourth- and eighth-grade reading scores, meanwhile, barely budged. And almost all of the math gains were made in the decade from 2000 to 2010; performance has pretty much flatlined since then.

Put another way, the NAEP results raise hard questions about those cheery state-test results and graduation rates. George Washington University’s Center on Education Policy, for instance, analyzed the annual increase in the percentage of students whose NAEP results demonstrated proficiency and the percentage of students whose state tests demonstrated proficiency from 2005 to 2009. It found that, depending on the subject and grade, average gains on state assessments outpaced NAEP gains by 50 to over 100 percent. In other words, state-reported gains vastly exceeded the gains on NAEP. Similarly, high-school-graduation scandals and analysis of “credit recovery” programs have raised serious concerns about the validity of the dramatic graduation-rate gains.

Given the disparity between state tests and independent national results, it’s useful to see what the results look like on international tests. The Programme for International Student Assessment (PISA) is the only major international assessment of both reading and math performance. While PISA has its share of limitations, it offers a wholly independent view of American education and accountability systems.

From the time PISA was first administered in 2000 to the most recent results from 2015, U.S. scores have actually declined, while America’s international ranking has remained largely static. Average American reading scores have declined from 504 to 497, and average American math scores have declined from 483 to 470. Compared to other nations in the same time span, the U.S.’s world ranking dropped from 15th to 23rd in reading, and from 19th to 39th in math. (The number of nations participating has increased significantly over that time, from 43 to 72, so it’s fair to say that relative American performance has remained about the same.)

The PISA results should concern anyone eager to insist that 20 years of accountability-based school reform has obviously “worked,” even when we limit the discussion to K–8 math instruction.

Evaluating the success of any reform effort starts with a careful accounting. And a fair assessment of the two decades since President Bush’s bold challenge would admit that there has been a lot of action, but not much in the way of demonstrated improvement. Just why this is the case remains an open question. But going forward, education-reform proposals must start by acknowledging that the status quo appears deeply flawed the minute one looks below the surface of the numbers.

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Elizabeth Warren’s Debt ‘Cancellation’ Plan Would Make College More Expensive, Not Less

Elizabeth Warren wants free college for every American. But what the Massachusetts senator doesn’t seem to realize is just how much more costly college would get if her “free” proposal passed.

Shortly after Valentine’s Day in 1987, Education Secretary William J. Bennett wrote a now-famous op-ed in The New York Times titled “Our Greedy Colleges.” In it, he suggested that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would help cushion the increase.”

This observation became known as the “Bennett Hypothesis.” As the years go by, it seems more apt to call it the Bennett truism.

In the last 20 years, the federal government’s total spending on student loans has skyrocketed, from $24.8 billion in the 1995-96 school year to $93 billion in 2017-18.

At the same time, the price of college tuition has soared. Between 1998 and the present, tuition at four-year institutions has roughly doubled, and at private four-year colleges tuition has gone up 58%.

The price increase is even more dramatic looking at the last 40 years. Since 1980, the cost of attending a four-year public university has increased 287%—an uptick rate surpassed only by increases in the cost of medical care.

Enter Warren.

On Monday, she published a proposal that includes the following:

Students with household incomes below $100,000 would have the first $50,000 of their student loan debt canceled.

For every additional $3 of income over $100,000, the amount of loan forgiveness offered would be cut by $1.

Borrowers from families earning more than $250,000 annually would receive zero debt cancellation.

On the whole, as Robert VerBruggen has pointed out, her proposal would cancel all loans for about 75% of borrowers and provide partial cancellation for 95% of borrowers.

This debt cancellation portion of the plan would cost taxpayers $640 billion, as Warren pointed out herself.

And that’s just the retroactive part of the proposal.

The plan would also provide “universal free college,” allowing students to attend a two- or four-year college “without paying a dime in tuition or fees,” as she says. The total tab? $1.25 trillion over just the next decade.

Warren suggests her “free” college and debt cancellation plan would be financed (again) by an “ultra-millionaire tax,” singling out the 75,000 families in America she estimates to have more than $50 million in assets.

This is a group she has already identified to finance her “free” childcare plan. Things are getting expensive in a hurry.

Her latest proposal is problematic for a host of reasons, not least of which is the exorbitant cost to taxpayers. But it would also fail to achieve the goal of greater equality in access to education. A similar proposal for “free” college was already tried in England, and it ended up benefiting the wealthy rather than the needy.

But beyond these failures, Warren’s proposal would likely expedite the rise in college tuition. It comes down to simple math: When colleges know the federal government is financing “free” tuition in perpetuity, they’ll have all the more reason to raise tuition and fees, which taxpayers will then absorb.

In fact, a growing body of literature has already shown that federal subsidies have this tendency to push tuition prices higher.

In one study, researchers Grey Gordon and Aaron Hedlund found that raising subsidized loan limits led to a 102% increase in tuition from 1987 to 2010. Absent that additional federal money, the authors estimate tuition would have only gone up by 16% on net.

Another study by David O. Lucca, Taylor Nadauld, and Karen Shen of the Federal Reserve Bank of New York found additional evidence of the Bennett Hypothesis at play. The authors found that credit expansion (increasing subsidized federal student loans) leads to a tuition increase of 60 cents for every additional dollar of subsidized federal loans. Their conclusion bluntly states:

"… a credit expansion will raise tuition paid by all students and not only by those at the federal loan caps because of pecuniary demand externalities. Such pricing externalities are often conjectured in the context of the effects of expanded subprime borrowing on housing prices leading up to the financial crisis, and our study can be seen as complementary evidence in the student loan market."

As Carlo Salerno of CampusLogic points out, students choose to take on college loan debt, and are not assigned that debt. So loan forgiveness “unfairly rewards the person who borrows to get a Ferrari over the one who got a Kia.”

That inequity is underscored by the numbers. As Salerno calculated, a wealthy student who borrowed $100,000 a few years ago and has been delinquent on repayment would get more forgiveness than the low-income student who responsibly worked to pay down $40,000 in debt over the past 20 years and only has $10,000 remaining, which would be forgiven.

Some would clearly benefit from this scheme, but it would penalize students who choose to work while in college to minimize their debt, those who pursue an apprenticeship over an expensive degree, and those who take out debt, but live modestly post-graduation in order to fully pay back what they owe.

Moreover, as the Urban Institute found (in an analysis unrelated to the Warren plan), “the top 25% of American households by income hold nearly half of all student debt—and the bottom 25% holds just a tenth of it. Canceling all student loans would deliver $5 to rich Americans for every $1 given to poorer families.”

Proposals to make college “free” or to forgive vast amounts of student loan debt reward one entity more than any other: the universities.

Subsidizing the already-dysfunctional student loan system is not the solution. If we want to get serious about addressing the student loan issue, we must pursue structural changes to accreditation, along with innovation in financing through options like income share agreements. Making sure colleges have some “skin in the game” also holds promise.

But above all, Washington should get out of the student loan business. The federal government currently originates and services 90% of all student aid, leaving taxpayers greatly exposed when defaults occur or when loan forgiveness becomes more generous.

Getting the feds out of the student loan business would go a long way toward finally addressing the root causes of soaring tuition.

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