Is Education the Next Bubble? Part Two: Innovative Solutions

By Erin Lale

This is part two of a series in which I asked a diverse group of people, “Is education the next bubble?” In part one, students, teachers, financial experts, and other experts outlined the nature of the problem. In this article, Americans of differing perspectives offer innovative solutions.

Kim Wetter of SR Education Group said, “I think your query is really interesting and completely relevant to what I’m trying to figure out. Our main site is Guide to Online Schools and we work a lot within the online schooling industry. Part of the reason these online schools (and companies like mine) exist is because traditional colleges and universities just don’t have the capacity to accommodate the amount of people wanting to improve their education for their career prospects. University of Phoenix itself has over 350k students enrolled, and that’s just one of the many online colleges out there. In 2010, there were 2.4 million students enrolled in online for-profit schools. But what value do these online degrees actually bring to the workforce? Are people actually making more money and getting better jobs?

“We just started a survey of our industry at surveymonkey to try to answer these questions. The National Center for Education Statistics says that 20% of students at for-profit colleges graduate in four years, whereas 52% graduate in four years at non-profit private schools. The difference is stark and concerning. With so many people attending online colleges and seeking out higher education, it’s hard to tell if your degree will really be worth it, even if you graduate on time. In an economic recession, could we just be leading ourselves into more and more debt?

“SR Education Group hopes this isn’t the case. We hope there is still value in these degrees and we think everyone should have access to higher education. Our country should be greater because of the amount of people seeking degrees.”

Pablo Solomon is a green designer who was a teacher and consultant to the U.S. Department of Education, and was on the board of a charter school. He said,

“1. The colleges are over priced and are more concerned about increasing size, status and wealth than about educating students. The faculties and staff are focused on increasing their own wages, benefits and retirements more than on the students. The public should be outraged at the poor performance and over pricing of our college system.

“The colleges now let virtually anyone who can breathe in the door and encourage enrollment of students who they know are not college material–especially minorities and foreign students.

“Society has fallen for this idiotic myth that all young people are college material. Frankly half or more of our young people are not even high school material. We need to go to a system more like those in Europe where you direct students toward educations more suited to their abilities at a younger age–trade schools, semi-professional training, internships with business, etc.

“The college loan system has become a joke. Too many young people get loans knowing that they will never complete college and have no intention of ever paying back their loans. And the current administration seems to be on the verge of dismissing these bad loans in another vote buying bid. “So what do we do?

1. Get realistic about who we admit to college.

2. Demand more value and more accountability from our colleges. End their uncontrolled spending to line the pockets of staff and faculty.

3. Make student put down at least 10% toward loans up front. Make the student put some skin in the game.

4. If the person with the loan is not paying they should be taken to court. And if not able to pay, they should be required to work on public projects at least one day a week at minimum wage equivalency.

5. Get off of this socialist course that we are on and return to individual responsibility.

6. Get the government out of the student loan business. It is just a vote buying scam and part of a socialist plan to control all aspects of our lives.

Kelli Space created twohundredthou.com to “crowd source” her $200,000 in student loan debt. She said, “I actually received almost $13,000 in small donations. But I was also part of a much bigger conversation about the enormity of student loan debt these days.

I do believe education is the next ‘bubble’, and this stems from federally-backed loans, including private loans, which are primarily the types of loans I take issue with. Private lenders are quick to lend, despite students not having to provide any collateral etc., yet these loans can’t be discharged in bankruptcy like every other loan. These loans are also federally-backed, meaning if a student/alum defaults on a loan by missing several payments, the student’s credit will surely suffer,  but the lender will still get paid by the government despite having lent a large sum of money to someone with no job or proof of future income.

Tuition also continues to soar as, when students are unable to pay for whatever sum might be leftover after grants, scholarships, and federal loans, they can borrow private loans so easily. Schools realize that thus far however much tuition, room and board, and fees might cost, there are always students willing to pay it.”

Andrew Wilkinson said, “Student debt will be the next big bubble to burst at the rate we are currently going. Easy to get student loans, just like in the real estate bubble, are certainly driving up school prices. I actually started a company to help students with college debt via crowd sourcing micro-donations. It’s called StudentDonate.com and we’ve helped students across the US and internationally help pay off their student loans.”

McConnell Wade of careerhack.net has a solution for unemployed graduates. He said, “If you booked an 800 dollar plane ticket to Korea, China, or Bangkok, you would find yourself in a very different situation. …Suddenly your bachelor’s degree and status as a native English speaker would put you in high demand.”

Project Be the Change is a book by John John Engel, President of Consumer Education at SmartCredit. He said, “Proper education is a life long asset that raises the capability of not just the individual involved but the work force. I personally compete globally for work with people all over the world and I have a team that works with me in Germany and New York to deliver for our clients in the US, India, and Japan. Despite being a small business I am able to sell my work globally because of the skills I developed in university and the network I developed there as well.

“Before investing in further education students should speak to professionals in the field they are considering to get a sense of career prospects. They should seek to develop mentor relationships and build their network within the industry as they go through their education.. That will significantly improve their chance of finding a job and making their education pay off in the long run.

“I am concerned about the growth of many educational institutions that simply give a degree without regard to the quality of work or instruction. Investment in education that delivers transferable skills is worth while but investment in simply a degree will not have long term returns. Nor will investment in a degree without a real sense or desire to enter a particular field of study.

“In 2010 Online education in the US grew by more than 1 million students. Some initiatives like MIT’s Open Course ware and Edx improve the access to education but I worry that for profit schools may not be delivering the same results for their student bodies.

“It certainly is the case that student loans increase access and therefore increased demand for education. In a downturn it is not necessarily a bad idea to retool and retrain and this is certainly a better approach than simply feeling sorry for one’s self. However, before making an investment in education it is important to evaluate the schools graduates, career services department, etc. Students should ask questions like average starting salary, average placement 3 months after graduation, and talk to alumni and current students about their experience.”

Ramin Sedehi is former vice dean for finance and administration at the University of Pennsylvania’s School of Arts and Sciences and is head of Berkeley Research Group’s Higher Education advisory practice. He said, “The solution to the high student debt problem is partly one of students taking personal responsibility for understanding the full extent of the obligation and setting their expectations correctly for the immediate employability of their chosen field of study. Equally important, universities ought to take responsibility to improve operational performance so as to reduce the need for above inflationary tuition increases, step up their efforts to raise funds for financial aid above all other priorities and offer real and robust academic advising and career placement services. Last but not least, federal and state Service opportunities for graduates as a means of reducing their student loan debt, ought to be more effectively marketed.

“Students have been taking out loans to attend college for a very long time. However, the amount and number of loans has in the past decade increased considerably due to a combination of rising tuition at many private and public universities across the country and a higher percentage of the population attending college. The “student loan problem” is created by lack of employment in the last several years due to the very sluggish economic recovery and the resulting inability to payback the loans. And as any college graduate knows, for the very few jobs that are available there are a high number of competing applicants with basic and often advanced degrees. Studies do continue to show that as bad as this may seem, unemployment among high school graduates is still considerably higher than those with four year degrees.

“It is important to note that the loan numbers often cited include both students attending non-profit colleges and universities as well as those enrolled in the for-profit institutions. The two populations should be separated in any constructive conversation about solutions to the problem. As the senate report released a few weeks ago clearly indicated, the student loan issue at the for-profit universities is mostly the result of underprepared students, overzealous sales and marketing to vulnerable populations and very low levels of course and degree completion. Loans to the students are revenues to the for-profit entity and they are in the revenue producing business! There are steps outlined in the senate report which ought to provide some level of reduction in the amount and number of loans and reduce the default rates.

“As to solutions, I would suggest there are two sets of general steps that ought to be part of an overall approach. The students and their parent should fully understand the loan obligation and take proactive steps to plan for the eventual repayment. An ounce of prevention is worth a pound of cure. Related to this, students must understand the merits and challenges of various courses of study. Disappointment is directly correlated with expectations. As some fields (e.g. business, engineering) lend themselves more clearly and directly to a profession and potential employment upon graduation, others (e.g. humanities, social sciences) are intended for the general education of the mind in pursuit of a number of possible professional and intellectual endeavors and not necessarily the first job.

“Another set of steps are institutional in nature. Universities can play an important role in reducing the problem by providing robust career planning and life advising services and early enough in the student’s education to prepare them for potential employment upon graduation. Universities should be very cautious in directly linking their degrees to specific employment achievements by their graduates. It does the students a disservice and academically speaking, very hard to control for inputs, the condition of the economy, geography and personality. Fundraising for financial aid ought to be the first and highest priority in any campaign. In addition, the more universities can clearly understand and improve operational performance, the less their need is for above inflationary tuition increases. Last but not least, there are numerous federal and state service programs that defer or significantly reduce the loan burden for graduates. There should be a more effective and comprehensive marketing campaign to communicate these opportunities.

“Despite all the challenges of the economy, attending college is still a worthwhile investment, one that expands the mind, teaches new skills and carries the greatest potential for the creation of wealth. But, as is the case with any other investment, there are costs, expectations and risks. Similar to the housing bubble, it can be argued that both the borrowers as well as the lenders bear responsibility for the eventual crisis and steps have to be taken on both sides to solve the crisis.”

Frank Britt is CEO of Penn Foster, an online education company. He said, “An accredited education should not only be for those students with privilege or only available to those willing to take on debt. It is critical that educational institutions, employers and the government understand the frustrations Americans have with the job market and how this affects the way they reason the cost of education. We have to be thoughtful in the way we are approaching postsecondary education, in terms of value, pricing, attainability and outcome.

“Students shouldn’t have to sacrifice education because of a fear of debt. There are different models of accredited schools available today that cater to the needs of the non-traditional students and their desire for higher education.

“Accredited online schools are a great option for someone looking to advance their career, they are often flexible, self-paced learning environments that are affordable and offer many certificate programs that align with open jobs in the workforce. Today, online schools provide vast resources to students – hands-on training needed to develop new skill-sets for jobs like small engine mechanics, veterinary technicians and media transcriptionists.

“As an example, Penn Foster’s model does not require students to take on additional debt. Students can enroll for as little as $1 down and classes are financed at 0%, giving them the opportunity to get the education they deserve and graduate debt-free In addition, our cost per credit is 5x less than other online schools.

“Cost models in education needs to fundamentally change with contracting education budgets and consumer focus on ROI; government funding will follow the student (not the institution).

“Penn Foster point of view: Competency and skills mastery (vs. time) will become the dominant paradigm for middle skilled education; overtime, a substantial proportion of funding will be linked to ‘actual student learning’ rather than just seat time.”

Alan Hall published a study in The Socionomist that says that there is a bubble. Since 1997 student loan debt has ballooned over 800% from $92 billion to $833 billion. The conclusions of the study are that there are too many PhD graduates for the available jobs; a bear market like today’s causes the public to perceive education as useless; there will be structural changes in education industry in which established institutions will lose control of the industry, much like what happened to the music and publishing industries; the creative destruction of the education industry has already begun; academic performance is declining while tuition and debt are rising; cheating is endemic; and there is such widespread desperation to pay for education that there is a trend among young college women to seek sugar daddies on dating websites to pay for their education in exchange for sex.

I asked Hall what’s going to happen when the bubble bursts. Speaking for the research team, Hall said, “We believe a bailout is likely.”

6 Responses to Is Education the Next Bubble? Part Two: Innovative Solutions

  1. William Roberts August 28, 2012 at 9:10 pm

    This Will Not Last!

    Between 2008 and 2010 the average tuition at a four-year public university has climbed 15%. At this rate, if the trend continues, the cost of college will double in the next 10 years.

    http://iknowyoullremember.com/more-evidence-to-support-an-upcoming-education-crisis/

    Reply
  2. studentloanjustice August 27, 2012 at 3:35 am

    The Solution:

    First, full bankruptcy protections must be restored to all student loans, at a minimum. This will guarantee that the Department of Education, institutionally, will no longer be wrongly motivated to serve the interests of the lenders/schools, and will instead have its fiscal interests in alignment with the students. It is also important, here, to hold as many individuals at the Department as possible to account for the many instances of public interest failures that have occurred there (and are occurring as we speak). Unless this sort of housecleaning occurs, the corporate culture that has overtaken the Department will dog any and all efforts at meaningful reform of the bureaucracy, and is best dealt with first and foremost.

    Once the reorientation of the Department of Education has been achieved, and Congress has the full story about the schools, their default rates, etc., Congress and ED should dramatically revise the lending limits to more accurately reflect the value of the education being received. This is a power that the Department of Education should have used long ago, but chose not to. They should also kick out the worst of the bad schools (I suspect that at least 25% of the for-profits would be shuddered, and probable more than a few of the non-profits as well. There are surely other actions the Department will decide to take to ensure the schools are delivering a high quality education at a low cost, but these are the two most obvious.

    Reply
  3. Coletha Browning August 26, 2012 at 5:45 pm

    The taking on of personal responsibility for one’s own dept is so important, but for many young people who lack sound judgement it can be a difficult task. Speaking as a older person I too had a difficult time with that…There came that time in my adult life when I wanted a Bachelor’s degree, after becoming a full-time single mother, who worked 40+ hours a week, and couldn’t get a promotion without an advance degree. I have to admit it was harder for me to count the cost because I was so desperate to change my circumstances. I have done well since earning a few advance degrees, and am able bodies enough (well at least today) to pay back my loans; and I do have a lot of student loan dept..more than I care to share. I worry, because the question comes up….Could you have reached me reasonably at my lowest point in life when I couldn’t take one more day of working as a secretary, one that would always struggle due to never making enough money? I wanted that degree to better my circumstances because I believed at that time (I know better now) that getting a degree was the only way to do it. Would I have taken the time to count the cost?….interestingly enough I don’t think so because I didn’t want anyone telling me I couldn’t do it. I imagine that is a hard question for a lot of people to answer…honestly anyway

    Reply
  4. studentloanjustice August 26, 2012 at 2:39 pm

    The root cause of this is the unprecedented removal of all meaningful consumer protections, and the establishment of draconian collection powers, which caused the lenders, guarantors, collectors, and even the Department of Education to make more income when students default on their loans. The wrongly directed financial motivations caused, over time, the system to be inclined towards acting in ways that would promote, rather than discourage defaults. In this environment, damaging consequences resulted including an incredibly high default rate, heinously bad or nonexistent oversight, uncontrolled inflation, indefensible corrupt activities (systemwide) and other systemic failures too numerous to list. These results are in addition to the personal damage and destruction that has been visited upon citizens who were trapped in this predatory system, and their families.

    Reply
  5. Erin Lale August 25, 2012 at 6:04 pm

    Naresh Vissa asked me to include a link to his USA Today article http://www.usatodayeducate.com/staging/index.php/ccp/majoring-in-debt-minoring-in-college and his show. He is the Senior Producer of the Stansberry Radio Network – link to http://www.stansberryradio.com – one of the most popular independent financial radio stations on the Internet.

    Reply
  6. Erin Lale August 25, 2012 at 5:31 pm

    John Paul Engel is the author of Project Be the Change and John Ulzheimer is from SmartCredit. I apologize for the mashup.

    Reply

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