Ouyang: High education costs need better solution

ChrisOuyang

There’s periodic hoopla running up until Election Day about investing in education. In a direct pitch to college students, both Obama and Romney focus on their track records of making college affordable. Obama points to the expansion of Pell Grants under his administration and how interest rates on federal loans were kept low. Romney harks back to his Massachusetts days and how some high school graduates had full tuition scholarships. If you don’t think both are targeting college students, go watch Samuel L. Jackson’s “Wake Up” ad for Barack Obama.

This is all driven by a belief in the principle that everyone is better off if everyone has higher education. That’s an incentive from both the student and U.S. government’s standpoint. Students invest dollars now to try and increase their future earning potential; the U.S. government invests dollars for a more educated workforce, for innovation, and other economic benefits.

The U.S. government’s current approach – grants and loans of varying interest rates – doesn’t achieve these goals. Grants only target the poorest of the poor and leave the middle class to fend for themselves. Even then, a maximum $5,550 Pell Grant is only a small coupon compared to the $20,000 cost of attendance at KU, a school that falls into the affordable, in-state category. To cover the difference, the U.S. government employs loans. The structure of these loans inefficiently targets the U.S. government’s goal and still doesn’t make much sense. I’m going to try and use an analogy to explain why.

Say we’re all toy company CEOs and we decide to invest borrowed money, loans, in new toy factories. The goal is to make and sell more toys. That analogy lasted two sentences because we aren’t CEOs. A CEO probably runs a company that has an extensive credit history, can issue bonds to raise funds that are rated by their risk, can sell assets to generate free cash, and much more. Most importantly, the CEO can do all this because he or she has the necessary business acumen. In stark contrast, many of us are students with little to no work history, an abysmal credit score, and are dependents that cosign everything with our parents. Oh, we also lack the business acumen that makes CEOs, well, CEOs.

This is why today’s federal loans don’t make sense. Despite any sign of proven ability to pay back any kind of loan, the government provides 18 year old students with, quite literally, free money for four years. There is no academic criterion for federal loans besides a 2.0 GPA. There is no credit check. You don’t need a cosigner on any loan. The student lives on borrowed time paid for with money that wasn’t earned through skill or merit, but rather loaned based on a simple need formula and a 2.0 GPA. The U.S. government indiscriminately hands out money and expects that minimal effort to be the catalyst for a more educated workforce.

Obama and Romney should take a hard look at the structure of federal loans. Why don’t federal loan interest rates have an academic criterion, or a sliding scale based on academic performance? Does the hoodlum taking remedial, quite literally, middle school courses who spends every night getting plastered really deserve the same loan as the middle class girl studying education who works two jobs to make ends meet? Why don’t federal loans have some kind of preference towards science, technology, engineering, and math degrees? Why can’t the current program reward students who immediately find jobs with some kind of back-end credit? Shouldn’t the U.S. government replace grants completely with loans and instead use grant money to forgive the loans of those who made college worthwhile?

The U.S. government has to reform its approach to the affordability of higher education. Giving all students full tuition scholarships to state institutions is unsustainable, Romney. Loaning more money to students without making sure they’re doing well in school and finding jobs is nonsensical, Obama.

Both need to step up and decide this current pipeline of easy credit isn’t the answer.

Ouyang is a junior majoring in petroleum engineering and economics from Overland Park. Follow him on Twitter @ChrisOuyang.

Chris Ouyang is a Petroleum Engineering and Economics double major from Overland Park. Read more from .

  • Updated Oct. 31, 2012 at 7:15 am
  • Eagle_Eyed

    The problem stems from the reflexive way politicians and the public at large tend to think about education. Because it’s quite clear there is a deep correlation between education level and professional success, we’ve come to believe that if only everyone had a college degree society would function better. In fact Obama has said his goal is for everyone to have a college degree, a bizarre statement to make considering many youngsters don’t have the cognitive ability to pass 11th grade. But correlation does not mean causation; the best explanation for the education/success correlation is innate intelligence–a forbidden concept to any egalitarian-minded bureaucrat or politician.

    The reason mediocre and low IQ students take out loans for college is two-fold. The first isn’t entirely the government’s fault. With social pressure pushing anyone who barely qualifies toward college, it has become accepted that higher education is a requirement for personal and professional success. Guidance counselors, inept educators, and politicians repeat noxious mantras regarding the utmost “importance” of education under the guise of expertise–providing poor advice to many youngsters who’d do better learning a trade instead of attempting to learn college-level algebra or write an essay on the nuances of utilitarianism.

    The second reason, however, comes from the financial ease of obtaining student loans. Under a market system, one where the government isn’t involved in higher education, educational requirements such as GPA and SAT score would be considered by the lender. Actuaries would assign probabilities to the mediocre student’s likelihood of paying back the loan and base the loan rates off of good financial theory. Only students who were serious about higher education would take loans. Furthermore, this would actually combat raising tuition rates. With fewer students going to college, schools would have more incentive to reduce tuition, cut waste, and focus on necessary degrees to attract only the serious students who come to college for the educational benefits.

    Great article, a refreshing read considering the source.