Federal lawmakers are at it again, agitating for the federal government to forgive literally trillions of dollars of student loan debt. The recent letter from congressional Democrats calls for the continuation of the student loan payment pause.
There are many reasons why this is a bad idea, but the conversation does raise another set of questions entirely—how did students get in this situation? Part of it is fueled by a federal student credit model that allows students and families to borrow more money than they can afford to pay back.
But another part of the problem, rarely discussed in today’s public policy circles, is a lack of transparency and information about what students and families can expect from their higher education “investments.”
Let’s be clear, there is plenty of information on the front end about how much their prospective and actual colleges will charge them in tuition, fees, room, and board. There are also clear statements on what families can borrow to meet their full “need.”
What is missing, however, is any sense of perspective on the return on their prospective investment. Institutions are quick to tell that it is “invaluable” and cite numerous studies about the prospective general economic returns to a postsecondary education, but few, if any, will provide specific data about the economic returns to the specific programs at their institutions.
As a result, families are left with a very real cost, but little insight into what the specific product they are buying is actually worth in the real marketplace (pause here for our colleagues in the academy to wax philosophical about how “you can’t really put a price on it”).
And yet that is exactly what families must do—they must commit real savings, earn real paychecks, and borrow real dollars to fund their higher education investment.
Why is it that the very people and institutions who have perfect information about what they charge you, can track your high school classes, count the minutes you sit in class until you earn your degree, map out complex majors, measure educational objectives, but they can’t tell you what kind of jobs their alumni get and how much they earn?
The crisis about higher education debt about which our lawmakers are suddenly so deeply concerned (reminder, 2022 is an election year), is not new. Still, the problem has now persisted for decades—until recently there was an almost total absence of information about the specific returns students and families should expect from their “investment” in higher ed.
Interestingly, government has taken some narrow actions to begin to address this concern, although it didn’t get it quite right in the first couple of iterations. From 2010-2014, during the Obama Administration, the Department of Education introduced rules intended to reel in vocational programs that left their students with excessive student loan debt, defined as student loan repayment burdens that exceeded recent graduates’ ability to pay based on their income after graduating. These programs enrolled students, collect their monies, but then failed to provide students with an education that would enable them to afford to repay their loans. These “gainful employment” provisions allowed students and their families to see whether college programs they were considering were worth it financially.
While the intent at the time was to reel in these vocational programs by exposing those that were the most abusive of the federal credit system, it does beg a very basic question—why shouldn’t all postsecondary programs be evaluated by these same rules?
To explore the answer to this question, we at the Texas Public Policy Foundation reran the gainful employment tests on all college programs using the most recent data. The results of that analysis were a bit surprising.
When gainful employment was originally applied to vocational programs only, 703 programs failed the debt-to-earnings tests. Yet when gainful employment is applied to all of higher education, over 3,000 programs fail. In other words, focusing only on vocational programs will miss the majority of college programs that leave their students with excessive student loan debt.
Where failing programs are concentrated also changes significantly when all programs are held to the same standard. When gainful employment is only applied to vocational programs, 98% of failing programs were at for-profit colleges. However, this should not be surprising since “vocational program” was defined to include all for-profit programs and very few public or private nonprofit programs. When gainful employment is applied to all programs, for-profits account for 11% of failing programs, not 98%.
Be sure they will know this latter answer in the years to come when they come with their hands out for alumni donations.
Part of the answer is that it is not in their interest to do so—as our data clearly show. Public four-year institutions were among the worst performers, but only slightly better than their private counterparts.
Higher education ought to do better—and it should happen today before another cohort of our best and brightest minds are buried in a mountain of debt to blindly pursue a random college degree.