How college loans exploit students for profit

Today 14 million Americans are indebted
for their passage to the new economy.

Too poor to pay their way through college,

they now owe lenders more
than one trillion US dollars.

They do find what jobs they can get

to pay off a debt that is secured
on their person.

In America,

even a bankrupt gambler
gets a second chance.

But it is nearly impossible

for an American to get discharged
[their] student loan debts.

Once upon a time,

in America,

going to college did not mean
graduating with debt.

My friend Paul's father graduated
from Colorado State University

on the GI Bill.

For his generation,

higher education was free or almost free

because it was thought of
as a public good.

Not anymore.

When Paul also graduated
from Colorado State University,

he paid for his English degree
by working part-time.

30 years ago,

higher education tuition was affordable,

reasonable,

and what debts you accumulated
you paid off by graduation date.

Not anymore.

Paul's daughter followed in his footsteps,

but with one difference:

when she graduated five years ago,

it was with a whopping debt.

Students like Kate have to take on a loan

because cost of higher education
has become unaffordable for most --

for many if not most American families.

But so what?

Getting into debt to buy an expensive
education is not all bad

if you could pay it off

with the increased income
that you earned from it.

But that's where the rubber
meets the road.

Even a college grad earned
10 percent more in 2001

than she did in 2013.

So ...

tuition costs up,

public funding down,

family incomes diminished,

personal incomes weak.

Is it any wonder that more than
a quarter of those who must

cannot make their student loan payments?

The worst of times
can be the best of times,

because certain truths flash up
in ways that you can't ignore.

I want to speak of three of them today.

1.2 trillion dollars of debts for diplomas

make it abundantly obvious

that higher education is a consumer
product you can buy.

All of us talk about education
just as the economists do now,

as an investment that you make
to improve the human stock

by training them for work.

As an investment you make
to sort and classify people

so that employers can
hire them more easily.

The U.S. News & World Report
ranks colleges

just as the consumer report
rates washing machines.

The language is full --

peppered --

with barbarisms.

Teachers are called service providers,

students are called consumers.

Sociology and Shakespeare
and soccer and science,

all of these are content.

Student debt is profitable.

Only not on you.

Your debt fattens the profit
of the student loan industry.

The two 800-pound gorillas of which --

Sallie May and Navient --

posted last year a combined
profit of 1.2 billion dollars.

And just like home mortgages,

student loans can be bundled
and packaged and sliced and diced,

and sold on Wall Street.

And colleges and universities

that invest in these
securitized loans ...

profit twice.

Once from your tuition

and then again from the interest on debt.

With all that money to be made,

are we surprised that some
in the higher education business

have begun to engage in false advertising,

in bait and switch ...

in exploiting the very ignorance
that they pretend to educate?

Third:

diplomas are a brand.

Many years ago my teacher wrote,

"When students are treated as consumers,

they're made prisoners
of addiction and envy."

Just as consumers can be sold and resold
upgraded versions of an iPhone,

so also people can be sold
more and more education.

College is the new high school,

we already say that.

But why stop there?

People can be upsold on certifications
and recertifications,

masters degrees,

doctoral degrees.

Higher education is also marketed
as a status object.

Buy a degree,

much like you do a Lexus
of a Louis Vuitton bag,

to distinguish yourself from others.

So you can be the object
of envy of others.

Diplomas are a brand.

But these truths are often times
hidden by a very noisy sales pitch.

There is not a day that goes by

without some policy guy
sitting on the television

telling us,

"A college degree is absolutely essential

to get on that up escalator
to a middle-class life."

And the usual evidence offered
is the college premium:

a college grad who makes on average
56 percent more than a high school grad.

Let's look at that number more carefully,

because on the face of it,

it seems to belie the stories we all hear

about college grads working
as baristas and cashiers.

Of 100 people who enroll in any form
of post-secondary education,

45 do not complete it in a timely fashion

for a number of reasons,
including financial.

Of the 55 that do graduate,

two will remain unemployed

and another 18 are underemployed.

So,

college grads earn more
than high school grads,

but does it pay for the exorbitant tuition

and the lost wages while at college?

Now even economists admit

going to college pays off
for only those who complete it.

But that's only because high school wages
have been cut to the bone

for decades now.

For decades,

workers with a high school degree

have been denied a fair share
of what they have produced.

And had they received as the should have,

then going to college would have been
a bad investment for many.

College premium?

Eh,

I think it's a high school discount.

Two out of three people who enroll
are not going to find an adequate job.

And the future for them doesn't look
particularly promising,

in fact downright bleak.

And it is they who are going to suffer

the most punishing forms of student debt.

And it is they,

curiously and sadly,

who are marketed most loudly
about this college premium thing.

That's not just cynical marketing,

that's cruel.

So what do we do?

What if students and parents treated
higher education as a consumer product?

Everybody else seems to.

Then,

like any other consumer product,

you would demand to know
what you're paying for.

When we buy medicines,

we get a list of side effects.

When you buy a higher educational product,

you should have a warning label

that allows consumers to choose --

make informed choices.

When you buy a car,

it tells you how many
miles per gallon to expect.

Who knows what to expect

from a degree say, in Canadian Studies.

There is such a thing by the way.

What if there was an app for that?

One that linked up the cost of a major
to the expected income.

Let's call it Income Based Tuition or IBT.

One of you make this.

(Laughter)

Discover your reality.

There are three advantages,

three benefits to Income Based Tuition.

Any user can figure out

how much money he or she will make
from a given college and major.

Such informed users

are unlikely to fall victim
to the [Huckster's] ploy,

to the sales pitch.

But also to choose wisely.

Why would anybody pay more for college

than let's say, 15 percent
of the additional income they earn?

There's a second benefit
to Income Based Tuition.

By tying the cost to the income.

College administrators would be forced
to manage costs better,

to find innovative ways to do so.

For instance,

all of you students here pay roughly
the same tuition for every major.

That is manifestly unfair
and should change.

An engineering student uses more resources

and facilities and labs and faculty

than a philosophy student.

But the philosophy student,

as a consequence,

is subsidizing the engineering student.

Who then,

by the way,

goes on and earns more money.

Why should two people
buy the same product --

buy the same product --

pay the same,

but one person receive half
or a third of the service.

In fact,

college grads,

some majors,

pay 25 percent of their income
servicing their student debt

while others pay five percent.

That kind if inequity would end
when majors are priced more correctly.

Now of course,

all this data --

and one of you is going to do this right?

All this data has to be well designed,

maybe audited by public accounting firms

to avoid statistical lies.

We know about statistics, right?

But be that as it may,

the third and biggest benefit
of Income Base Tuition,

is it would free Americans from the fear
and the fact of financial ruin

because they bought a defective product.

Perhaps,

in time,

young and old Americans may rediscover,

as the gentleman said earlier,

their curiosity,

their love of learning.

Begin to study what they love,

love what they study,

follow their passion.

Getting stimulated by their intelligence.

Follow paths of inquiry
that they really want to.

After all,

it was Eric and Kevin,

two years ago,

just exactly these kinds of young men,

who prompted me and worked with me --

and still do --

in the study of indebted
tudents in America.

Thank you for your attention.

(Applause)