Student loans - How did we get here...and where are we headed?

With Congress looking to reform the tax code and provide new tax breaks, student loans are, once again, part of the national conversation. The New York Times features an interesting article about the current debate.

How did we get here? Why has student loan deb become a major topic of debate? Where will we end up? 

First, we begin with these facts

  • The cumulative national student loan debt is now $1.4 trillion (Consumer Financial Protection Bureau)
  • Many (most) students are unable to effectively service their debt, as evidenced by the fact that it takes an average undergraduate 21 years to pay off his/her student loans (US News)
  • Increases in higher education costs have, for decades now, far outpaced the rate of inflation (sometimes by a factor of 2:1) (FinAid)
  • Wages for low to middle-income families have remained stagnant, so students and their families are forced to take on more loans to pay for the increased cost of higher education (Economic Policy Institute)
  • and many other factors

Whether you are liberal or conservative, you can find reasons to blame or factors that support your case for why this has occurred and the solution (if there is one).

From a purely objective, and conservative point of view, this is basic economics. The US higher education system is the envy of the world. In a competitive economic climate, US colleges and universities enjoy unprecedented popularity, which drives up prices and forces more students to pull out higher student loans to participate in the system.

Many conservatives argue that government support has only exacerbated the problem by "allowing" students to take out too much debt at artificial rates, which provides schools with the opportunity to raise prices because students do not feel the true cost of the education when they consume it.

These conservatives argue that market competition will help higher education find equilibrium and market forces will balance the system, eventually, at a sustainable level. (USA Today)

From a liberal point of view, government subsidies and benefits have not kept pace with the high costs of education, and therefore, the burden of the costs of higher education are borne by students who are forced to take out unsustainable student loans to enter the system. "The system is rigged." Hence, Bernie Sanders (and others) call for increased government spending (asking the wealthy to "pay their fair share") and provide free higher education for low to middle-income students. (USA Today)

At the edge of these arguments, there are new players entering the market to disrupt the traditional higher education landscape. The nonprofit marketplace (and to a lesser extent for-profit businesses) are full of examples of affordable educational models that are beginning to tackle the problem. Piece by piece, these players are beginning to challenge the status quo.

MOOCs, online courses and communities creating teaching everything from basket weaving to aerospace engineering, and almost always for free. While MOOCs do not, typically, provide effective models for delivering degrees or credentials (e.g. BA, MBA, or certificates), they have led to innovations in content management and delivery systems. Hence, the enormous rise and popularity of online degree programs and players in that space, public vs. private, non-pofit and for-profit.

Then, there are traditional colleges, including Oak Valley College, that are starting to challenge the cost and infrstructure of what it takes to provide personalized high-quality higher education at an affordable (and debt-free) cost.

While each college and university is unique, when you break down the true academic requirements of providing a high-quality educational experience, it comes down to a few core elements.

  • Caring professors with expertise in the subject-matter, the skill to teach young adults, and the availability to meet a couple times each week in a classroom setting (of course, there is a little more to this, too, but that is about it).
  • Classrooms (A 500-acre campus with $100 million buildings, climbing walls, ornate lawns and gardens are nice, but they do not add a lot to the learning experience)
  • Caring staff and administrators to provide student services and success (career planning and academic advising) 
  • Technology and a learning infrastructure that supports and effects positive student outcomes.

Oak Valley College has all the above and is able to provide a high-quality personal Christian liberal arts education for young adults without asking those students to take any student loans. Next year's students pay $12,640 to earn their Bachelor of Arts in Business ($395 per month). That is less than a single semester at most Christian colleges, and about 1/3 the cost of a Cal State University education (assuming you graduate in four years...most students do not). 

While higher education in the United States is the envy of the world, it is a system that is heavily bureaucratic and bloated. There are inefficiencies and the cost of the infrastructure is artificially high.

Higher education in the US is a 20th century trying to meet the needs of 21st-century students and families. 

Supply, demand, and government support have helped keep the system afloat for decades. As students are increasingly bearing the burden of these costs (largely through borrowed money - student loans), more students are asking if there is another way.

Oak Valley College and other players are beginning to chip away at this system.

Where this will end up is anyone's guess, but for many students, it is an unsustainable path. Call it the next bubble, but eventually, this will end. The system will change. Students will stop taking out student loans and find other avenues to support their educational goals, schools will begin to fail, or the government will step in and further subsidize the costs, or disrupters will chip away and come up with new approaches to do more with less.