On July 1, subsidized Stafford student loan interest rates doubled after Congress failed to act on a measure to keep rates low. The rates jumped from 3.4 percent to 6.8 percent, with PLUS loan rates rising to 7.9 percent. The hike would have affected more than 7 million students, costing them $2,600 extra, on average. But on July 24, the Senate passed a compromise bill that will keep student loan interest rates low – close to 3.9 percent – until 2015, and then tie interest rates to the market, with caps. The bill passed House on July 30, and President Obama has said he will sign the bill into law. It’s nice to see the rare bipartisan cooperation that led to the compromise, but the focus on loan rates is distracting us from the real problems with higher education.
Our students are paying far too much for four-year degrees that do not yield jobs after graduation. During the 2012-2013 school year, average in-state tuition at four-year public universities was $8,655, plus $9,205 for room and board; out-of-state tuition and fees were $21,706. At private four-year universities, annual tuition and fees were $29,056. Six in ten undergraduates take out student loans, whether they need to or not, and they are graduating under mountains of debt. The Consumer Financial Protection Bureau has found that total student debt in the United States is $1.2 trillion – the second largest type of consumer debt after home mortgages.
Meanwhile, 7.9 percent of recent college graduates remain unemployed, and more than 40 percent are underemployed or working in jobs outside their major. More, the average wages of college graduates are dropping, even while their loan payments increase. Too many are simply unable to pay off high student loans, and defaults are on the rise. All of this begs the question, are students getting what they pay for?
Historically, a college education was a good investment – college graduates used to make $1.2 million more over the course of their careers than non-college graduates. But this may no longer hold true, so students need to choose their education wisely. Not all college degrees are equal, and too many majors don’t result in good jobs later.
When considering cost, students shouldn’t overlook the option of community college. U.S. employers are desperate to hire qualified workers with degrees in science, technology, engineering and mathematics (STEM) fields. As I have written before, community colleges are a great, affordable venue for students to get quality degrees in fields that employers really need. A two-year community college degree costs about $6,262, and graduates who get an associate’s degree in a STEM field often out-earn graduates of four-year colleges.
Are liberal arts degrees really worth $116,000? Dr. William J. Bennett, former U.S. secretary of education, talks about this in his new book, Is College Worth It? He argues that students can engage with the liberal arts in much cheaper ways, like the Great Courses audio-video lecture series, or through courses offered by organizations like the Brooklyn Institute for Social Research. It’s the same information delivered by experts, without the huge price tag.
Colleges need to rapidly change or they will no longer be competitive. They need to stop coddling professors and start requiring that they teach more than a few hours a week. They need to transform the tenure system and anti-age discrimination laws so bad teachers can be replaced. And they need to be honest about their graduate job placement rate by academic degree, so potential students can make wiser choices.
The government should change its practices as well. Promiscuously giving loans without regard to major, accounting for the loans as if 100 percent are repaid in full, and not requiring students to work while in school or get decent grades is simply irresponsible.
Students must be realistic about their education choices and knowledgeable about the debt they are incurring. It is a travesty that so many students are graduating from college and finding themselves unable to attain the American Dream. Our kids deserve better. Instead of trying to figure out the best way to keep student loan rates low, let’s get to work on really fixing the problem. It’s time to reform our education system and to encourage students to pursue degrees that will pay off later, rather than drowning in debt after getting degrees that just aren’t worth it.
Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream.