[JumpCrisscross]

Allowing lenders (or providing greater incentive for them) to modulate rates on loans based on (a) the institution attended, (b) the major chosen, and (c) individual performance metrics, e.g. GPA, would be a solid step towards resolving education debt insolvency.

This could be achieved by switching government subsidies from loan guarantees to payment-share plans by which the government pays a portion of each payment but ceases to do so in case of default. These loans should be absolvable in bankruptcy - an immature decision made in one's adolescence shouldn't be a lifelong burden. Thus, the credit risk is retained by the lender while financial impact lessened on the student.

Unpopular as measures radically increasing costs on liberal arts majors may be, the present situation is a clear example of artificially locked markets producing inefficient outcomes.

[jmtame]

I was just about to suggest the same thing. The degree seems like a very important piece of information to a creditor making a decision. If I know that 60% of students of a particular degree will default within 4 years, why would I continue to loan that money out? If it's impossible for them to get out of it, that'd be good enough a reason.

It seems that most of my engineering friends have a very existentialist perspective on it: the person is entirely responsible for the actions they take. If they got themselves into debt, then they should figure out how to get themselves out of debt.

That's valid. The student wasn't forced to go study art history, but they were lied to by a lot of people, including their parents and society, which are two difficult groups to ignore. I think it's good that we're airing out some of college's dirty laundry--it needs to be known that if you go study art history, there may be a greater than 50% chance that you will be jobless or working as a waiter or waitress. I had this debate with someone last weekend where I made the same argument, and she got very defensive. It's hard to get specific and criticize certain degrees without being offensive to somebody because people feel they need to defend their choices. I later found out she studied art history, she was a waitress, and she had just quit her job. To her credit, she probably didn't realize her job options were grim when she chose to do that. If this issue is spoken about publicly, it should at the very least make the decision easier for people. Every graduating senior in high school should hear both sides of the story and fully understand they can't arbitrarily pick any degree and expect the same results.

[mgkimsal]

It's a greater likelihood, sure, but... people also need to learn to take control of their lives. Dude - the $80k Art History job ain't coming along - deal with it. Pivot. I have an undergrad degree in Philosophy, but have been working in software development for more than 15 years, earning a good living most of that time too.

This notion that "oh no, i have a liberal arts degree - my life is forever ruined and I'll be serving coffee part time until I die" is a tired meme. "There are no jobs!". Yes there are, in some fields. Hustle to get in to those fields, regardless of what your "major" was. Just do it.

Now... I realize not everyone can do this - life situations dictate that some people have more struggles than others. But I meet single, healthy unattached 20-somethings that complain about the state of things - this is the best time in your life to retool, readjust and get moving. And they generally don't.

[roguecoder]

I have an B.A. in Theater. I've been a software developer for a decade, no problem. My theater degree taught me context-dependent textual analysis (i.e. requirements gathering), social observation (i.e. UX testing) and modeling. It has done far more for my career than a CS degree would have.

The problem is that people have started seeing college as vocational training, because that is how it is portrayed. "If you spend this money, you will get a job." That shouldn't be why you go to college: you should go to college to learn how to think and learn. A career is what you do afterwards.

However, both employers and graduates need to believe that for it to work. If no one is willing to hire people without prior experience eventually employers can't hire anyone unless there is a vocational education program in place. And then we get to where we are today, where people rush to whatever vocational program is at hand until the field is flooded with applicants, just because it seems like almost-maybe-a-sure-thing.

[hexagonal]

Graduated from college in 95... which makes you, at a minimum, 39 years old, right?

[mgkimsal]

in that ballpark, yep.

It took me 6 years to get through, with going part time and dropping out for a while.

[hexagonal]

So maybe you, rich old white man, should avoid contributing irrelevant noise to this discussion?

The problem is statistical. There just aren't enough jobs, an irreconcilable jobs gap. While it's nice that you had the incredible luck to pivot into a completely different field, that just doesn't matter here. You can't base an economy on every worker flipping heads ten times in a row.

[mgkimsal]

Hrm....

so we should only take advice/input from people who haven't done something that would be suggested or advised? That certainly makes sense. Perhaps we need a few more layers of federal and state government programs on top of the ones we have to fix things for everyone without them needing to do anything more than tick a box?

Wow... why don't we see the same vitriol against multimillionaire 'founders' who build a company, flip it, then advise others to do the same, all the while claiming it was 'hard work'? Perhaps because the majority here want to buy in to that myth?

Of course luck was involved in my situation - I've had good luck and bad luck. I've made some pretty stupid mistakes on my own, involving more zeros than I care to count. But it's not down solely to luck - much of your success or failure is down to how you react, and how you learn from your mistakes. A big part of the problem - and I had this 20 years ago as well - is that young people haven't had enough life experience to be able to make good decisions - you don't get those until you're old/older. And very few younger people listen to older people re: advice - I know I certainly didn't, nor did many people I know, and it hurt us all in different ways.

Yes, it's all relative, and I'm not 23 in today's job market. But I have been both variously fired and laid off, deep in debt, and with nothing but a philosophy degree and minor retail and general work experience. It certainly ain't fun.

Even getting a degree - took 6 years, and I worked part- or full-time the whole time - usually multiple jobs (retail, delivery, food service, etc). I don't typically have a lot of sympathy for students who hit school full time, take out loans for the whole thing, and do not do one lick of 'work' (yes, school is work too, I know) while at school.

Unemployement was ~8% during the early 90s recession - we've certainly had higher this time around, so yes, there's some statistical differences, and the numbers are different. But complaining about broad social/political/economic forces isn't going to do much good for individual people. This reminds me of the food industry criticism - "everyone's getting fat! look at all the stuff they put in the food - we need regulations, etc". Yes, regulating food labelling, food ingredients, etc will probably help the aggregate over time, but it won't help me lose weight. I need to stop overeating, eat better foods, exercise sensibly, etc. Will that advise help everyone? No, because most people won't follow it, but it will make a difference to most individuals who put it to use.

EDIT: Should I even have taken this as personally as I did? Probably not, but didn't want to delete it now. :/

[eli_gottlieb]

That would be pretty good advice if there was any field at all with a shortage of new-graduate level employees in the USA.

[mgkimsal]

See, I still disagree with you here. Forget 'graduate-level' anything - you're still thinking in terms of formal education and degrees. Compete on hustle, moxie, other initiative - create your own life/job/work/etc - people will find you. Make a name for yourself doing something.

I know, this all sounds airy-fairy pie-in-the-sky, but it's largely true. Many employers are still going to be impressed more with hustle than with degrees on paper. The ones that aren't - perhaps you don't want to work there anyway.

The world is very much who-you-know vs what-you-know, and getting out there networking with people is going to get you a better chance of work than fighting with 9 other degree-holding applicants filling out forms on monster.com.

[eli_gottlieb]

And I still disagree with you here. It's not about me and my personal employment situation; specifically, because my situation can always be improved via a purely relative advancement that would have no net benefit if everyone did it (see: "Darwin the Market Whiz"). Also, generally, because I personally am doing decently right now: I damn well wanted to go back to academia and get a research degree, and I've lucked out to get into a damn fine research institution. I've had to turn down 1 offer to convert a a good contract gig to full-time and turn away four recruiters pursue that (not to mention previous interviews where I was told I was turned down because they saw that I truly fit in grad-school more than I fit in their team right this month). I'm also continuing my open-source/research project and working on a side-business idea in the meanwhile. But just because I'm ok doesn't mean everyone else is ok, once we dispose of the false assumption that I'm average.

The real problem here is that you have half a generation 18-22 year-olds coming of age, trying to leave their parents' care, and finding that there's basically no demand for their labor.

Millions of people can't all have more hustle, moxie, initiative, mojo, or whatever other nigh-meaningless abstract term we've chosen to convey "the capitalistic equivalent of sex-appeal", than each other. There has to be actual demand for labor to hire these people.

Conversely, even though I'm not average, an overall bad labor market affects me. The tech sector is "recession-proof", but nothing is Great Depression proof. An ultra-capitalist economy geared towards maximizing debts and rents for bankers, lobbyists and lawyers does, in fact, ripple out to the tech sector and affect hiring. For instance, it means that there are very few R&D labs in computing right now (though a friend of mine has been interviewing with R&D teams at Oracle and I'll be happy to have the connection!), lots of VC-funded start-ups, and much of the world's top technical and scientific talent ends up writing financial algorithms. Someone who wants to actually do hard-core technology like me finds himself really curiously starved for places to work, given how well the tech-sector is supposedly doing. Oh, and everyone is wondering when this latest start-up bubble will pop, especially after GroupOn, Facebook, and Zynga IPOs.

[rmk2]

Maybe everyone should become an engineer, so everyone can be happily living in a technocracy were we make everything remotely tangible into money.

Maybe we should tell people to stop doing psychology, art history, history, political sciences, theology, literature etc. I mean, it's on Wikipedia, right? You can just go there and read about it, you know, as a hobby, so, why bother studying it?

Maybe we can all become engineers and convert everything into profit. What do you mean I probably shouldn't track someone's every movement? Why? It's the logical solution, it's possible, it's doable, it gives the greatest monetary return. And it's the best developmental solution! It's perfect!

[marknutter]

That's a false dichotomy. Nobody is suggesting that nobody should choose a liberal arts degree. What's being suggested is that less people should be doing it because there's more supply for those professions than there is demand. There's very high demand for technology degrees and trade skills (welders are in desperate demand, for instance). These truths aren't being communicated to college freshmen as well as they should be, and that's causing a major crisis for a lot of liberal arts college grads who enter a job market that simply doesn't need them.

[rmk2]

Why is it a false dichotomy? Do you honestly believe that people will all of a sudden flog to STEM subjects just because somebody tells them they will forever be unemployed otherwise?

We might just have this arguement because this is, after all, HN, but it still astounds me how hard it seems to grasp for many here that not everyone is actually even remotely interested in programming or "building a product".

I am absolutely convinced that ultimately a society as a whole can only benefit from a workforce (how I hate that word) that is educated beyond the requirements of their day jobs. The more you are interested in outside of your actual occupation, the more these interests will also play into your work and thus influence its outcome.

We have a constant stream of articles here that tell us how people became programmers without studying CS etc. Why however do people always assume everyone else is incapable of learning something else after studying something in the humanities? I know only very few people who expect to work directly with their field of study. In fact, most of the people who do are the ones who will at least try to go on and go into academia. Most other people I have ever met were very aware of the fact that there might be quite a disjunction between their area of study and their future job.

[ali255]

When I think about innovative companies in software and computer engineering, Apple is one of several companies that comes to mind. It's worth noting that Steve Jobs turned innovative artistic design, not just innovative engineering, into economic value. One of Job's criticisms of Microsoft and Google was their lack of appreciation for "the humanities and liberal arts" ( http://www.vanityfair.com/business/2012/08/microsoft-lost-mo...). He saw Social Science as a component to making great products.

I'm a Computer Science Major. If I was recommending a Freshman what to Major in, I would recommend looking into something within Science, Engineering, or Business. They're unlikely to get an upper middle class salary majoring outside of those three fields.

However, just because a field doesn't produce dividends doesn't mean that it does not have educational value. A political science degree doesn't make money, but we can't have functioning governments without an understanding of politics and government.

Instead, we ought to consider the fact that college spending is only 3.3% of U.S. GDP. Re-prioritization of spending, and optimization of spending can carry American education forward. That's not a huge chunk of the American economy's wealth. People are falling into debt because the burden of college spending has been placed on individuals, rather than on federal and state funding. Over the last 30 years Federal and State expenditures to college education have dropped. In result, Colleges increase their tuition rates, and students and their families have a tougher time paying for college.

[hanibash]

There's no reason for Liberal Arts majors to be paying obscene amounts of tuition, and especially shouldn't be going into debt, for a degree that isn't going to get them hired.

It's just a fact of the broken system. Tuition is justified by the job you get after it. But if you can't get a job in it, the high tuition is completely unjustified.

There have got to be better alternatives to getting a liberal education. Got any ideas?

[ali255]

The core problem is that state and federal funding of colleges has consistently been going down over the last 30 years, and continues to go down. When colleges get less money from government spending colleges either have to cut spending (and in result provide less to students) or increase tuition.

The high tuition causes student debt, so the only way to cut student debt is to decrease tuition.

Their are only three ways to get tuition to decrease.

1. Increase Federal and State funding of colleges. As I mentioned in an earlier response, this is doable. College spending is 3.3% of GDP in the USA. Looking at the economy and country as a whole, that's not huge. Re-arrangement of spending, increased federal and state investment, and optimization of spending could reduce student debt a lot.

2. Get rid of much of Universities. Turn Universities into Trade schools and get rid of many University programs. This is not really the approach I want to see, as I think universities have a lot to offer the world in their current complexity.

3. Find Technological solutions and applications that reduce the cost of education without reducing its quality. This is the Entrepreneur's job.

[jmtame]

I don't think engineers are all about making things into money. I think they're more interested in doing things efficiently. Think about a barber shop: would an engineer repeat the same task every day, or would they automate it? I think most would try to automate it. The tradeoff would be efficiency for personality, and I think some people value it enough to keep it, while others wouldn't. That's probably a separate debate: would life be happier if everyone were an engineer?

I'm also not saying everyone should be an engineer on this thread. I'm saying it's an interesting thought to change the way lending the money out works. What I'm getting at is this: is the non-absolvable nature of student debt a conflict of interest with the creditors, and are they giving it out indiscriminately?

[rmk2]

No, but companies are all about making things into money. That's why they choose a number of subjects (and degrees) that they deem useful and disregard everything else.

What people fail to understand is that a degree in the humanities also provides qualifications other than "let me tell you about the depiction of French rats in late medieval English clay paintings." However, these skills are not seen as being easily converted into revenue and thus ignored.

Such skills include independent problem solving, a high degree of organisation, formulation and proof of theories, descriptive and abstract work etc.

However, if you have an engineer who builds you parts for a car or a website or a backend or what not, you can immidiately slap a price tag on it and give more money to your shareholders.

[LockeWatts]

Perhaps we should stop telling kids they can be whatever they want when they grow up.

That's a rather depressing idea, but it's the truth. Unless you're independently wealthy or one in a hundred million, you will not be able to sustain yourself in certain pursuits.

They're great to have as a hobby, but sometimes you just need to pay the bills. The land of opportunity is closed for our generation, but nobody told us until we had already packed our bags and boarded the plane.

[danielweber]

Used to be poets earned very little but had very simple lifestyles. It was their choice so everyone was happy.

Now if you want to be a poet, you still can. But the problem is that there are upper-class kids who want to be poets but not live like one, and they are going to bid up the cost of the poet lifestyle.

A similar thing happened in journalism. Kids of rich families wanted to "change the world" and bid the wages of working journalists down to nil.

[cdcarter]

The issue here is that the liberal arts degree shouldn't be seen as job training. That's not the purpose of a liberal arts degree.

[jmtame]

I would probably ask them to read What You'll Wish You'd Known (http://www.paulgraham.com/hs.html). I like the analogy of staying upwind because it provides you more options when the time comes that you find out what you want to do.

[fuzzythinker]

No, telling kids they can be whatever they want can never change (as long as it isn't unethical). The idea is to teach them to be responsible and logical. If tuition for say an art major cost $15k a yr, they have to understand or be told that unless the parents support them, they will either need to work part time or other means to come up with the tuition, or if getting a loan, working more than fulltime outside the major field may be necessary.

[danielweber]

to payment-share plans

I see that ending really badly. We have seen that schools have no price pressure, so the standard price for school will end up being "50% or more of your future earnings."

You must have price pressure on schools. Even more money at even more onerous terms to the students will just exacerbate the problem.

[JumpCrisscross]

We know that students and parents value degrees irrationally. We also know lenders have a lesser propensity to make the same mistake.

By introducing market forces on the lender's side we are side-stepping educating high school students and their parents about the returns on education and instead making the lenders be the bad cop who says "no, you're not walking out with $200k debt and an art history degree".

This should, in theory, reduce demand for university degrees in preference of community college or trade school certification, a system that has shown its merits in Deutschland.

It may also be useful for schools to own a portion of the credit risk of its students. The stick approach to this would be having schools buy a tranche of the loans each semester. The carrot would be the lender offering the school a small payment each year after graduation that the loan is paid on time, or alternatively, a larger payment if the loan hasn't defaulted in 6 and 10 years.

[danielweber]

Schools will happily agree to 20% of an engineer's future output, guaranteed enforcement by the government under threat of imprisonment.

You know what would be better? Go back a few decades and make student loans dischargeable in bankruptcy. No one will lend students $150,000 that they can discharge immediately after graduation. The school will realize that crazy debt levels will backfire on them.

[eli_gottlieb]

The price pressure used to be state-subsidized public universities with tuitions deliberately kept very low. As in, $600/semester low, or even zero-tuition low.

[erikpukinskis]

At Texas A&M, the default rate for Liberal Arts majors is 5.9%, compared to the school average of 4.7%. Engineering majors default at a rate of 3.8%.*

http://www.tgslc.org/pdf/tamu_default_study.pdf

I don't think modulating loan rates based on whether you're a Liberal Arts major will really solve the problem, and I also think it's also unfair.

* These numbers are percentages of students who entered repayment of their loans between 1997 and 1999 and defaulted by 2003.

[xanados]

A default rate of 5.9 vs. 3.8 is significant. That means that if two groups of 1000 students take out loans, the group made up of liberal arts majors will have 55% more defaults than the engineering group. Given that loan interest rates are on the order of 5%, I fail to see how a 2.1% difference in default rate would ever not be significant.

[danielweber]

And it won't change course decisions at all.

If an engineer is allowed to borrow $30,000 and the liberal arts major is allowed to borrow $10,000, then the school will just charge the engineer $20,000 more. (They'll probably frame it in a much better way that looks like a discount to the liberal arts major, but it's important to not be fooled by that.)

[azakai]

If the school charges $20,000 more for an engineering degree, that will be a clear signal that that degree is more valuable. Which can definitely change things.

[JumpCrisscross]

Is it fairer to over-allocate to the major where the graduate has a 2.1 percentage point higher chance of defaulting on a loan they will never be able to escape? The cost of an artificially levelled playing field is the present malaise.

[anamax]

> These loans should be absolvable in bankruptcy

The current bankruptcy rules wrt student loans came out of some experience with different rules. (For example, speciality MDs had some cute hacks to dump their undergrad loans, which were very old by the time they had money.)

How does your knowledge of those rules and that experience inform your proposed policy?

[HarryHirsch]

In the present environment it is people who got a worthless degree from a third-rate technical school, like Devry, Kaplan or the University of Phoenix that are saddled with student loans they cannot ever hope to repay.

The legal environment has changed, as have those who take advantage of it.

[anamax]

> In the present environment it is people who got a worthless degree from a third-rate technical school, like Devry, Kaplan or the University of Phoenix that are saddled with student loans they cannot ever hope to repay.

I know personally folks who have degrees from two of those three that were extremely valuable to them, degrees and education that made it possible for them to make a very good living.

Of course, my anecdotes aren't data, but I'm pretty sure that you're just bloviating from an even less sound basis.

That's not counting the tradesfolk (mechanics, plumbers, etc) for whom such schools are the only source of education. They were abandoned by the non-profits long ago.

I note that you ducked my question, so I'll repeat it

How does your knowledge of the bankruptcy rules and experience with past rules inform your proposed policy?

[HarryHirsch]

Kaplan's default rate is 17 %, Phoenix' is 13 %. If that is any guide, spending any money on that kind of school is a bad investment. For comparison, the default rate at public universities is 6 % and at private ones it's 4 %. (There are reputable for-profit colleges with default rates less than 5 %, so this isn't painting with a broad brush.)

Student loans need to be dischargeable in bankruptcy, because the only reason a bank lends to students at those places is that the creditor is backed by the law as it is currently written. If it were different the students would go elsewhere, the banks would have to find someone more profitable to lend to, and Kaplan-Phoenix-Devry would go out of business as it ought to. Society in general would be served better.

Training in the trades is a different issue. In other countries (Germany comes to mind) this is done by the employer, and it works well for them.

[anamax]

> Kaplan's default rate is 17 %, Phoenix' is 13 %. If that is any guide

There are lots of public schools with much higher drop-out rates. Maybe those folks don't go into default, but they're still paying for an education that they didn't get.

> Training in the trades is a different issue.

Nice duck, but until there's another mechanism for training tradesfolk exists, it is insane to destroy the one that we have.

And, I'll bet that German employers rely on outsiders to do the training. Either that, or the training is useless outside the employer. While employers may like the latter, it's a bad idea.

If German employers use outsiders, we're just quibbling about who signs the checks, not who actually pays.

[HarryHirsch]

> There are lots of public schools with much higher drop-out rates.

We were discussing what is appropiate policy wrt student loans in bankruptcy, not who else is a bad actor.

> And, I'll bet that German employers rely on outsiders to do the training. Either that, or the training is useless outside the employer.

Examinations are organized by the trade organizations ("Handwerkskammern"), who also set the curriculum. This is how training becomes portable between employers. Training itself is done in-house.