October, 2022
The last post elaborated on the fact that about 85%* of total student loan debt is held by college graduates who, by virtue of the sheepskin, earn more than enough to repay their loans. That's why blanket cancellation of student debt (up to $50,000 in the latest Democrat scheme) amounts to a "regressive solution that evades the real problem."
The underlying 'real problem' is decades of stagnant family income along with steadily rising tuition. That's why students borrow so much.
However, the title of this post points to a darker aspect of the problem: the huge number of student loan recipients that don't complete the degree. They owe the other 15% of total debt. Without the earnings advantage of a credential, they struggle to repay, and they end up defaulting at three to four times the rate of college graduates.
This post ignores community colleges' contribution to the problem, and instead, concentrates on undergraduate education at 4-year schools. Overall, 4-year institutions saddle 50% of their freshmen with Federal loans and then fail to graduate 40% of them. This combination bleeds a river of indebted dropouts. But the bleeding varies with the schools' admission standards.
The risk of dropping out is primarily determined by students' academic ability.** Recent research that uses high school GPA as a measure of academic ability (and controls for students' socioeconomic background) finds that only 28% of students who entered college with a 2.0 managed to graduate within 6 years, compared to 78% of those with a 3.75.
So, it's no surprise that colleges with very high admission standards achieve high graduation rates (Harvard's is about 95%). Of course the vast majority of students attend more mundane schools. In fact, almost half of new students enroll at non-selective institutions (NSIs)*** where the 6-year completion rate is about 45%. In other words, 55% of NSIs' student borrowers leave without a degree.
The Fleecing of Lower Division Undergraduates
By recruiting lots of academically inept freshmen, NSIs reap short-term infusions of revenue while leaving their clients to the mercy of a standardless system of instruction. The result is a rapid departure of lower division students; 75% of dropouts leave within the first two years of college.
Undergraduate Instruction: Standardless and Erratic
If college teaching was subject to the discipline of observable standards, the quality of instruction would be more or less uniform. But in fact it's highly variable. The teaching skills of instructors vary from awesome to abysmal. (I should know. As a department head I had to replace every bungling adjunct that provoked student rebellion). The level of skill students encounter on the first day of class is largely a matter of luck. That's because students pre-register for specific course-sections before the assignment of instructors is complete. This reflects NSIs' heavy reliance on itinerant part time faculty to staff lower division classes. And even if instructors were identified at the time of pre-registration, naïve freshmen wouldn't know the difference.
In short, lower division students are subjected to a standardless, laissez faire system of autonomous instruction. As long as instructors don't attract invidious attention, they are free to do their own thing.
Freshmen who are academically proficient can usually compensate for occurrences of pedagogical malpractice, but the academically weak recruits that flood NSIs cannot. Because the laissez faire system normalizes the risk of encountering a lousy instructor, it exacerbates the risk of dropping out.
In the 1980s the effects of unreliable instruction were less serious because a college dropout could still get a good job with only a high school diploma. Today, the economic consequences of dropping out are dire. And fewer of today's freshmen are college-ready. Yet the same old system of erratic instruction prevails. Indeed, colleges' reliance on part-time faculty has increased 20% since 1975.
However, the most damning indictment of undergraduate education is the fact that it makes so little difference in learning outcome.
Results from the Collegiate Learning Assessment , show that four years of full-time attendance produce very little improvement in the higher order thinking skills that colleges claim to instill. Another study finds that only half of college seniors are proficient in quantitative literacy; and 20% can't compare the cost per serving of two different brands of coffee beans. This is not surprising since...
1. Objective benchmarks for teaching effectiveness are nonexistent. The Higher Ed Industry has failed to institutionalize the systematic evaluation of teaching effectiveness in terms of outcomes. The professoriate has successfully developed valid yardsticks for evaluating the quality of research and scholarship, but not for teaching. Today, instructors' teaching skills are evaluated with nothing more than customer satisfaction questionnaires, but the objective impact on their students is unmeasured.
2. The professoriate are neither certified nor formally trained in the art and science of pedagogy. PhD degrees certify their competence as producers, curators and arbiters of esoteric knowledge, but not as teachers of greenhorns. The difference between teaching and curation is illustrated by a sophomore's comment on the evaluation form for my ECON 201 class: "he is a great teacher because if you take good notes in class and answer the questions on his web page, you don't have to study the textbook."
3. At upper tier institutions, where career advancement depends heavily on research output, tenure track professors have little incentive to improve lower division teaching. In fact they are averse to teaching basic courses because it requires them to popularize, i.e., to make esoteric knowledge accessible to unsophisticated rookies. Popularization demystifies academic research. So, it's not surprising that high caliber researchers are found to be less effective teachers in lower division courses.
Nevertheless, graduation rates of 4-year institutions have actually improved. The reason is not better students or better teaching, but rather grade inflation. Sadly, the Higher Ed Industry has resorted to the most corrupt way to retain students: lower the bar so that more of them pass.
Admission Counselors: Unscrupulous Purveyors of Federal Loans
A high dropout rate presents NSIs with a problem: fewer students transition to the advanced courses related to their major fields. This drain on upper division enrollment not only chokes the revenue stream, but also the ability to sustain a smorgasbord of major field options. Without critical mass, niche programs such as Gender Studies and Golf Course Management may have to go.
Consequently, NSIs must over-enroll freshmen in order to replenish the upward stream. Although NSIs' low admission standards attract oodles of applicants, the thing that turns them into tuition-paying freshmen is easy access to Federal loans.
For-profit colleges have been condemned for their profligate use of federal loans to recruit students under false pretenses. But the multitude of non-profits are not much better. The admission counselors employed by both have no fiduciary duty to students; their job is to facilitate enrollment. Consequently, admission counseling is ethically problematic at both types of schools. The difference is, for-profits deliberately lie to students, but non-profits merely withhold uncomfortable facts.
If counselors did act as fiduciaries, they would certainly provide a prospective freshmen borrower with an objective risk assessment. There's no excuse not to. All the statistical data counselors need to calculate risk is literally at their fingertips. An honest assessment would give new students an opportunity to reconsider their plans.
For example, consider this prospective borrower: she graduated from high school with a 2.3 GPA and an 840 total SAT score, then took-off a year before applying to college. She has a part-time job off-campus.
A counselor would know that a student with this profile has a less than 20% chance of completing a degree. So acting as a good fiduciary the counselor would tell her the unvarnished truth and float other options for consideration.
Unfortunately, serving the student's best interests is a potential threat to the institution's bottom line. The 'unvarnished truth' might persuade students to abandon the 4-year path in favor of certificate and apprenticeship programs, or to begin the 4-year journey at a much cheaper community college. And that is why admission counselors never act as fiduciaries. Their job is to facilitate the enrollment of tuition-paying customers, not to confuse them with the facts.
Consequently, odds-on dropouts are just as likely to be offered Federal loans as academic superstars. Of course, the woke rationale for this ethical lapse is that the combination of low admission standards and easy loans is a way to expand educational opportunity for marginalized groups.
But the truth is, counselors are loading debt onto high-risk students with full knowledge that most of them will be worse-off because of it. Obviously, this contradicts the ethical principle that "friends don't let friends drive drunk."
The Payoff from Operating a Treadmill
NSIs use Federal loans to recruit academically inept freshmen in order to replenish the revenue that's lost when they drop out. That's a treadmill.
The payoff is the extraction of surplus revenue from the tuition paid by freshmen and sophomores. The net tuition they pay exceeds the per-student cost of instruction, thus generating a surplus that can be used for other purposes. In other words, lower division students are cheaper to teach. The reasons are:
1. their average class size is larger.
2. their courses are more frequently taught by poorly paid adjuncts rather than tenure track faculty.
3. they are less likely to use expensive specialized facilities.
This exploitation of lower division students occurs in the context of relentless tuition creep, which is driven by the mounting cost of employing full-time professionals such as tenure-track faculty in an industry where labor productivity is stagnant. Since the professoriate's teaching time is quite limited - typically 3 classes/semester - most of it is allocated to upper division courses.
So in effect, the surplus revenue extracted from lower division students is used to subsidize an ultra-light teaching load for professors who mostly serve the upper division.
Of course, the alleged purpose of a light teaching load is to accommodate the faculty's mission to publish original research. This rationale is perfectly valid for the 15% of institutions that are dedicated to research. They generate almost 90% of all the academic publications worth citing. The other 10% dribbles out of the remaining 85% of ordinary schools.
For the sake of reference, the normal teaching load at Community Colleges, where research expectations are minimal, is 5 courses per semester. So the typical 3 course load at ordinary 4-year schools looks incredibly light given that the research productivity of the average professor is about 1/30th that of top-tier counterparts.
Stated cynically, NSIs are using freshmen tuition to finance a teaching vacation for PhDs whose contribution to the advancement of useful knowledge is mighty slim.
It's obvious that NSIs could save a lot of money if the professoriate's teaching load were increased to fill the void of useful research. Typically, an increase of one course per semester would translate into a 30% reduction in the budget for part-time faculty. That might slow tuition creep, but it won't fix the problem of too many indebted dropouts.
To be clear, substituting adjuncts with more full-time faculty is not a recipe for improving instruction in the lower division. Studies show that full time academics perform no better than the adjuncts; and in some fields the adjuncts' real world experience is a teaching asset.
Any Solutions?
"A la carte pricing" promises to lower cost and more fairly distribute it.
Partly to blame for the rising cost of college attendance is the "amenities arms race." Colleges attract new students by outspending each other on extra-curricular goods and services. The cost of these extras, e.g., recreational amenities and specialized facilities, is bundled into a common sticker price, i.e., "tuition and fees." In this way the cost is spread across the entire student body even though the add-ons are mostly consumed by special interest minorities: devotees of the rock climbing wall, the gym, the putting green, and exclusive "safe spaces." Their enjoyment is subsidized by the majority of students whose use of extras is intermittent. After all, almost 60% of full-time students are commuters.
In other words, the average benefit students glean from all the extras is not worth the higher sticker price. When average net benefit is negative, it's a sure indication that colleges are overspending on amenities.
So, the price of attendance could be substantially reduced for most students if, as a condition for Federal aid, colleges were compelled to follow the a la carte rule:
Universal fees can be charged only for stuff that everyone is likely to want, e.g., library and IT; for everything else, "you only pay for what you use."
This means that every add-on from tennis courts to tutoring services is entirely sustained by user fees. It also means, students taking advanced courses that entail specialized equipment and full-time professors would pay more per credit-hour than students taking Gen-Ed courses. Consequently, freshman tuition would no longer subsidize the upper division professoriate, and black students, who tend to major in less lucrative practical fields like Business, would no longer be subsidizing the soon-to-be rich white geeks majoring in computer engineering.
At a price that covers the full cost, some amenities (safe spaces?) won't attract enough customers to survive. Thanks to this demise in the "amenities arms race," it will be cheaper to attend college.
Make colleges the guarantors of Federal student loans.
Today, colleges have no incentive to reduce their production of indebted-dropouts or their support for major fields with poor employment prospects. This would change if colleges had some skin in the game. So to qualify for access to Federal loans, colleges should be required to guarantee them. If a former student defaults, the college is on the hook.
Expand the Gainful Employment Rule (GER) to cover non-profit institutions.
When Obama attacked for-profit colleges with the Gainful Employment Rule (GER), a few of them took action to improve their dismal record of high student debt and poor economic outcomes. GER requires that every certificate or degree program offered by for-profit schools must lead to employment gainful enough to payoff the typical graduate's student debt. Otherwise, the program will be denied access to Federal loans and other aid.
Since the multitude of non-profit institutions are also guilty of disbursing unsuccessful student loans, the Gainful Employment test should apply to them as well. But this proposal is a politically DOA because the non-profits most likely to fail the GER test are HBCUs, which rank highly on the Democrats' moral hierarchy of victimhood. At 35%, the HBCU graduation rate is almost as bad as for-profit colleges (29%).
Furthermore, the Dems cannot afford to offend Academia, a major bastion of active support. It is a single-party enclave. Among faculty, registered Democrats outnumber Republican 5-to-1. At UC-Berkeley it's 9-to-1. Their ardent support for the Party of Expansive Government stems from rational self-interest. After all, the Higher Ed Industry depends on the public trough to the tune of $350 billion per year. Two-thirds of university funding for research comes from Federal and state appropriations. Public colleges, which enroll 73% of the nation's college students, depend on government for 46% of their funding. Direct aid to students sustains private colleges as well.
Stop hyping college as the quintessential postsecondary option.
The dazzle of a college degree should not divert young people from better roads to gainful employment. In America, access to college is demand driven. The Higher Ed industry always expands to absorb the increase in aspiring high school grads, even if it means lowering admission standards. The woke rationale is that social justice requires "college for all." Because of this fantasy, apprenticeships and career programs are stigmatized as inferior options. Consequently, a whopping 85% of high school seniors apply to college within two years, even though, by inclination or ability, most are unlikely to succeed. Maybe we should take page out of Germany's playbook for postsecondary education.
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*Based on the debt of adults with a Bachelor's degree or less, 77% is held by folks with Associate and Bachelor's degrees
** Academic aptitude explains most of the correlation between family income and dropping out, not the other way around.
***NSIs include open admission schools and those that accept more than 75% of applicants.
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