E Solving The Student Debt Crisis

Yesterday I spoke about a real emerging crisis here in the United States, that of student debt and how much of it really goes into default. Something that you won’t hear from commentators who speak about societal issues like this is real solutions.  So today I am going to go out on a limb and present 10 real solutions to this crisis, and if you want to accuse me of not being comprehensive or missing key areas, go right ahead.

  1. Colleges have to find a way to reduce the cost burden on students and their families.  Perhaps we can do away with all the periphery elective courses that “make you into a more rounded person” but have absolutely nothing to do with your chosen major.  Nursing students, for example, don’t need to take classes about medieval torture devices, music appreciation, Outer Mongolian geography, or underwater basket weaving.  They all may be interesting, but not needed like anatomy and physiology, biology, and nutrition.  Four-year degrees now amount to trade school training anyway, so there’s no need to drag it out past 2.5 years of core courses that are necessary.
  2. The corollary of point one is to increase their non-tuition revenue from other sources such as advertisers who sponsor sports teams. When I was at Penn State, the only advertising in Beaver Stadium was for the apparel the football team wore and the soft drinks they sold to fans.  But when I go to a major league ball park, there’s advertisements all over the outfield walls. For colleges that don’t have major sports programs, like Berkeley College of Music, maybe they can find corporate partnerships that extend past recruiting summer interns. That could look like companies sponsoring computer software and hardware, intensive training programs, or just flat out donating to the endowment fund.
  3. Speaking of the endowment fund, some are really run well and like a well oiled hedge fund, while others provide ultra conservative yet paltry returns.  Some of those endowment funds are set aside for students to use to learn trading and investing.  But for those that act more like an insurance company than a hedge fund, they might need to reexamine their risk profile.  Good hedge funds like Bridgewater mitigate far more risk than insurance companies and grab outsized returns…even though it looks like their risk profile is greater, but it really isn’t in reality.
  4. Online courses.  I took them almost 10 years ago, and it cost me $1845 per course for three credits, and 45 classes needed to graduate comes to over $83,000, including tuition and eBooks. This is another spot that the cost can be reduced. When I attended, the professor’s shared that they were paid $5000 per 5-week class, up to 10 classes per year.  So 3 students taking the class more than covered the cost of the professor. And students paid for their materials, so that was not an expense to the college.  Beside the professor and the website, what are the costs of classes that the universities bear? Surely they can reduce the price tag because the costs are the same regardless if there are 10 students or 100 students in a class. By reducing the price tag, more students will attend.
  5. How about colleges reduce their marketing and recruiting budgets? They notoriously spend millions of dollars on recruiting new students.  But they really don’t need to do that. Walk into any high school in America and you’ll find posters galore encouraging students to go to college, and guidance counselors, administrators, and teachers all push students to go to college. Not to mention parents, churches, and peer pressure all encouraging students to attend college. The marketing is don for the colleges already, even if they don’t spend a dime.
  6. Another way to reduce costs falls on parents.  Go ahead and send your kids to college if they have the scholastic aptitude to attend.  If not then encourage them to find a profession that would be more suitable.  For example a number of my high school classmates went to so-called career training institutes or vo-tech while still in high school. It was at no cost because it was part of the public school district that we lived in.  After graduation, they all took apprenticeships as carpenters, mechanics, chefs, etc.  They never took on any debt for their training, and when their apprenticeships ended they were able to stay with their mentors in salaried positions.  25 years later, many of them are either mentors themselves or they are foremen at construction sites earning 6-figure incomes.
  7. And while I am beating down on parents, cause after all reducing the cost burden falls on parents just like it falls on the universities, parents also need to know that there are less expensive options that  your kids will still get the full college experience. My wife and I have encouraged our college ready kids to first attend the local CUNY school and get a 2 year degree first. One took our advice and even if he didn’t receive scholarships, his total cost for the two years, including books, supplies, transportation, and tuition, is under $10,000.  And the best part is after 2 years he has a degree in hand.  From there he can transfer to a regular university to complete his major (nursing) and again, even if he has to borrow the full amount, the cost of his education is slightly more than half of what it would have been.
  8. Some kids just aren’t ready for college when they graduate high school, but they are driven to go get a job.  If that is you or your child, go ahead and do it.  If a kid works for 1-2 years after high school, they’ll earn an income that can be saved to help pay for college, they’ll hopefully learn some financial responsibility along the way (it’s your job to help them in that area), and they’ll gain some invaluable experience in the work force that they can put on their resume as well.  That experience can help them land a job more easily when they finish their degree, and it can also help them gain a higher salary. So don’t discourage it.  As a parent you can even make a deal that they can work for two years but then they have to go to college, and meanwhile make them pay you “rent”. I say rent with quote marks because you will then open a savings account and sock it all away for them, and you can give it back to them as a graduation gift. If you’re clever you’ll understand that their graduation gift of $5000 can be offered from the start when they begin working, when you make the deal with them to work for two years and pay you rent, but then go to college afterwards.
  9. And speaking of parents taking responsibility, you have to sit your kids down and talk to them long before they start applying to college. You don’t have to tell them your deepest financial secrets if that makes you squirm.  But at least tell them what the expectation will be if you can’t afford private schools like Harvard.  For example, “Joey when you start applying to colleges, we’ll have to keep in mind to apply to colleges in our state on the less expensive side, like the state university.  We want you to go to college, but we don’t want you to graduate swimming in student loan debt without a way to pay it off easily.” Kids understand affordability. It’s not a tough concept to grasp, and if you set the expectations early enough, they’ll happily comply.
  10. And finally, legislation.  Not anything that imposes government upon colleges and universities.  Rather, my understanding is that in some twisted bureaucratic way, the current laws surrounding student loans are such that it encourages colleges to raise the cost of tuition on average 6% or more every year.  A certain percentage of their tuition must be covered by student loans because a certain percentage of students from “disadvantaged backgrounds” must be on their roster. Let’s remove some of these convoluted, arbitrarily, mandated requirements, and perhaps that can bring the costs down as well.  After all, the free market always knows better than some bureaucrat in Washington, and when the government gets involved it always costs more.
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