In the U.S, for many high-education students, to be able to graduate and complete their studies, most individuals decided to take on some forms of debts. The necessity to take on debt to be able to finish university education has become a crisis of its own. This consumer behavior has been growing with no signs of ending. Recent data reported that the student loans have seen an increase of 157 percent over the past decade with the outstanding balance amounted to $1.5 trillion dollars (Griffin).
According to the historical data provided by the Federal Reserve, student loan is the second largest consumer debt in the U.S just right behind mortgage debts. Debt is not an ideal option for anyone since most people does not have enough financial literacy to utilize debt to take advantage of the government’s incentive program to lower their taxes. For most people, especially students, student loan debt is just a mean to ease their financial burden that university tuition costs. However, as previous data shown, these debts that the students taken have grown at a dramatic rate preventing them from succeeding in their own original endeavors that their education supposed to provide in the first place. So what have been done to alleviate this major financial issue that students have?
From the personal finance perspective, student loan debts can be reduced by responsible financial decisions. There are individuals who were able to graduate college debt-free. Their advices? Do everything in your power to not get into student loan debt. These individuals were able graduate debt-free if they took on every possible scholarships. Some work every weekends. They go to public instead of private university. Sometimes they go to the military where after graduation; candidates can qualify for the GI Bills benefit programs. For cases where taking on student loan is inevitable, Friedman at Forbes suggested that students should consider all student loan options available. Students need to build the prepayment programs and calculate their interest rate as well as the origination fees to see which bank offer the best loans with the lowest payment option.
When the rates are lower, they should also consider their refinancing option or consolidate all their debt to a lower rate especially from federal loan programs instead of a commercial bank student loan lending practice. Despite the continuous efforts and public education on personal finance, student loan debt for the past decades have not only increased significantly but also many students eventually default on their student loan debt as well. Recent study by Yannelis noted that as matter of fact, student loan default rate are more than double between 2000 and 2014. From this perspective, bridging the gap of financial literacy has not compensated for the student loan debt that has been increased at such an alarming rate.
Many researchers and reports have pointed to the increasing cost of education as a major problem to discuss and resolve. Research by Gordon and Hedlund showed that despite the highest percentage of graduation among students in this generation, tuition increase has risen by almost 92% from 1987 to 2010. To put this into perspective, they compared this increase to overshadow the same increase in cost of healthcare. Their study attributed that the demand in college education increase the tuition and the rise in post-college earnings also increase the price of higher education. As the result, the cost to graduate Yale today is almost as much as the cost of buying a house 30 years ago based solely on macroeconomics factors.
To tackle this problem, with the increasing power of technology, many different platforms have approached and offered students non-traditional schooling options. Massive Open Online Courses (MOOCs) offer online educational programs to anyone who have access to the Internet. Platforms like Coursera, EdX or Khan Academy offer many courses directly from traditional universities across the U.S with the same high quality and content from the world’s most respected educators. Most of these MOOCs platforms are often also free. Despite the disadvantage of the web to be the sources of limitless unorganized information, MOOCs platforms provide education to the public at a steep discount.
They provide the most convenient way for students to learn the materials at the most affordable price that anyone can afford as long as they have a computer and internet. But the buzz of MOOCs platforms have died down almost as fast as how it emerged back in 2011 when a handful of Stanford professors made their courses available and transparent for free. Young argued that the popularity of MOOCs have flattening out because despite initially drawing attraction from the masses, these platforms often cannot sustain the sense of community that a traditional university provide. In addition, it is extremely difficult for many people to achieve success and learn on their own.
When tackling the problem of student loan debt, most people try to solve this crisis at face value. Their assumptions fixate on the problem of personal finance literacy but those solutions can only work for a handful of outliers. Turning toward institutions, we also see that there have been multiple platforms and approaches where education can be offered for a much lower cost but it remains unpopular and only serve the selective group of students who have excellent drive for learning something they are very passionate about. Often, people neglect to discuss the problem of why generations getting an education in the first place?
As previously mentioned, demand for higher education create a demand-shock. From the economic perspective, this also created a much higher price if supply does not catch up with this demand. To understand why student loan debt is so high, one must go back to the root of this very demand to understand the core issue of the problem.
In every part of the world, it is a universal idea that an education open doors to a better life, a better job, and a better society. Every country promotes and supports that every young generation need a proper amount of education. Governments and countries build massive school systems spending billions of dollars on supplies and infrastructures to support this premise that the more educated people are, the better off the country will be, and the better these individuals will be as well. Many like Goyal argued that education facilitates life’s purposes. However, as we dissect the core issue of student debt and as many individuals take on debt to go to school for the sake of attending a higher institution, they crippled their economic stability and jeopardize their own future to follow the traditional norms that have been established for centuries about education.
By crippling themselves with financial burden, these individuals completely lost their own purpose of why they attain the education in the first place: to have a better job and eventually have a better life. As different societies view point, from East to West, in unison, we emphasized the importance of an education for every individuals. For the United Nations, education is a human right that everyone is entitled (Lee). However, this creates not only the crisis that we have seen with student loan but also with the biggest mismatch for allocation of resource that society currently faces.
We mismatch many talented individuals who can contribute a lot to their own well-beings and society as a whole if they can have more time to train in their own craft and foregoing traditional schooling all together. In the U.S and many other countries, a college degree is not only the symbol of high academic achievement; one could argue that it is the indicator of social class status as well. If one obtained a degree from highly regarded institutions, it is expected that those individuals have higher chances to succeed and excel in their professional careers. The job market is set up to give an advantage to these individuals as companies’ recruiting process filtered candidates based on where their educations were obtained.
For any candidates from a non-popular school or candidates without an education at all, the job market shunned and penalized them heavily. Job options are limited and often are given to these people as if they hold no skills altogether. In addition, society also distances itself from regarding these individuals as potentials with great professional future. All of these assumptions and traditional thinking about education is an ongoing mistake.
To change and reduce student loan debt, one must start to consider the alternative option that traditional education is not the answer. As many people want to have a better job after graduation, this does not mean that they have to be taught in the classroom or off-line and this narrative has to be challenged. In economic theory, specialization makes everyone better off. However, at the current rate, it takes many students a long time to specialize because of the endless amount of general requirements and curriculums with the end goals of creating well-round students.
Beside the essential skills of reading and critical thinking, most students will not apply majority of knowledge they learn in college even with the courses targeting the job they are recruiting for. Yet, institutions spend the vast amount of time teaching students math because it’s a language of science while also making sure that these students also know about history and economics as well. While a minimal training to acquire essential skills to do the job is very important, trying to capture as much knowledge as possible before specializing is a huge waste of resources. We prevent people who can be wildly successful at their crafts by making traditional education mandatory for their success and as a capitalist nation, we advertise and sell this idea fully.
Nevertheless, good bakers would succeed with their bakery while mechanics and plumbers can excel much faster if they have more experiences fixing machines and pipelines. Business savvy individuals develop their basic acumen by interacting and doing business while good lawyers gain their sophistication by being in court. From manual labor job to office positions, actual real life experience are where people learn the most as those skills are eventually become their abilities to perform well at their job every day. The stigma of not obtaining a tradional education needs to be considered as on-training job provides student with great skills to succeed while making them money at the same time. However, in the U.S, this real life training only comes every summer for four years. At the end of the day, getting an education is a mean to obtain a better life by having a better job.
Yet, our focus right now entirely neglected that real-life experience teach far more than any textbooks can and we shunned people away from getting real-life experience right away. While universities and many have advocates to implement the real-life experiences in the classroom. It simply cannot replace the core issue that society’s stigma for non-conforming education is viewed as an inferior approach. In addition, the job market itself rally and create a barrier to entry to individuals to do their job by creating certifications to do their job. These certifications often require a college degree while not putting too much emphasis on the related-work experience.
To reshape our approach to tackle massive student debt is not to abolish college education altogether. One can argue that most people would not go to college if the economy were in bad shape. However, as previously mentioned, incentives are essential to motivate people to behave accordingly. Having a respected well-paying job is a great incentive that needs to be catered to. For example, in Germany, the dual education system created a great balance where students get as much formal education and practical training in their fields as possible. The dual system created high-quality vocational training that lasts between 2 or 3 years where students can be qualified for good and respected jobs upon completion.
As the result, Germany has among the lowest rate in youth unemployment. The idea is to not completely terminate formal education program but create a labor market where jobs can be filled properly without unnecessary education. For example, in the U.S, accountants often are required to pass the Certified Public Accountant (CPA) exams to qualify for their jobs. The CPA exams, however, required a university degree, proper accounting and business courses for its candidates to be qualified to take the exam. This is a completely waste of time since a lot of people who were able to take courses in accounting and business and have time dedicated solely to study for the CPA can easily pass the exams without spending 4 years in college.
Lawyers, on the other hand, are required to pass the state bar exams for states in which they will practice law. This is also a waste of time and resources as anyone who can solely focus on law and study for the bar exam can sufficiently do their job instead of spending 7 years to be able to sit for the exam. Certifications and industry exams are outdated methods that were established by the government and industries to keep newly fresh graduates from entering the job market for well-compensated professions too fast. While some professions like medical, research, education and healthcare should require more intensive training and qualifications, we can reduce massive student loan debts and fill in the job markets where many candidates can be more than qualified to perform their job if we reduce the barriers to entry. At the minimum, we should consider the dual education system that Germany has and reduce unnecessary educational duration.
Student debt is a sensitive and frustrating topic. While an education is truly a human right and a path for every human being to be better off, we need to consider and adjust to the needs of each individuals as they consider their options regarding having a formal education versus applying their trade skills in the job market right away. Not every individual is the same and a lot of students can be much better off without a traditional education altogether.
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