Remember the movie Jerry Maguire? He wakes up in the middle of the night and writes a manifesto for a new model of the sports agency/player relationship. Back in June of 2022 I had a similar moment where I said, "screw it, what are some steps to actually solve this?" So I started writing. And writing. While it was a few hours of writing, I've been thinking about this topic and the train wreck road our country has been traveling for decades. So here goes....
Here's the Podcast version, recorded the day after the executive order
6/26/22
I am not an economist. I am not a college professor or university president. I’m the furthest thing from a politician that one can find. But here is what I AM.
A father of two teenage kids.
A small business owner willing to do ANYTHING I’ve outlined (with or without government support).
A proud graduate (1997) of college.
And most important? A VERY concerned citizen of the USA, the greatest country on earth.
Over the past few decades, we’ve seen the problem, like a freight train with a full head of steam.
College costs continue to outpace general inflation by a MASSIVE margin
Student debt building, now over $1.7 TRILLION
QUESTIONABLE (at best) returns on the “investment” known as a college education. High dropout rates, 40% underemployment (they are in jobs they don’t need to degree for), high default rates and a national outcry of people swimming in debt with little hopes of paying it off, or at the very least, MASSIVE struggle. If college was such a great deal (in it’s current format), than why would there be such an outcry to wipe it out?
o Note: All statistics can be interpreted to fit any narrative. For years we’ve heard that college degree holders earn X$’s more than non-degree holders, have lower unemployment rates, etc. All may be true, but the underemployment, drop out rates, debt levels and questionable ROIs are ALSO true.
Here's the main issue. If the government “acts” on the existing debt TODAY (whether it’s $10k per borrower or 100%, doesn’t matter), where does that leave us?
For arguments sake, let’s assume the government waves the magic wand and wipes out the debt from $1.7 trillion to $0. What happens too….
Current and new students? Will THEIR debts be wiped out too? When and how much?
Will few, the same, or MORE students want to enter the college system if debt is wiped out?
College Presidents – When $1.7 trillion goes to $0, are they more or less likely to change their behavior with annual tuition increases?
Past students that “paid their way” or the 85% of the population that does NOT have a degree, but will essentially be covering the cost of the student debt “forgiveness?” In other words, when the obligations of those with the liability is transferred to those that did NOT incur the original liability?
In other words, canceling (or depending how you look at it, “transferring) any amount of student loan debt WITHOUT addressing the underlying system that got us into this situation is flat out reckless.
As a citizen, seeing the endless debate on “to cancel or not to cancel” or “how much” without any types of viable solutions is flat out maddening. It’s the definition of insanity, doing the same thing over and over again but expecting a different result.
From this point forward I will propose a series of solutions, with a simple goal in mind, to spark a PRODCUTIVE conversation where people get focused on solutions to finally address the real problems. Every solution proposed I expect to create a series of “that could never work” or “Yea but….”
Note: Many of the solutions I’ve experimented with and have put into action at my small business, PAVERART, through www.brickbybrickfuture.com
$1.7 TRILLION is a massive number, and it’s also the OUTCOME of a system that simply has not produced the results we intend. So real change is needed.
Here we go…..
Objectives
Any viable solution should be worked against a series of smart, meaningful objectives.
1) MASSIVELY REDUCE THE COST OF HIGHER EDUCATION. Unless this happens, all else is simply window dressing, dealing with parts of the problem only to see the same problem re-emerge a few years down the road.
2) BROADEN the definition and number of opportunities for “higher education.” Higher education is NOT just college (2 year, 4 year), but also technical trade schools, career certificates, mentorship and financial literacy. Viewing the world of education through a lens of “college” is short sighted and simply does not address the imbalance of available jobs to the trained workforce available to perform them.
HOW?
1) DRAMATICALLY increase the supply of available higher education opportunities: 10mm + new available education opportunities.
a. Stand up a “alternate” accreditation system OUTSIDE of the current college accrediting body.
b. Utilize technology for fully accredited, low cost, online programs
c. Utilize the backbone of the USA Economy, small businesses for a national apprenticeship program of 4 days work, one day school (online, fully accredited) to inspire millions to earn money, get educated, incur ZERO debt. Tax credits available to partially off-set costs
d. Build a national network of adjunct practitioners and mentors
2) REMOVE the primary drivers that have aided annual tuition escalation rates that have made the system unsustainable.
a. Immediately remove the government from the college financing process, except for Pell Grants. In other words, move the loan system to 100% private loans.
b. Make student loans “bankrupt able” like any other form of consumer debt, with the same consequences as current bankruptcy laws carry. This applies to the current $1.7TRILLION loan balance AND all future student loans
c. All schools must have real skin in the game for bankruptcy. For example, if $10,000 worth of student loans is discharged and that borrower went to University X…..shouldn’t University X carry SOME level of responsibility for this bad outcome? In other words, shouldn’t their endowment be “taxed” at some portion of the discharged loan?
Let’s talk about this set of objectives.
Immediately Remove the Government From College Financing Process
Lets face the facts: We’ve have experienced multiple decades of college tuition increases that have FAR outpaced the overall rate of inflation. Can any logical person sit back and say “if we do nothing, the highest levels of college leadership will change their behavior?”
Pull the government out of the college financing business (exception for Pell Grants).
How would a college president, sitting in front of their board of trustees react when the government is no longer backing student loans, they will go to private lending institutions AND they are now “bankrupt able?”
This would be my reaction, if I were a college President sitting down with my Board of Trustees:
“Folks, we have an existential problem. With the government walking away from guarantee the student loans, our incoming student’s will essentially have to go to, for example, Bank of America to get financed. And now B of A no longer has the guarantee/backstop of the government, AND the kids can bankrupt themselves out of the debt. How many FEWER financeable students will enter the higher ed system? It may be SIGNIFICANT, 30% fewer? 50% fewer? We know that more than 2/3’s of incoming students have debt, so playing with this formula against a massive % of our customer base is dramatic to say the least, we have to start thinking about how we are going to deal with this.”
Any college president does that does not have a “Oh my god” type reaction is asleep at the switch, but I suspect 100% WILL as this would feel like oxygen being cut off in the middle of scuba diving. Call it a wake-up call that the world is taking a turn. 99.5% of the world is not like my closing example (Perdue) cited below.
What About the Private Lending Institutions?
Will a bank lend money to an 18-year-old kid without a government guarantee and when the “collateral” behind the loan is 100% tangible?
The answer is yes, but dramatically fewer and FAR more discriminating. Computer science? All day long. Philosophy? Not so much?
The underwriter (in this case, Bank of America) does not have a full set of data to make the decision, and they start to require information on OUTCOMES of the university as it relates to this financing decision? So the transparency of outcomes would likely improve, because now underwriting of debt has real consequences.
There would be two key risks with lending:
The obvious one is zero collateral or 100% government guarantee.
The core nature of the degree itself and it’s back end “value.” It’s common sense and backed by data that some majors will payoff ten-fold, while others may never. Yet the tuition bill is the same for both. What if degrees were priced according to risk or value?
What if the SCHOOL ITSELF manages a major portion of the backstop that the government used to play? In other words, if a student debt load is “bankrupt able” and a sizable portion of that discharged loan goes immediately back to the school itself, wouldn’t that not FURTHER pressure the educational institution to improve their product and lower the overall cost? OR price lower return degrees different because they simply do not carry the same market value?
If the provider of the product (college itself) had actual consequences for the very promise of the product they are delivering, wouldn’t our outcomes be completely different? I could not imagine how it couldn’t improve outcomes, pricing, offerings.
And if the banks now had a partner with the universities themselves, aren’t the capital markets and the enterprises they are now financing starting to work like the REST of America, where businesses and financial institutions work hand in hand to make sound financing decisions, limit risk, create great outcomes?
Under our CURRENT system, the taxpayer is on the hook. The student is on the hook. The lending institution? Nowhere near as much. The University? Nonexistent. This proposal removes the taxpayer, keeps the student with skin in the game (with a relief valve in the disaster situation via bankruptcy), puts the lending institution in their classic underwriting expertise, and brings the University to the table in concert with lending and the student, with real world consequences for bad outcomes and dramatically more competition.
Which system feels like it would produce better results?
Last, let’s talk about bankruptcy. Why are student loans NOT eligible for bankruptcy? The truth is, I don’t have a good answer. But here is a fact: When the GOVERNMENT arbitrarily decides that (example) $10,000 will be “forgiven/transferred”, and they set arbitrary income limits ($150,000 or under), they are trying to relieve as many people as possible WITHOUT examining individual circumstances. Do you mean to tell me a 28-year-old, single earner making $125,000 in Florida needs to have their $35k debt wiped out, to the same degree as a 42-year-old with $65k in debt but is making $42,000 and that is single with 2 kids and living in NY? This blunt approach simply does not capture the individual circumstances, its simply not possible to capture this nuance with a broad policy. But somebody called a bankruptcy Judge CAN make an informed decision that is reasonable, the legal infrastructure already exists, and we trust them to make those decisions every day.
In short, one smart individual (a bankruptcy judge) looking at a full set of circumstances in a legal proceeding beats a government edict any day of the week for getting to fairness at the individual level. AND the bankrupt person has real consequences, which are certainly challenging and part of any bankruptcy.
And the school debt going back (in part) to the originating university puts them immediately “at risk” for bad outcomes. The impact of this could be potentially sever IF the college is not well capitalized in their endowment. I suspect that the distribution of debt relieved through bankruptcy will NOT be even across the country, but will be skewed to the schools that have dramatically increased costs, provided less than average outcomes, etc. Speculation of course, but common sense is all that is needed.
So now we have a NEW education system that would have….
An available student body financeable by PRIVATE lending institutions, NOT backed by the US government.
With those lending institutions extending loans (and underwriting on a case by case basis) to students who would be eligible for bankruptcy like any other consumer debt
And that bankrupt able student loan debt could be partially recovered from the school itself upon bankruptcy settlement.
Possible Outcomes?
· Significantly fewer loans, prompting a dramatic retooling of the higher education model.
· Serious re-tooling and restructuring needed among higher education providers, new innovative forms of education, use of endowments to subsidize costs vs building lazy rivers and country club accommodations, etc.
· Possible bankruptcy of some education providers if endowments can’t handle bankruptcy “tax”.
What else is possible?
LOWERING of tuition as the free market starts to take hold. Cost reductions throughout the higher ed system. OR….
Increase in supply of available seats, lower price per student, more available seats as a means to re-coup lower revenue per student by increasing the TOTAL number of educated students.
Yes, it is possible that lower income students who don’t get financed and are not in a high ROI field are either “shut out” of THIS education model or re-think their career path. Or colleges consider a different PRICE for lower ROI degrees, lowering debt levels and making “ROI” and debt re-payment similar too high return fields.
In short, this structure puts dramatically more pressure on the existing education system. They truly need to “earn” their customers, prove value and consider risk. The free market competitive dynamics are now at the doorstep of higher ed.
But how could FEWER students entering the CURRENT Higher ed model be good? Short answer? It is not. So an alternative needs to happen.
I think we all can agree, the higher educated a society the better. But “educated” takes many shapes.
What did we learn from COVID?
MILLIONS of people had to adapt to a work at home model. Students at all levels of education had to learn how to learn remotely (with variable outcomes).
In short, our economy adjusted, FAST, simply because we had no choice but to do so. To think that a student needs to be SITTING inside a classroom to receive an education is dated thinking at best.
Here are the elements of making that happen.
1) DRAMATICALLY increase the supply of available higher education opportunities:
a. 10mm + new available education opportunities.
b. Stand up a “alternate” accreditation system OUTSIDE of the current college accrediting body.
c. Utilize technology for fully accredited, low cost, online programs
d. Utilize the backbone of the USA Economy, small businesses for a national apprenticeship program of 4 days’ work, one day school (online, fully accredited) to inspire millions to earn money, get educated, incur ZERO debt. Tax credits available to partially off-set costs
e. Build a national network of adjunct practitioners and mentors
So how can we provide an expanded view of higher education and create MILLIONS of new pathways?
First, the course material already exists, simple google searches like “Top online college courses for free”, and here’s a link for 65
And there are hundreds of thousands of educational materials available on line.
What is missing?
“The credential.” A legitimate third-party accreditation needs to be developed that says, “for this credential, you need to take these 40 classes, or some combination, prove that you took it, and if so, you earned the credential.”
One question is “who decides” what the credential looks like? Another education body? The government? The private sector? In my opinion (and I’m sure you can guess….), the PRIVATE sector.
What if a cross section of the economy, big business, small business, non profits weigh into what a Bachelor of Science in Business Administration looks like for the online world?
In other words, if Google, Ford, 25 assorted franchises, Boston Consulting, Walmart, 75 independent grocery store owners, 75 accounting firms, 50 marketing agencies, 100 banks, some private equity shops all had a say, some skin in the game $ wise backed a certification, would that not be powerful as a signal that what you just completed has real value and a cross section of private employers validating that?
IF the content for the most part already exists, isn’t it a matter of organization and measurement?
How hard could that be for the likes of google or fill in the blank for tech companies, startups, nonprofits. Why do we only accept an “accreditation” from WITHIN a system that has put us in the very situation we are in now?
I will admit that I have DRAMATICALLY over-simplified this solution of building an accredited library of online material with a technology driven measurement system of completion. But will anyone argue this is NOT possible? It’s about a framework and environment to make happen. I would also venture to guess that the $ resources to build this accreditation system and library is a FRACTION of 1% of the size of our current problem.
The fact is, Accounting 101, debits, credits, financial statements, etc has not changed much from 1992 when I was in school vs today. It can 100% be taken on-line from the very best professors in the world for a VERY nominal price and be played a million+ times. Pay the professor and the content creation team $100k, pay a 1-3% royalty to tech companies, charge $50 per class for the 40 classes for a typical bachelor’s degree and you start to build a model of obtaining a Bachelors degree for <$5k in TOTAL!
By the way, this already exists in some form, University of the People, fully accredited online bachelor’s degree for a TOTAL of $5k. When we have examples of something already working, we can’t say “that can’t be done.”
Do you know where else it exists? Khan Academy. The brilliant nonprofit with a simple mission: Provide a free, world class education to anyone, anywhere.
IF this could be built out, an EXCEPTIONALLY low cost, high quality, accredited education, how many millions of students would take advantage of it? Lets assume for a moment that that answer is “a few million.”
In addition, if a sizable portion of these students pursue their higher education? through the business apprenticeship side, what impact does THAT have.
This is the model for PAVERART’s Brick by Brick Apprenticeship program. The goal is a degree in 4 years. $25,000 accumulated net worth with ZERO Debt. Experience in every function of a small business. And an individual that can compete or out-compete any conventional program student in the USA. We are doing this WITHOUT government support, but I do think a $5,000 tax credit per apprentice will accelerate adoption.
WHAT IF THIS TYPE OF PROGRAM PRODUCES THESE OUTCOMES AT SCALE? What impact will that have on the cost of higher education if this path and these outcomes existed by the millions?
Does that not FURTHER increase competition, lower price, improve product offering and differentiation. Of course, it does!
Everywhere in the economy where competition increases, prices tend to come down and product innovation tends to improve. This is what happens when markets function properly, without distortions.
There it is. A framework to reverse the course that everyone thinks is unsustainable, while simultaneously providing millions of new opportunities to people that see no alternative. But many groups play a role to seeing a better system play a role.
Government plays a real role.
· Government needs to eliminate the “gas on the fire” of debt fueled price escalation. They need to support a framework (NOT the financing) of dramatically INCREASING the supply of new education opportunities and small business incentives for apprenticeship programs. They need to play a facilitator role, orchestrating and pulling groups together that can lead the charge.
Businesses play a real role.
Let’s be honest: REQUIRING A DEGREE for many jobs that could be TAUGHT on the job does not help the situation in America, it hurts it. This creates an exclusionary environment where you are shutting out 80% of the population from joining your organization.
If Google can find a way to hire without the conventional degree, so can others.
What else? Hire new employees and SUPPORT education through apprenticeship programs. Mentor them on lessons you learned at 35, give that wisdom to the apprentice at 18 years old. Through those 4 years you will be amazed at what will grow before your eyes.
Parents Play A Role
Education is critical. Going into massive debt levels and NOT compiling wealth until way into your 30’s is borderline reckless. The world in 2022 looks completely different than the late ‘90’s. Many of us grew up with a mantra of “it’s not polite to talk about money!” I would argue that philosophy hasn’t served us well. Start talking about money. EVERYDAY. Go look at the nerd wallet compound interest calculator. Start playing with what it means 45 years from now to start saving $250 per month, every month from 18 years old until 60.
Then punch in from 35 years to age 60 (debt repayment). Work a bunch of scenarios, income assumptions, etc with your kid. Talking about money is one thing. Getting analytically RIGOROUS about outcomes is a new level of understanding. And nobody will fund your retirement, taking debt on to help fund junior’s education is simply creating a problem you will deal with down the line vs now.
High School Leadership & Educators Play A Role.
Walk into any guidance counselor office in the USA. You will “feel” the “college path” as the overwhelming option for graduating students. You will see little if any financial education and understanding of what debt means. Little discussion of the trades. Again, we got into a $1.7 TRILLION problem by a steady, increasing number of available students. The narrative begins here. For every college fair a high school has, start an apprenticeship fair.
Finally….
College Presidents, the Senior Leadership Team & Board of Trustees Play A Role
Collectively, this system has not operated like any other sector of the economy, with the only exception I can think of maybe healthcare. Their prices have been running out of control for years. Debt levels have gone up in lock step with their tuition increases. Too many schools are consumed with their US News & World Report Rankings and where they sit, EVEN though the ranking is arguably irrelevant to quality and value of the education to begin with. I have ZERO confidence that this group will magically wakeup one day and say, “we need to change the game” on their own. They will need massive disruption to make them change.
What DOES leave me hope?
The beauty of the USA always shows some real examples of what is POSSIBLE.
I already mentioned University of the people, they found a way to offer a fully accredited online bachelor’s degree for $5k TOTAL.
And Khan Academy.
What if national energy from our best businesses supported by a sound framework to scale these types of models?
What about the conventional side?
Ever hear of Perdue University? They managed to FREEZE tuition for 11 years, from 2012-2023. If they would have increased tuition and fees at the same rate as the national average, that would have generated $1BILLION more in tuition revenue, which of course is student expense and debt levels. How were THEY able to do this when the rest of Perdue’s peer group, competition NOT able to do it? This impact is anything BUT small, and proves it CAN be done, but the school leadership needs the will to make it happen. Clearly, Perdue is in the minority, but it takes the “it can’t be done” objection off the table.
In summary, we have a massive, big, long term structural problem in higher education. Yet there is real, common sense solutions that could be put in place to reverse the trends that currently exist, while simultaneously improving the opportunities and financial impact of millions.
We have examples we can point too that show elements of all the above is possible. We can get our country’s enterprising spirit and free markets to work in a way that hasn’t been present in 50+ years.
We have the technology. We have the skill. But we need to change funding mechanisms, improve accountability, risk management, and increase innovation. We need the business sector to step up and provide partnerships with Youth entering their post high school years, and we may need to incent that with tax incentives.
I welcome this post to be shared. Torn apart. Challenged why this solution is a nightmare, but these 2-3 have real merit. I challenge people to approach the topic from a “lets get at a real fix, not find ourselves in this same tired conversation 10 years down the road.”
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