Who Caused the Student Loan Crisis?

The Government. And the Schools. And the students.

Whether you agree that we're experiencing a student loan "crisis" or not, the fact of the matter is that school is exponentially more expensive today than it was for previous generations. I recieved the most interesting piece of advice during a campus tour for pharmacy school. One of the prospective students on the tour asked the pharmacy student tour guide if he would attend pharmacy school today if he were us, and he responded that he wouldn't, because it's too expensive. At the time I thought he was being dramatic, and I had worked out the financials of pharmacy school many, many times before applying. At 22 years old from a small town in rural america, I didn't have any realistic prospects for obtaining a six figure salary. After attending though, I can see exactly what he meant. 

There's going to be a tipping point where graduate programs like medicine, law, pharmacy, dentistry, veterinary, etc. are no longer financially viable. The only thing that makes some of these high cost programs make sense economically are the income-based repayment plans and eventual student loan forgiveness.

The real question though, is how did we get here? Why is school so much more expensive than it was for our parents? If your parents were anything like mine, they probably told you to do well in school, go to college, and get a good job. That's what all of their successful friends did. The issue really boils down to the disparity between the cost of attending school, compared to the expected wages.

From 1979 to 2018, wages have increased by 9.3% for bachelor's degree holders, and 23.8% for advanced degree holders (Real Wages Trends). Not too bad, right? Hold on. From 1985 to 2016, the cost of a 4 year degree from all institutions has increased 116% (National Center for Education Statistics). Even if we only look at public universities, the cost of attendance has increased 126%. Over a shorter time frame, the cost of attending college has increased more than 10 times faster than wages. That's eventually going to make college a financial impossibility. 

If the increasing cost of college is the culprit, then what's the cause? The main stakeholders here are the universities (who set the tuition prices), the students (who obtain the loans), and the government (who provides the federal loans). The students clearly play some role in this. If every student banded together and completely boycotted universities, you can bet there would be change. This would be the most extreme scenario, and if we reach that point, we will be in a serious situation as a nation. If we don't make any changes, however, that's where we're currently headed. 

The two main drivers of tuition cost however, are the universities, and the federal government. As we saw with the housing market collapse in 2008, if the government places value on something intrinsically (like homes or a college degree), and provides loans based on whatever the value is stated as, we get runaway prices that are extremely inflated. 

My proposed solution is that the government place a set value on each degree, and only loan 150% of that career's projected annual salary. If someone is trying to get a degree to be a teacher in Wisconsin, and the department of education sees that the bureau of labor and statistics says that the average salary for a teacher in that state is $60,000, then the most that student can get in federal aid is $90,000. There are a few different outcomes from this setup. 

Students will seek out programs that fit within this model, and avoid the typical degrees with poor salaries, or start out at a community college to keep costs down. Students will find ways to decrease housing costs by living at home, or sharing rooms with roomates. Lastly, universities will align the pricing of their programs to fit within this model, or will cease to offer that degree. 

With this proposal, the government would not only shield itself from massive amounts of student loan forgiveness, which we're likely facing already, but will also be providing the best benefit to students, keeping the cost of college manageable, while providing access to college for many who would otherwise be unable to attend. 

I'm interested to hear what you have to say. Let me know your thoughts in the comments below.