As an industry we should expect nothing but the best possible education and training delivered partnership with those companies and people who need learning and development for their success.
 
 
As an industry we should expect nothing but the best possible education and training delivered partnership with those companies and people who need learning and development for their success.

Is university worth it?

Is higher education is failing students by not delivering jobs to pay off accumulated student debt?


Peter Thomas

Peter Thomas

Professor Peter Thomas is COO of the Leasing Foundation, Director the Manifesto Group and Creative Director of Medicine Unboxed.
Peter Thomas

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Introduction from Executive Producer JO DAVIS
Peter Thomas, the Leasing Foundation COO and education expert, thinks that new approaches are required to deliver real value to today’s learners in fast-changing industries like asset finance. He argues that as an industry, we should expect, and need, nothing but the best possible education and training delivered partnership with those companies and people who need learning and development for their success.

Who should be interested in this?
Anyone concerned with education, training and development in organisations of all sizes, those intending to enter university

 

Is university worth it?

A recent book by William Bennett, former US education secretary, poses the question ‘is university worth it?’ If it isn’t what kind of educational experiences deliver the most value for students, business and society?

If you ask most people, the answer would be yes. An improved chance of getting a good job, a higher starting salary and a lifetime earning premium.

But according to William J. Bennett in ‘Is College Worth it?” none of these things are necessarily true. Bennett, a former US secretary of education, points out that

“it is commonly said that the difference between a high school diploma and a college degree is $1 million in lifetime earnings. But it is likely that most of those assets are found in the banks of the graduates of the top 150 universities and colleges. For most college graduates, once subtracting the cost of their college education, the difference between what they will earn and what a similarly talented and motivated high school graduate will earn is much less.”

Not only that, Bennett points out, but rising graduate unemployment and the huge costs of college education (in the US, and in the future in the UK, too) make the answer to the question not so obvious: in the last 20 years in the US the cost of doing a four-year degree has risen four times the rate of inflation, and the average price of attending even a public US college will have doubled in just 15 years.

These costs are met by the government via student grants and loans, and by individual families – a Pew Research survey in 2012 showed that one in every five households in the US owed student-loan debt – and often these loans are unpaid (The New York Federal Reserve Bank reported in 2012 that one in four borrowers was delinquent). In 2013 the cumulative amount of federal student loan debt held by borrowers crossed $1 trillion Student loan debt is also growing at a much faster rate than other forms of consumer credit – up 20 percent between the end of 2011 and May 2013.

And because since 2007-08, the average pay for college graduates in America has fallen by 5%, and half of all four-year college graduates now work at jobs that don't require a college degree, this leads Bennett to say “never have so many charged so much for so little” and so to answer the question:

“Does college “provide a degree of economic security and personal happiness that cannot be found elsewhere? Taking into account the high risk of debt and unemployment or underemployment, does the end justify the means? Should everyone go to college?”

with a “no”.

Even for those who do successfully graduate – and in 2004 only 58% of first-time college students enrolled in a four-year degree programme did – 84%  percent of employers rate the resulting graduates as unprepared for the workforce.

The picture Bennett paints of the US higher education system is damning – a system in disarray, marked by unscrupulous universities sucking in government grants (“leave nothing on the table” one college administrator is quoted as saying about grant income), overpaid college presidents (the median pay for public-college presidents is now $441,392), and gullible consumers who are willing to pay for the privilege of attending an institution based on rankings that have no connection to the future worth of their degrees.

At the heart of his argument is what he calls the ‘Bennett Hypothesis’: college tuition will rise as long as the amount of money available in federal student aid programs continues to increase with little or no accountability. Bennett says his hypothesis is supported by data that reveals that colleges that receive governmental support have tuition prices roughly 75 percent higher than those that do not. Mark Cuban, the technology billionaire, agrees: “You know who knows that the money is easy better than anyone?” he wrote in his blog post, ‘The Coming Meltdown in College Education’ “The schools that are taking that student loan money in tuition. Which is exactly why they have no problems raising costs for tuition each and every year”.

If you agree with Bennett about the US higher education system – and potentially the UK education system if fees become uncapped from their current maximum of £9,000 a year – then what can we do about it? If higher education is failing students by not delivering jobs to pay off accumulated student debt, then what are some solutions?

One of his arguments, and one that we have been exploring in the Leasing Foundation’s education consultation, is that a degree, or even a course, at a traditional university is not always the best choice. Bennett suggests:

“better high schools, trade schools, and apprenticeship programs should take the place of overpriced and underperforming colleges and universities. Online education, particularly MOOCs (massive open online courses), should take the place of inefficient brick-and-mortar colleges, making education of all types less expensive and more accessible”.

Again quoting Mark Cuban, Bennett suggests that those who do a degree are in fact put at a disadvantage in the job market:

 “As an employer I want the best prepared and qualified employees. I could care less if the source of their education was accredited by a bunch of old men and women who think they know what is best for the world. I want people who can do the job. I want the best and brightest. Not a piece of paper.”

He cites alternative forms of education that bring students and employers closer together such as Enstitute, an apprenticeship-based educational experience for people between 18-24. Students work directly with the founders of startup companies such as Thrillist and Warby Parker, and tuition costs $1,500 per year. Enstitute says about its programme:

“Built off a “learn by doing” philosophy, fellows work 40 hours a week under entrepreneurs learning skills and developing competencies to make them valuable in the workforce. Year one provides a high level overview of business (consisting of marketing, sales, business development, operations, hr, and/or business administration), technology (consisting of front-end development, back-end development, system architecture, IT, quality assurance, UI, UX), and design. In year two, fellows “pick a major” in a specific functional area to deeply develop skills, competencies, and networks that increase their value to future employers.”

The Foundation is exploring exactly this opportunity – to develop programmes that cut across the traditional boundaries of university courses driven by the need to provide value to future employers, not to educational institutions.

A second way of improving things, and a practical recommendation for those trying to choose which university and which course to attend, is to base the decision on data. In the US, sites like payscale.com use data on salaries in specific industries, job catagories and locations that allows students to make informed decisions on what their likely earnings will be given a specific job. And even though university and college rankings are unlikely to be accurate guides to the quality of education, UK universities are required to publish Key Information Sets (KIS) for all courses, that provides – amongst other data – information on employment outcomes.

Accurate and detailed data, both about students’ evaluations of their experience and also their career, salary and progression will help students to make informed choices: in order to make an informed investment decision before going to university, a student must be able to make accurate economic forecasts, estimate the probability that she will graduate, predict when, choose the right major depending on the labour market, to understand how to calculate the investment's value. Those courses that make this process easier for students by providing detailed transparent information will also undoubtedly more successful in attracting students because they can be more confident they have made an informed decision. The UK government is also keen to understand the salary outcomes for graduates, and is starting to collect long -term graduate earnings data and plot them against the institution attended and subject studied.

Finally, and more controversially, solutions lie in the reinvention of the student funding system. According to Luigi Zingales, writing in the New York Times, in 2010 almost eight million students in the US received grants, at a total cost of $28 billion. The federal direct loan program, which allows non-affluent students to get government-guaranteed loans at low interest rates, cost taxpayers another $13 billion in 2010-11. Total subsidies to university education amount to $43 billion a year.

The problem is, says Zingales:

“These subsidies also distort the credit market. Since the government guarantees student loans, lenders have no incentive to lend wisely. All the burden of making the right decision falls on the borrowers. Unfortunately, 18-year-olds aren’t particularly good at judging the profitability of an investment without expert advice, and when they do get such advice, it generally counsels taking the largest possible loan. The stock of student loans has reached $1 trillion, while the percentage of borrowers in default jumped to 8.8 percent in 2009 from 6.7 percent in 2007.”

The solution? Treat graduates as collateral. Investors finance students’ education with equity rather than debt: in exchange for their capital, the investors would receive a fraction of the increase in income that derives from college attendance. Collected via the tax system – as is the case with student loans in Australia since the 1980’s – these equity contracts would

“diversify the risk of failure, with highly compensated superstars helping to finance the educations of less successful college graduates. They will also avoid pushing graduates into lucrative jobs just to pay off debt. Most important, these contracts would provide financiers with an incentive to counsel students wisely, as financiers would profit from good educational investments and lose from bad ones. This would create more informed demand for the schools, exerting pressure on them to contain costs and improve quality.”

One thing is almost certain: education is ripe for disruption. Online education, in the form of MOOCs, are one sign that the status quo is changing, and as Bennett points out the economics of education are in need of urgent reform.

Looking at the players in the education market you could observe that disruption is not only necessary but inevitable. Universities and colleges are so collectively locked into a pattern of competition between themselves – for the best students, for the top ranking, for the best researchers – that they have lost sight of their mandate: to offer distinctive educational products, services and experiences that deliver the most value to students, businesses and society.

As an industry, leasing and asset finance should get the best possible education and training: modern, effective and agile – driven not by those who provide learning and development, but in partnership with those companies and people who need learning and development for their success.

CC BY 4.0 Is university worth it? by Peter Thomas is licensed under a Creative Commons Attribution 4.0 International License.