The (Theoretical) Implications of Debt Rules for Colleges

The announcement yesterday of Department of Education’s new gainful employment rule—which will prevent for-profit colleges that saddle students with too much debt from taking advantage of federal financial aid, but give uncompliant colleges three years before they’re cut off—sparked a lot of discussion among education pundits.

Some argued that the rule was too strict. The for-profit college association said that,

The gainful employment regulation, while reflecting the fact that the Department has listened to the sector and made changes to its initial proposal, is still using the same ill-advised metric approach to this matter and is clearly outside of its statutory authority.

Others argued that the new rule was too lenient. Stephen Burd at the New America Foundation complained that,

Administration officials have significantly delayed the point at which the worst for-profit school programs would be in jeopardy of losing access to federal financial aid. By doing so, they have made it many times easier for career college lobbyists to kill the regulation before the Department of Education can shut down even the most irredeemable programs.

According to an article by Jeffrey Selingo in the Chronicle of Higher Education, however, the gainful employment rule is the first step in a process that could be very important to the way that colleges, regular colleges, do business. As he explains:

What if the premise behind gainful employment was more broadly applied across higher education? In that way, students’ potential future income would be taken into account when they apply for student loans—just as our current income is factored into what kind of house or car we can afford when we apply for other types of credit.

In looking at the earnings-by-major data released last week by Anthony P. Carnevale at Georgetown University, it’s striking to see how income for someone with a bachelor’s degree differs widely based on the undergraduate major.

Instead of the current system, which puts limits on what undergraduates can borrow from the government based on their year in college, Congress could create a system with loan limits tied to a percentage of projected median future income so students were more assured of graduating with manageable debt. Carnevale found a high correlation between what students majored in and what professional field they ended up pursuing.

But taking into account the loan burdens students face after graduation would be a good thing.

Now it’s worth pointing out that the loan burdens here don’t mean quite the same thing. For-profit colleges aren’t really colleges at all; they’re vocational training centers. People attend such schools precisely to get better jobs and make more money.

While that’s a component of all education, increased earnings aren’t the only, or really even the primary function of real colleges, which exist to promote and transmit knowledge. Making a strict connection between college cost and earnings here is a little inappropriate. People don’t study English, philosophy, history (or even physics and biology) because they want to get a good job; they do it because they want to learn.

But still, the problem is that traditional colleges (and their advocates) are now increasingly taking up the rhetoric of for-profit colleges, as if going to college is merely a way to increase earnings. “While there is a lot of variation in earnings over a lifetime… all undergraduate majors are ‘worth it,’ even taking into account the cost of college and lost earnings,” that’s according to the Carnevale study referenced above. “However, the lifetime advantage ranges from $1,090,000 for Engineering majors to $241,000 for Education majors.” This sort of thing allows colleges to justify ridiculously escalating costs.

This sort of talk, equating learning with dollar figures and education with earning potential (if I go to this school I can buy a car; if I go that one I can buy a yacht!), is vulgar and misleading but it’s unclear how to kill it.

It’s time to put an end to this inflation. If a gainful employment rule, being truly honest about the numbers, is the only way to do it, well so be it. But something has to give here, or sooner or later we’re going to revert to a world where only the rich can afford to go to college comfortably and everyone else will have to go deeply into debt to do so.

That would be very, very bad.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer