Mike Moceri, Drexel Law student and Student Liberty Front member, just wrote up this awesome piece inspired by the Peter Schiff presentation at Temple University today! Great job!
I just finished listening to Peter Schiff give a presentation at Temple University regarding the rising cost of education and the education bubble. The presentation was generally well-received, and I must admit that I agree with most of what he said. During his presentation, Mr. Schiff made a well crafted argument concerning the supply side of the education economy. He argued that the education bubble is largely due to government backed student loan programs artificially deflating the perceived cost of education. As a result, more students choose to attend university, which in turn drives down the value of the four year degree. He also spoke a bit about the fact that most students spend six years or longer to complete a degree program, and that a substantial number of students drop out. That’s all well and good, but Mr. Schiff missed a key point of argument which deserves more careful consideration. The demand side of the education economy seems completely unrelated to the supply. While tuition rates skyrocket, more and more students are choosing to take on the extra debt and go to college. Why?
Mr. Schiff attributes the increased demand to the artificially low perceived cost of education. Namely, he argues that students do not recognize the difficulty of paying off student loans. Students choose to take the money up-front simply assuming that they will land jobs after graduation which will enable them to pay the bills. Surely, this is one contributing factor. However, the education bubble cannot be explained away by this factor alone. Why are students so willing to shoulder the added debt load in the first place? What is the human incentive which drives the borrowing and spending?
It would be absurd to assume that students go to college with no idea of what they will get out of a four year education. But the reality is that almost every student knows that the education they receive at a university is not the primary benefit of a four year degree. Most students go to college not to receive an education, but to get jobs. And that’s a huge problem. When the primary value of a four year degree is the degree and not the associated knowledge that goes along with it, we face a huge problem of mismatched incentives. The result? A stagnant economy, lack of innovation, and an apparent over-abundance of talent which unfairly reduces the value of the four year degree.
Employers want to hire competent people as employees. Unfortunately, the process of screening potential candidates for employment is arduous, and there are very few cost-effective ways to judge a candidate’s true potential. As one example, assume you are a software company seeking to hire a new software engineer. You will likely receive hundreds of applications- each of which containing both a cover letter and a resume. The cover letters will contain bald assertions about the skill set of the potential employees, coupled with some vague platitudes about the candidates being hard workers. The cover letters are therefore largely meaningless. They do not, and in fact can not act as an accurate assessment of the candidates’ abilities as software engineers. A company might require that potential employees send in code samples- and some do. The problem with screening code samples is that it takes a tremendous amount of time. Not only does it take time, but it takes the time of software engineers who are already employed, who should be spending their time doing the actual job they were hired to do- to engineer software. A human resources employee (read: inexpensive) doesn’t have the requisite skills to screen candidates on that level of detail. So what do most employers fall-back on as a cost effective alternative? They look to the resumes.
And herein lies the crux of the problem. In order to cut costs in hiring, employers rely on universities to do most of the screening for them. By categorically rejecting potential employees without the requisite degree, employers save time and money. Students know this, and are therefore willing to shoulder the debt of a four-year education to be able to get their feet in the door. Twenty years ago, a person who chose not to attend college could work in service-related jobs, do secretarial work, or various types of trade labor. Today however, because more and more students choose to attend university in order to land choice jobs, and because the job market as a whole hasn’t experienced much growth (in fact, it has contracted), those individuals without a four year degree are being shut out of even minimum-wage jobs as they are being taken up by all those unlucky degree holders who couldn’t seem to land those choice jobs after graduation. The end result? Those individuals who wouldn’t have gone to college twenty years ago now decide that in order to get a job, they have to go to college. Thus, we witness a vicious circle wherein students are the ultimate loser.
The problem doesn’t just end there, though. Many degree holders wind up having to work two or even three low-paying jobs in order to make their student loan payments. Because student loans can not be eliminated through bankruptcy, graduates become the wage-slaves of the banks. Not only do the students lose out, but employers do too. As more and more students achieve the requisite degree standard, the screening tool loses its effectiveness. The day that a software company will see 80%-90% of its applicants holding four year degrees is rapidly approaching. And when that day arrives, the categorical rejection of those few who don’t hold degrees won’t do much to cut hiring costs. The obvious solution: begin rejecting anyone who doesn’t have a PhD. Some companies, such as Google, are already beginning to adopt this strategy. But while this solution may be the most obvious one, it carries with it high costs for students. A higher degree carries with it even more debt, and the reality is that there are only so many jobs available. For those unlucky students who get their PhDs and fail to make the cut at elite companies, what is their alternative? Less elite companies. And what about the four year degree holders who anticipated getting those jobs? Minimum wage jobs. The cycle goes on, and on, and on.
The smart solution to this problem is for students and employers to stop viewing the university as an effective tool for evaluation of employability. Employers should begin relying more on skills-based testing to weed out candidates, and students should recognize that a university education is no guarantee of landing a good job. Only when the dropout rate increases and the number of qualified applicants shrinks will the cost of a university education finally start decreasing. Will this be a bad thing? Of course not! The money that those students would have taken out in loans for worthless degrees can be recapitalized into business loans, which can then be used to hire more employees. It might just be the case that the fast-track to a stronger economy lies not in more focus on education, but on less. The way to get us there, however, should not be isolated to supply-side solutions, but should incorporate demand-side solutions as well.