Category Archives: EDUCATION

Education in Debt: Part Three

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With costs soaring and debts deepening, many students, universities, and lovers of learning are turning to online and blended programs that reduce or eliminate physical class time. Georgia Tech, for example, recently rolled out an online computer science master’s program incorporating large scale lectures, smaller online discussions, and individual assignments. The program costs less than half of the price of its on-campus master’s degree. Until college fees come down, or even if they do, we will probably see more and more of these hybrid programs. In fact, Rukuku hopes that we can host many of them here.

Recent graduates look for education alternatives to avoid student debt

Recent graduates look for education alternatives to avoid student debt

Beyond the move to online learning environments, greater accountability will help. Writing on behalf of the non-profit think tank Educational Sector, Andrew Gillen recommends that the Department of Education provide information pairing graduation rates and student loan default rates at colleges and universities. In this way, students can make better informed decisions. And for their part, students need to pay more attention to graduation rates and average debt loads for graduates at perspective universities. Some of President Obama’s recent proposals on higher education relate to this accountability issue, and we will discuss those in our next post.

Overall, more universities should realize that the music may soon stop on this higher education game, and less expensive-online competitors are quickly filling the seats behind them. The US is known worldwide for the quality of education provided at its universities. The costs are also well-known and sadly becoming the more prominent feature. With the internet greatly expanding the avenues for education, some universities may find they’ve priced themselves out of the market.

Education in Debt: Part Two

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So what are the effects of all this student debt? For one, the whole backpacking around Europe after graduation is much less cool than it used to be. So is everything else that used to be cool, like bar tending, ski bumming, trail blazing, or starting a software company in your mom’s garage. Actually, that last one may still be cool, if it was ever cool, but it is clearly more difficult to do with student loan payments to make.

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The long term effects of all this debt are surprisingly significant, a recent study from the New York-based Demos Group shows. A dual-headed household, in which both partners graduated with bachelor’s degrees and an average debt load, earns $208,000 less than households of graduates with no student debt, according to the study.

That’s a huge difference and it all relates to early investment. Young adults in debt put off projects such as home ownership and retirement planning to pay off those student loans. Demos estimates that two thirds of the difference in lifetime earnings stems from diminished retirement savings and another third is lost because indebted households build less home equity.

On another note, less easy to quantify, young graduates in debt are less likely to take risks, entrepreneurial or otherwise. The twenties is a time to take some risks, to travel, to explore, to open a bar with a buddy or buy a house in a cool, but rough part of town. Or for those overachievers, it is time to get started on building a life in a place with a job and a house. But it is tougher for recent graduates to do any of these things these days, and student debt is one of the primary reasons.

Education in Debt: Part One

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College is a great investment.  Graduates from bachelor’s programs earn about $500,000 more during their lifetimes than peers with only high school diplomas. In fact, even those that go to college but don’t graduate will get around $100,000 more in lifetime earnings than high school only graduates, according the DC-based Hamilton Project, which is part of the Brookings Institution. In a June study, the group concluded that investment in a college education offers returns two to three times higher, on average, than those from investments such as stocks, bonds, gold, treasury bills, and housing.

Student debt, young graduate debt

Young graduates struggle to stay ahead of their student debt payments

Still, college is expensive, even if it is a good investment. And it is getting more expensive. Educational costs rose 165% from 1993 to 2011, more than broad inflation and medical care costs, which were up 56% and 100% respectively, according to Emily Dai of the Federal Reserve Bank of St. Louis. Several factors are involved.

One is that, once upon a time, most people that worked at universities were in the classroom teaching. Nowadays, there are more administrators, vice-provosts, assistant deans and chairpersons of committees on something or another. There are more researchers as well. A report from the DC-based Delta Cost Project showed that the proportion of education spending set aside for instruction decreased from 2000 to 2010, with costs related to research, student services, academic and institutional services all growing more quickly. Student-to-teacher ratio has hardly changed in thirty years.

Schools are also spending more money on facilities that will attract quality students and well-known professors. That sounds reasonable. Everyone wants good students and teachers. At the same time, I am not sure if you want your students to stay because of a nice swimming pool. Well, except that if they drop out, or even if they get accepted but decide not to come, that affects your school’s ranking in the college books and magazine ratings.

While spending has gone up, financial support at the state and local levels has dropped off significantly. Most universities have tried to fill the gap, or at least some of it, with higher tuition. In 2010, for the first time ever, tuition contributed more toward education expenses at public research and master’s institutions than local and state government appropriations, according to Delta.

Luckily, or sort of luckily, there are many programs to help students pay for school, including scholarships, grants, loans, and work-study programs. Most students, 71% according to the Department of Education, receive some form of financial aid. Forty two percent take out federal student loans.

Those loans can easily be repaid once these students are all out in the real world and making big bucks. Only that doesn’t always happen. As it turns out, not every business venture needs a philosopher (my major, by the way). Few 18-year olds truly understand the amount of risk and responsibility they take on when signing those loan papers. Many of them don’t know to separate colors from whites in the laundry either.

With this in mind, it is easy to draw parallels to the conditions preceding the mortgage crisis. Abundant credit is readily available to inexperienced buyers, a situation which feeds market bubbles. In real estate, we know how that story ends, or least the most recent chapter. Housing prices inflated, then popped, wreaking havoc on the national economy, then the global economy. In the case of education, it is the tuition prices inflating, and we don’t yet know the consequences. In other words, student loans, which help individuals go to school, are pushing up prices for college attendees as a whole.

Emily Dai of the St. Louis Federal Reserve Bank explains, “A college education, like home ownership before the financial crisis, is increasingly viewed as a social good – but one that could quickly become a liability. And the maximum federal loan amount available to students continues to increase, underpinning the fear of the size of the potential liability.”

Defaults are already rising. A study released from the Consumer Financial Protection Bureau earlier this month finds that almost one third of all federal borrowers are in default, deferment, or forbearance.

Nationally, outstanding student debt now totals more than $1 trillion, doubling since 2007.  That total is still less than mortgage debt, but more than outstanding credit card debt or automotive debt. And it is more difficult to escape than credit card or mortgage debt as well. You can give a house back to the bank and declare bankruptcy for most other debts, but that won’t erase student loans.

In our next post, we’ll look at some of the effects this debt has on young graduates.

Class Dismissed

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Is it time to question the traditional, expensive education models? Does education need to equate to decades of debt? Could education be acquired outside universities?

Is it time to question the traditional, expensive education models? Does education need to equate to decades of debt? Could education be acquired outside universities?

Throughout history, or at least the part I know about, students have sat through class, impatiently waiting for a bell to ring, a clock to tick enough ticks, enough sand to run through the hourglass, a teacher to utter the words, class dismissed. Well, that waiting may be over for good, at least for some university students.

On Monday, the US Department of Education approved Capella University’s FlexPath programs for bachelors and masters degrees. FlexPath allows students to get credit for classes by performing well on competency examinations, with no requirements on class attendance. In other words, as long as students can prove they have the knowledge, they can get credit for the class.

This is the first accredited program in the country to make such an offer. The implications are profound and affect several types of students. First, older students, who may have more experience in their particular field, can avoid spending time in classes on topics about which they are already familiar.

Second, bright, motivated students will also benefit. The Doogie Howsers of the world no longer need to sit through classes covering material that they already understand or could understand very easily by studying on their own. In such a competency-based program, these students could easily pass through lower level classes at a much more rapid pace than your average student.

Finally, and most importantly, this program will drive down prices. Universities can hardly justify their astronomically high fees when students work through material at their own pace, at home, with professors offering support but not serving as the centerpiece of the course. The university’s responsibility is as much evaluation as direct teaching.

We talk a lot in this blog about disruptive technologies, and thus far, computers and the internet have only had minimal effects on education, at least when compared to industries such as travel, music, and consumer retail. To see an example, just pass by your local bookstore, or at least the spot where it used to be.

The awarding of credits has complicated the transformation of education through technology. Students need personalized evaluations from their professors, gauging their participation in class and performance on homework as well as exams. Professors can only work with so many students, and their time is not cheap.

Shifting to a competency-based system of evaluation for credit opens many opportunities for students that have learned their skills through less traditional means, including non-credit online courses. For the universities, it offers opportunities to reduce costs. It also puts pressure on them to improve the value of their students’ experiences, in and out of the classroom.

I went to a four-year college and had an excellent time. I made many friends and gained much, not only from my time inside class but my time outside of class as well. With tuition prices soaring, however, today’s students are questioning whether those experiences are worth decades of student debt payments.  It is an important question, and universities will increasingly have to provide a satisfactory response.

 

Why computers have failed to revolutionize the classroom

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In the past two decades, US schools alone have spent over $60 billion on computers. In 1981, there was 1 computer per 125 students. In 2000 there was a computer for every 5 students. This data only reflects what schools have provided and does not take into account the fact that students can bring their laptops and tablet computers to school, i.e. we can safely conclude that on average, US schools are well equipped with personal computers.

In other industries outside the education sector such concentration of computers would have led to a partial or complete disruption of how things are done: take banking, publishing, or movie-making as examples. Education, however, remains undisrupted.

My view is that the main reason for this phenomenon is that computers are used to sustain the traditional education model. At best, they are used as an activity center in class, ultimately adding to the cost of providing education. However, in order to disrupt education, connected computers need to be the center of all activity. We believe that Rukuku.com will be a step in that direction.