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< | Education Is An Active Choice, Not A Default | >
> | Defaulting Into Education | | | -- By AlexKonik - 03 Jun 2012
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< | Intro | >
> | America is captured by a creed that education is your ticket up. Investment in education, no matter the school or area of study, is worth the cost. This creed, combined with easy access to money through education loans, leads many people into graduate degree programs by default. A graduate education can be an excellent decision for many; however, its value is not universally applicable. This fact, often realized too late into one’s career planning, is illustrated by massive student loan debts, a vast number of underemployed Americans, compromised career ambitions, and a growing number of people who cannot repay their loans. Students would be better served by evaluating graduate school enrollment as a significant financial investment to be weighed against long term opportunity costs. Using principles of libertarian paternalism, or nudges, there may be ways to guide students towards more informed decision-making. Ultimately, students would benefit from an honest evaluation of the benefits of graduate education. | | | | |
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< | America is captured with a creed that education is your ticket up. Investment in education, no matter the school, your area of study, whether you are truly interested, or how hard you will work, is worth the cost. You should not consider whether to go to school; you should consider where to go. This creed, combined with easy access to money through education loans, leads many people into graduate degree programs funded on debt. A debt-driven graduate education is an excellent decision for many people; however, for many it is not. This fact is illustrated by the massive size of student loan debt in America and students’ increasing inability to pay it off. The education was not worth the cost for many, and America faces a new ominous cloud of debt as a result. Using principles of libertarian paternalism, schools and the government May be able to nudge the most vulnerable potential students away from a misinformed investment in education. | >
> | The Creed – Education is Always a Good Investment | | | | |
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< | The Creed and Its Foundation | >
> | The unquestioned value of education is based in reality, and it is not altogether wrong. On average, higher levels of education are correlated with higher levels of income. Additionally, gaining a specific skill or education may be the best way to break through an income or career ceiling. A medical doctor interested in dermatology, a young woman looking to make partner at Cravath, and a studious literature academic are all well served by their requisite graduate programs. People look to these idyllic examples to justify their own investments. The financial surety of these examples does not apply to each student’s particular situation. | | | | |
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< | The creed Is based in reality, and it is not altogether wrong. Higher levels of education are correlated with higher levels of income. Gaining a specific skill or education may be the best way to break through an income or career ceiling. A doctor set on dermatology, a young woman looking to make partner at Cravath, and a studious literature academic are all well served by their requisite graduate programs. These are considered investments that lend support to a creed that extends too far. Graduate education can quickly become the default in a slumping economy, rationalized as a sound investment when for many it serves mostly as a credible excuse for delaying entry into the workforce. This group of default students would be better served by foregoing additional schooling, and nudges may help them self-identify. | >
> | The Creed Does Not Apply To All | | | | |
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< | The Creed Is Not Right For All | >
> | Graduate education can quickly become a default choice in a slumping economy, rationalized as a sound investment when for many it actually serves as a credible excuse for delaying entry into the workforce. These “default students” may benefit by foregoing additional schooling. There are at least two groups for whom a graduate school investment is unsound: one fails to realize any financial benefit from her degree and the other sacrifices life goals in response to financial pressure accompanying the degree. First, assuming financial motives only, some degrees just don’t pay off. Doing the same work without the degree is possible, and the augmented salary does not make up for the opportunity cost of formal education. Second, some students enter graduate school with the intention of pursuing a low-paying field to satisfy non-pecuniary desires (here, think about general practitioners or human rights activists). After feeling pressure from the magnitude of loans, they abandon their goals and pursue an unwanted career that can fund their degrees (here, think orthopedic surgeons and Wall Street lawyers). Although these degrees have great fiscal returns, it can come at a great personal cost. These default students fall victim to the education creed. | | | | |
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< | For whom is graduate school ill advised? It could be evaluated by asking whether the student is regret-free sometime after graduation, compared to the counterfactual of non-attendance. Did graduate school advance achievement of your goals? First, assuming financial motives only, some degrees just don’t pay off. Doing the same work without the degree is possible, and the augmented salary does not makeup for the opportunity cost of education. Second, there is a group of students for whom financial comparison clearly supports enrollment. Comparative literature majors in law school provide a good example. With this group, one must ask whether the opportunity cost is truly overcome in another way. Many students enter medical or law school with the intention of pursuing a low-paying field to satisfy a non-pecuniary desire (here, think about general practitioners or human rights activists). After feeling pressure from the magnitude of loans, though, they pursue employment that makes their degree financially superior compared to non-enrollment. It is not clear that the degree overcomes its opportunity cost here when one considers less tangible factors like the shift of employment type – the shift in what goals one is pursuing with her career. These two groups of graduate students who I call “default borrowers” – the financially motivated who are misinformed about salaries and the lifestyle motivated who underestimated loans – fall victim to the education creed and would benefit from a nudge. The dedicated dermatologist or devoted LRAP public defender are not this paper’s targets; the creed is true enough for them. | >
> | Student Loan Debt Matters | | | | |
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< | Student Loan Debt Is Significant
Student loan debt has surpassed credit card debt in magnitude and now totals over one trillion dollars. The large size should not be surprising. Government education loans are easily accessed, conditional upon little more than admission to an accredited school. Such easy access to funds allows borrowers to “invest” without much critical thought in the value of their degree. Specifically, this practice enables our default borrowers’ decisions to attend graduate school. We should be concerned with funding these degrees that serve neither financial nor social interests and add to the ballooning educational debt figures. Adding some trivial barriers to borrowing and encouraging consideration of alternatives before investing in further education will encourage default borrows to self-identify and help some avoid poor investment decisions. | >
> | Putting the student’s decision into context, a graduate school education is a significant financial investment. Student loan debt in America has surpassed credit card debt in magnitude and now totals over one trillion dollars. The enormity of debt should not be surprising; government education loans are easily accessed, conditional upon little more than admission to an accredited school. Such easy access to funds allows borrowers to invest without much critical thought in the value of their degree. Specifically, this practice acts as an enabler for students who attend graduate school by default. Degrees that serve neither financial nor social interests are the most concerning in relation to the ballooning educational debt figures. Encouraging consideration of alternatives before investing will encourage default students to identify the risk of their investments and help avoid regrettable results. | | | Nudging and Setting Defaults | |
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< | Cass Sunstein and Richard Thaler introduced the concept of libertarian paternalism to a wide American audience with their book Nudge. Taking lessons from this concept, schools and the government may help default borrowers self-identify. First, providing an education in basic financial literacy may go a long way alone. Some states already require a “consumer economics” course in high school or college, and these requirements should be expanded. Second, most school borrowers are funded at least partially through the national government’s Stafford loan program. Today, borrowers are required to sign a promissory note and take an accompanying quiz. The government should add a portion to that quiz that roughly demonstrates the expected financial impact the individual’s graduate education. A form should ask the applicant to enter her highest previous level of education, her major or specialty, her prospective graduate program, and the career she hopes to peruse after. Requiring this level of introspection alone is beneficial, but the form could easily output a rough calculation of the expected value of the degree measured against the applicant’s opportunity cost. Coupled with monthly salary and loan repayment amounts, this could at least provide a wakeup call for those least informed investors. Third, graduate schools should place a larger emphasis on post-undergraduate employment in their admissions practices. Nearly 80% of Northwestern Law School’s entering class as two or more years of work experience; 95% have at least one year. Among many other benefits, this requirement would eliminate the default non-choice of remaining in school as an aversion tactic against employment. The opportunity cost of education could actually be known. | >
> | Cass Sunstein and Richard Thaler introduced the concept of libertarian paternalism to a wide American audience with their book Nudge. Taking lessons from this concept, there are several way schools and the government may help default students self-identify as an at-risk group. First, an education in basic financial literacy may go a long way alone. Some states already require such a course in high school, and these requirements should be expanded. Second, some graduate schools should place a larger emphasis on post-undergraduate employment in their admissions practices. For example, nearly 80% of Northwestern Law School’s entering class has two or more years of work experience. Among other benefits, this requirement would encourage the default student to explore other opportunities and consider the value of graduate education in context of her life. Additionally, defaulting into employment instead of school would reduce applications motivated by intimidation of the working world. It would encourage more careful consideration of the degree’s value by requiring students to make an active instead of default decision. Third, most school borrowers are funded at least partially through the national government’s Stafford loan program. Today, borrowers are required to sign a promissory note and take an accompanying quiz prior to loan disbursement. I suggest the government add a portion to that requirement that roughly illustrates the expected financial impact of the individual’s graduate education. With the applicant’s previous level of education, major or specialty, prospective graduate program, and prospective career, the quiz could show the expected value of the degree. Although this information may come too late in the decision process, requiring this level of introspection alone would be beneficial. Some combination of nudges like these may help overcome the power of the education creed. | | | Conclusion | |
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< | Graduate education has obvious benefits to individuals and society, and for many legitimate reasons our government has decided to fund it virtually indiscriminately. Given this policy choice, many people are enticed into graduate school who later regret attending. In order to control the growing debt and encourage efficient loan distribution, schools and the government should implement methods for inefficient lenders to self-identify and avoid burdensome, wasteful loans. | | | \ No newline at end of file | |
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> | Graduate education has obvious benefits to individuals and society, and for many legitimate reasons our government has decided to fund it virtually indiscriminately. Given this policy choice, many people are enticed into graduate school who later regret enrolling. In order to control the growing debt and encourage efficient investment decisions, individuals must weigh the value of graduate education in context of their unique situations; the creed should not eclipse individual circumstances. Perhaps schools and the government could play a role by educating students on the value of their investments. In the end, graduate school is a major life commitment that warrants honest consideration and more than assumed approval.
(I remain interested in working on the paper and topic) |
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