Among the numerous education thought leaders assembled this week at the Milken Institute Global Conference, one of the hottest debates centered on how to tackle the sky-rocketing costs of higher education. Perhaps former Secretary of Education William Bennett summed up the sentiment when he wise-cracked that the three things today’s Americans can’t escape are “Death, taxes and student loans.”
Three solutions generated the most buzz during the conference.
1. “Skin-in-the-game”
More commonly associated with real estate lending, “skin-in-the-game” in the education realm would see schools held responsible for a portion of the debt a student takes out to their finance education if the student ends up defaulting on the loan.
If schools are on the hook for repaying some of the loan of a defaulting student, then perhaps schools will be more selective in who they admit and offer more academic support to students who do enroll. Schools would also be more incentivized to offer post-graduate career guidance and, in some cases, re-training for alumni looking or needing to make a career change.
Mike Cagney, one of the speakers on the “Investing in Students” panel, embraces the “skin-in-the-game” model. Cagney’s firm, SoFi, leverages alumni and other networks of individual investors to help graduates re-finance loans and offers career assistance. Cagney says the approach benefits from what he calls “moral-suasion” — since an ensuing default would be public knowledge within the alumni network, borrowers are less likely to walk away from the loan. Cagney cited the proactive role alumni and other networks of investors can play in preventing defaults when they have “skin-in-the-game.” When a borrower loses their job, they are aided in the ensuing job search by fellow alums-turned-lenders who have a very real financial incentive to help them find a new job.
When Bennett quizzed Cagney as to why schools weren’t setting up similar programs to help their students, Cagney cracked a wry smile and said schools are hesitant because they don’t want to be viewed as profiting financially from the debt shouldered by their student body.
During the “Future of Higher Education” panel, Strayer Education Executive Chairman Robert Silberman, also voiced support for the “skin-in-the-game” concept. Silberman also lobbied for more testing of basic math and English skills among students seeking second careers, noting failing students should be denied admittance or offered remedial classes prior to full enrollment.
2. Tie loan amounts to earnings potential.
Why should students enrolling in majors with relatively limited earning potential be allowed to borrow as much as those preparing to enter more lucrative fields? Numerous speakers said student loans should be underwritten based on the student’s major, school and the value of their degree in the marketplace. Linking the amount of debt a student can take on to the economic prospects of their major would prevent many students from borrowing amounts that may prove difficult to repay.
3. Charge different tuition rates for different majors.
Should all students be charged the same tuition rate when their career earnings will vary widely based on their major? Dave Girouard, founder and CEO of Upstart, said schools should be forced to disclose the value of the various degrees they offer. “McDonald’s has to label the calories in a Big Mac, why aren’t schools forced to disclose the value of a degree.”
Girouard added that data on earnings from specific schools is available and should be used as part of the “scorecard” the Obama administration is aiming to create.
George Washington University President Steven Knapp said fixed tuition costs would also promote more transparency about the total cost of education.