Higher Education Cost & Lending Practices: Is It a Conspiracy Theory?

I think one of the reasons that we like conspiracy theories is I think that we like to feel like there is a group of people who are so smart and powerful that they can pull the wool over an entire country or in fact even an entire world's eyes. That certainly makes us feel like somehow we're protected, even if it's not in our best interest. – Jason Ritter

I don’t prefer (or reject) the “conspiracy theory” angle when it comes to the student loan debacle, because I’m frankly not sure. But like I have said previously, when you see the big picture, it is very hard not to imagine a puppet master, a grand scheme. Maybe some people manipulated things, or perhaps we just ran into a perfect storm, or a combination of both. Honestly though, in the end, it really doesn’t matter. It is what it is, and we are where we are. I am explaining all this in the hopes that you too will see the big picture and join me on my mission to set it right.

Another piece of the big picture—one I find morbidly fascinating—is that no one is watchdogging this basic problem. We have a borrower and a lender lending for a product, and no one is accounting for the quality of that product! Think about that. That’s amazing, crazy, and ultimately very frustrating. I cut my teeth in the finance world with investing starting in 2010. I still feel like an investor about a lot of things, in that I still have that point of view about markets, businesses, and products I see today. This fundamental detail of education quality control has been, in my opinion, completely overlooked. We are fine with lending and borrowing, but the third and very intrinsic piece of the triangle is what the money is being lent for.

When you structure other kinds of loans—for a car, a home, you name it—the product must meet certain standards. There is no lender in the world who would lend money to a borrower for a shit product. Or—maybe more precisely put—no lender would lend money for a product over and above what that product is worth.

The easiest comparison to higher education for most people to wrap their minds around is buying a home. When you set out to buy a home, there are so many underwriting guidelines that go into getting a mortgage. The two I am going to go in depth about for this comparison are the guidelines surrounding The Borrower and The Home. The Borrower I will discuss in the next article. This article will be more about The Home or the product that a bank is willing to lend on.

Okay, so every time anyone buys a home and gets a mortgage, the lenders routinely do rigorous tests to make sure that the home is worth lending on. A home inspector inspects everything from the foundation to the roof. Then they must look at the builder/architect, any construction that has been done since it was first built, and the entire history of the home from when it was built until now. Then they look at the city, the zoning, the soil, the drainage, the flood plain, earthquake fault lines, severe weather history, pest inspections, and on and on. They do all this to ensure that the bank lends money on a quality product. The idea being if anything were to happen to the borrower or the home, the lender would be protected. Essentially, a lender won’t lend money on something it can’t recoup all or most of its money on, should things go awry during the time it is being paid back by the borrower. All that to say that a lender goes through a huge amount of due diligence before lending money for the product.

But when it comes to tuitions and colleges, there’s nothing at all like that!

No one accounts for how much is being lent versus the quality of the product. It is very much a free market in that sense: no one is forcing you to choose where to go. You have a ton of options, and they all have price tags. No one is forcing you to pay that much. You just choose to pay that much…or not and go somewhere else (Side note: not many people know that you can negotiate your tuition if you know how to play the game. No figures are set in stone).

Here are some questions I pose to you, dear reader:

  • Why are the price tags so wildly different from college to college?

  • Isn’t the information identical no matter the source?

  • Doesn’t 1+1 still equal 2, no matter where you get the answer from?

Well, you might say, “The quality of how the education is delivered and how the student is developed is what’s so different!” Okay then. If so, then why are the lending practices exactly the same no matter where you go? Why is it just as easy to get a loan anywhere, irrespective of the quality of the education?

Now, I fully understand that an education is an intangible thing. I realize you can’t repossess an education to recoup the investment if it doesn’t work out. But consider this litany of complaints:

  • Fraudulent schools

  • Tuitions skyrocketing every year

  • People who aren’t using their education but who are suffocating because of the debt they took on

  • People who are using their education but who are struggling financially because of their student debt

I think we have got to change the way we do things. I think one of the first things is to take a really hard look at the quality of the product and the guidelines for lending money to these schools.

Now, there are defenders of the system who respond to what I’m saying with: Well, the colleges do have standards that students, faculty, facility, and curriculum must meet to qualify for the loans.

Okay, but even still. Not a lot of people are paying attention to how far that education is taking people in the workplace. Statistics don’t lie, as we discussed this previously. And it’s worthwhile to reflect on this stat in particular: 73% of all college graduates do not go into the field that they studied for.

To me, that’s a glaring problem. It points to some fundamental inadequacy. Those in charge of preparing the next generation of workers clearly are not talking to employers. They are not in sync. And so, there’s tremendous waste occurring in the system.

Again, I’m not an expert on education as a whole—just a fierce student of the system. But throughout American history, education has been one of the slowest systems to change in our country—education and construction. The fastest growing system is the tech industry. So as the entrepreneurs and businesses are racing ahead in fields like tech, education lags way, way behind.

Let me give you a few examples, so you can trace this sluggishness if you’ve never noticed it before. At the inception of the earliest schools in America, most people lived on farms and sent their kids to school every day. Way back then, children needed to take leave every summer to work the family farms when the majority of crops were ready to harvest. That is the reason that stil—to this day—students get summer vacation, even though it’s not exactly relevant to our modern society.

Oh and one of my favorites is the factory system that we still use. In the early 1900’s, John D. Rockefeller put systems into the education model to create an army of factory workers. These systems are still in place today:

  • Why are classes separated by subject? Why do young people shuffle between classes when a bell rings? It’s thanks to him.

  • Why do teachers churn out students in uniform formation like an assembly line and box in their minds? It’s thanks to him.

  • Why do we measure kids on what they can memorize, even if they’re memorizing things they will literally never use in their entire lifetime? It’s thanks to him.

  • Why do we grade children the same way, even though we know everyone has different ways of thinking, different ways of learning, different things they are interested in, different choices and preferences, and uniquely different gifts to give the world? It’s thanks to the once-richest man in the world, who used his influence to change the education system.

Think about it. If you employed millions of factory workers, you wouldn’t want them thinking for themselves. No. You would want mindless robots who took orders blindly. You wouldn’t want people just doing whatever they wanted to do. Of course not. You would want people who could follow the assembly line system and do mindless monotonous work, day in and day out, until the final bell rang to go home. He was building drone worker bees, and we have been following this system, year after year, and generation after generation, even though factory work in this country is on the brink of extinction. Not to mention what happens to a young fragile self-esteem when it is told by an adult “you’re stupid.”

If we are still working on 100+ year old ways of doing things, can you imagine the vast amount of inefficiencies at work in our education system today, especially in higher education? And if the system itself is that slow to change (versus how fast everything is changing in our society today), what do you think would be a huge symptom of those inefficiencies? Just off the top of my head, I’d say something like… a giant student loan mess.

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