The problem of student loans that don’t deliver on jobs

by Grace

Kevin Carey in the New York Times writes about how vocational training programs over-promise and under-deliver on their promise to train students for well-paying jobs.  He highlights the problems with medical assistant training programs.

Many people who graduate from such programs struggle to find work. Those who do find work often make little money — too little to repay their debts from the program. Despite the happy poster images, the market for medical-assistant education is actually an allegory for the problems in the parts of higher education that tend to attract low-income and middle-class students: little regulation and uneven — often mediocre — results. The same problems afflict many community colleges, lower-tier four-year colleges and training programs in fields like office management and culinary arts.

According to the Department of Labor, the median annual salary for medical assistants in 2011 was $29,100. Yet most recent graduates of medical-assistant training programs earn much less, which suggests the programs are not reliable routes to good jobs as assistants. Among the 100,000 students who earned a medical-assistant certificate in 2008 or 2009, roughly 94 percent attended a program where graduates typically earned less than $20,000 in 2011, the data show. More than 50 percent attended a program where typical graduates earned less than someone working full time at the federal minimum wage would — $15,080. That can only mean many were not working full-time in any job.

Clearly the return on investment is painfully insufficient for many trained medical assistants, as well as for many other graduates of our faltering higher education system.  Carey attributes the problem to false advertising, noting that “it’s nearly impossible to find an employer who explicitly requires a certificate”.  He calls for increased regulation as the solution.

The medical-assistant education market is inefficient because the American higher education system is largely unregulated. Every year, the federal government gives students $150 billion in grants and subsidized loans to attend any program offered by any accredited college. The assumption is that the free market will take care of the rest. But college is what economists call an “experiential good” — something you can’t entirely understand until after you purchase and experience it, at which point it may be too late.

Inadequate loan underwriting creates “distortions and useless degrees”.

I actually agree with Carey’s general point that new regulations are needed to curb abuses arising from the haphazard distribution of billions of dollars of taxpayer funds with very little accountability.  But my take on the problem is closer to how this highly-ranked comment frames the problem, with a need for the federal government to do a better underwriting loans.

It is amazing how this article and most others on the the subject never mention the elephant in the room.

It is the Federal Government’s policy to dump money, in the form of grants or loans and loan guarantees, for virtually any degree, any college, to anyone, that creates these distortions and useless degrees.

Do you think any private bank without the Federal Student Loan guarantees and laws would ever lend $18K in unsecured loans to 18 year olds with no assets and no income attending these programs?

Do you think many parents or family would be writing actual checks of $18K for people to attend without making sure they lead to actual jobs?

Of course not. The Federal Government policies inflate the cost of higher education and preserves the existence of thousands of non-viable programs of higher education.

Until we address that, these distorted results will continue to be with us.

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Kevin Carey, “When Higher Education Doesn’t Deliver on Its Promise”, New York Times, Oct. 4, 2014.

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