Student Loans and the Education Bubble
I was early for a meeting on friday afternoon and found myself sitting in a chat between a University President and members of the faculty. One of the faculty members asked the President about the "education bubble." The President gave his thoughts on the topic and then unexpectedly turned to me and asked what I thought.
I am a product of student loans. I got an engineering degree at MIT and a MBA at Wharton and paid for both of those degrees with a mix of family support, tuition credits for working while in school, and the maximum amount student loans I could take out. I spent much of my 20s paying those loans back. I remember when I made my last payment. It was a moment of great pride.
I have made a tremendous return on my two degrees. Those student loans were an investment in me and they paid off big time. For the right student and the right institutions, there is no better investment that society can make than to pay for a high quality college and graduate education. Not only have I paid back the loans, but the Gotham Gal and I have made and continue to make generous gifts to a host of educational institutions. We will pay back the investments made in us many times over.
When it came time for our children to go to school, we have paid for the highest quality education we could find for them. We are fortunate that we did not have to take out loans to pay for those tuition bills. But if that were not the case, I am confident we would have borrowed the money to help them attend those institutions. So we are big believers in the value of a higher education and we have invested in it for ourselves and our children.
I told the University President and the faculty members all that. But I also told them that I am deeply concerned that about the cost of a high quality education and the fact that it is getting out of reach for many. And I told them that I am not sure the return on the investment is as high as it once was for many degrees. And finally, I told them that too many students are walking out of college with a student loan burden that is crushing and that they can't and won't pay back.
So how you reconcile these two opposing views and what can we do about it?
Technology can help. But it is a tool not a panacea. Given the choice, most of us are still going to opt to send our children to MIT instead of the University of Phoenix. MIT and the other leading higher education institutions will increasingly use technology to improve the education they deliver and do so more efficiently. This may help alleviate the ever rising costs.
But we also need to get more creative about the financing of higher education. We should measure the return on investment students are getting from the institutions they attend and the degrees they obtain and tie the amount of loans they can get to the returns they are likely to achieve. Students that attend institutions that can deliver higher returns should be able to take out larger loans.
Repayment terms need to change as well. Loan repayments should be capped at a percentage of current income. I know a woman who has been out of graduate school for more than a decade who dedicates one of her two paychecks a month to paying back her student loans. She is spending half of her take home income on her student loans. That is nuts.
Bubbles are driven by easy money that drives irrational behavior. Our student loan policies have been doing some of that. We can and should change our policies to force more rational decisions in the purchase of higher education in this country.
But we cannot forget the power of a high quality education to put our children on the best possible path in their lives. I am an example of what such an education can do for someone. And I know that there are many others out there just like me. We need to figure out how to reform the system in ways that don't cut that path off for students like I was thirty years ago.