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How Student Loans Create Demand for Useless Degrees – Article by Josh Grossman

How Student Loans Create Demand for Useless Degrees – Article by Josh Grossman

The New Renaissance Hat
Josh Grossman
July 19, 2015

Last week, former Secretary of Education and US Senator Lamar Alexander wrote in the Wall Street Journal that a college degree is both affordable and an excellent investment. He repeated the usual talking point about how a college degree increases lifetime earnings by a million dollars, “on average.” That part about averages is perhaps the most important part, since all college degrees are certainly not created equal. In fact, once we start to look at the details, we find that a degree may not be the great deal many higher-education boosters seem to think it is.

In my home state of Minnesota, for example, the cost of obtaining a four-year degree at the University of Minnesota for a resident of Minnesota, North Dakota, South Dakota, Manitoba, or Wisconsin is $100,720 (including room and board and miscellaneous fees). For private schools in Minnesota such as St. Olaf, however, the situation is even worse. A four-year degree at this institution will cost $210,920.

This cost compares to an average starting salary for 2014 college graduates of $48,707. However, like GDP numbers this number is misleading because it is an average of all individuals who obtained a four-year degree in any academic field. Regarding the average student loan debt of an individual who graduated in 2013, about 70 percent of these graduates left college with an average student loan debt of $28,400. This entails the average student starting to pay back these loans six months after graduation or upon leaving school without a degree. The reality of this situation is that assuming a student loan interest rate of 6.8 percent and a ten-year repayment period, the average student will be paying $326.83 every month for 120 months or a cumulative total re-payment of $39,219.28. Depending upon a student’s job, this amount can be a substantial monthly financial burden for the average graduate.

All Degrees Are Not of Equal Value

Unfortunately, there is no price incentive for students to choose degrees that are most likely to enable them to pay back loans quickly or easily. In other words, these federal student loans are subsidizing a lack of discrimination in students’ major choice. A person majoring in communications can access the same loans as a student majoring in engineering. Both of these students would also pay the same interest rate, which would not occur in a free market.

In an unhampered market, majors that have a higher probability of default should be required to pay a higher interest rate on money borrowed than majors with a lower probability of default. In summary, it is not just the federal government’s subsidization of student loans that is increasing the cost of college, but the fact that demand for low-paying and high-default majors is increasing, because loans for these majors are supplied at the same price as a major providing high salaries to its possessor with a low probability of default.

And which programs are the most likely to pay off for the student? The top five highest paying bachelor’s degrees include: petroleum engineering, actuarial mathematics, nuclear engineering, chemical engineering and electronics and communications engineering, while the top five lowest paying bachelor’s degrees are: animal science, social work, child development and psychology, theological and ministerial studies, and human development, family studies, and related services. Petroleum engineering has an average starting salary of $93,500 while animal science has an average starting salary of $32,700. This breaks down for a monthly salary for the petroleum engineer of $7,761.67 versus a person working in animal science with a monthly salary of $2,725. Based on the average monthly payment mentioned above, this would equate to a burden of 4.2 percent of monthly income (petroleum engineer) versus a burden of 12 percent of monthly income (animal science). This debt burden is exacerbated by the fact that it is now nearly impossible to have student loan debts wiped away even if one declares bankruptcy.

Ignoring Careers That Don’t Require a Degree

Meanwhile, there are few government loan programs geared toward funding an education in the trades. And yet, for many prospective college students, the trades might be a much more lucrative option. Using the example of plumbing, the average plumber earns $53,820 per year with the employer paying the apprentice a wage and training.

Acknowledging the fact that this average salary is for master plumbers, it still equates to a $20,000 salary difference between it and someone with a four-year degree in animal science while having no student loans as a bonus. Outside of earning a four-year degree in science, technology, engineering, math or, accounting with an average starting salary of $53,300, nursing with an average starting salary of $53,624, or as a family practice doctor on the lower end of physician pay of $161,000, society might be better served if parents and educators would stop using the canard that a four-year degree is always worth the cost outside of a few majors mentioned above. Encouraging students to consider the trades and parents to give their children the money they would spend on a four-year college degree to put a down payment on a house might be a better use of finite economic resources. The alternative of forcing the proverbial square peg into a round hole will condemn another generation to student debt slavery forcing them to put off buying a home or getting married.

Loans Drive Overall Demand

The root of the problem is intervention by the federal government in providing student loans. Since 1965 when President Johnson signed the Higher Education Act tuition, room, and board has increased from $1,105 per year to $18,943 in 2014–2015. This is an increase of 1,714 percent in 50 years. In addition, the Higher Education Act of 1965 created loans which are made by private institutions yet guaranteed by the federal government and capped at 6.8 percent. In case of default on the loans, the federal government — that is, the taxpayers — pick up the tab in order for these lenders to recover 95 cents on every dollar lent. Loaning these funds at below market interest rates and with the federal government backing up these risky loans has led to massive malinvestment as the percentage of high-school graduates enrolled in some form of higher education has increased from 10 percent before World War II to 70 percent by the 1990s. Getting a four-year degree in nearly any academic field seemed to be the way in which to enter or remain in the middle class.

But just as with the housing bubble, keeping interest below market levels while increasing the money supply in terms of loans — while having the taxpayer on the hook for a majority of these same loans — leads to an avalanche of defaults and is a recipe for disaster.

Josh Grossman is a social studies teacher in southeastern Minnesota. He enjoys reading anything he can about Austrian Economics or historical revisionism from the perspective of the Austrian School.

Commonly Misunderstood Concepts: Education (2009) – Article by G. Stolyarov II

Commonly Misunderstood Concepts: Education (2009) – Article by G. Stolyarov II


The New Renaissance Hat
G. Stolyarov II
Originally Published October 3, 2009
as Part of Issue CCX of The Rational Argumentator
Republished July 24, 2014
Note from the Author: This essay was originally published as part of Issue CCX of The Rational Argumentator on October 3, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014



There are several terms that are commonly misunderstood in most contemporary societies, with devastating consequences. Among these are “education,” “health care,” “employment,” “wealth,” and “happiness.” In this series, I hope to dispel – one by one – common fallacies surrounding these terms and to replace them with truer, more life-affirming understandings.

Education is the first colossally misunderstood term that I would like to address – as misunderstandings of it create massive societal problems where none need exist, and at the same time blind many people to genuine, but oft-overlooked problems. defines “education” in several ways:

1. The act or process of imparting or acquiring general knowledge, developing the powers of reasoning and judgment, and generally of preparing oneself or others intellectually for mature life.

2. The act or process of imparting or acquiring particular knowledge or skills, as for a profession.

3. A degree, level, or kind of schooling.

4. The result produced by instruction, training, or study.

5. The science or art of teaching.

Already the multiple possible meanings impart some ambiguity to the term. Clearly, acquiring general knowledge and developing the powers of reasoning and judgment are not the same as attending a school. Many a person has attended schools – even elite schools – and learned scarcely anything at all. While the dictionary writers at least take care to distinguish the different uses of the term “education,” a more commonplace tendency in today’s world is to package all the meanings together and to consider them inextricable from one another.

It is thus that the obsessive emphasis of contemporary societies on formal schooling operates. Abuses of the term “education” lead to a belief that schooling is both necessary and sufficient for learning, as if sitting in a classroom with thirty other similarly ignorant people is indispensable for attaining knowledge, but will also magically impart this knowledge to everyone involved.

I will preface further discussion by emphasizing that I have probably gotten the most out of formal schooling that an individual could hope to get. I was valedictorian of my class in high school and salutatorian in college, where I pursued three majors. And yet, in retrospect, I find that my best learning had always been self-initiated and self-motivated – and that I could not have succeeded in school without the effort I put in to acquire knowledge on my own.

Equating education with formal schooling is not a harmless idiosyncrasy; it is both expensive and costly. The equation of education with formal institutions leads to the demand to spend vast amounts of money on such formal institutions – as if dollars spent could purchase motivation, curiosity, and initiative. Conventional institutionalized schooling also makes substandard use of the most formative time in an individual’s life – the time when that person’s mind forms the habits and connections that shape both learning and character for decades into the future. Literally hundreds of millions of young people spend the vast majority of their time sitting behind desks, walking in lines, and being confined to “restricted areas” within school buildings, when they could much more readily utilize their talents elsewhere.

One problem with the model of Western public schools is that it creates a one-size-fits-all standard to which every student is expected to conform. The teacher can typically only do one thing in the classroom at a time. Teachers generally have no choice but to gauge the average level of knowledge and skill in the class and to teach primarily to that level. The students who know the material already or who grasp it more quickly have their time wasted; the students who do not follow as quickly as their “average” peers are often left behind. And the “average” students – to be quite blunt – generally do not learn particularly much, certainly not enough to justify forgoing twelve to sixteen years of their lives.

The second problem with Western public schools is that they segregate individuals by age groups, separating young people from those who are most qualified to give them an education – their elders – people whose experience exceeds that of the young people by anywhere from a few years to a few generations. Within public schools, and to a degree within universities as well, most young people are barely aware of anything beyond the immediate, pressing concerns of their own age group; few learn to expect the major transitions that are about to come in virtually all of their lives, and few absorb the skills needed to handle such transitions successfully. Within a peer group for which there exist no serious role models who have actually accomplished something, the lowest common denominator tends to prevail. This is, in part, why reckless, self-destructive, and delinquent behaviors among young people are so common in the West today.

The third problem with Western public schools is the manner in which uniform curricula tend to stifle the development of individual agendas of learning and curiosity in general. The teacher is paid to lecture on a certain predetermined subject material; if a student asks an interesting but tangential question, the teacher – even if he favors curiosity – must often suppress the inquiry for fear of lacking the time to do the job for which he was paid. At the same time, other students may not be interested in the same tangential questions, but might have other questions of their own; it is simply not possible to address all the questions and actualize all of the vast potential of every individual within the standardized structure of a classroom.

The fourth and most disturbing problem of public schools arises from the fact that the best children and teenagers are herded together with the worst: the bullies who mercilessly inflict every kind of petty and not-so-petty abuse imaginable on those who are better than they – for the very fact that their victims are better. Bullying creates an atmosphere of fear, stifled ambition, and anti-intellectualism – even among many students who would never engage in bullying themselves. Bullying – both of the physical sort and of the “softer” verbal sort that happens so often via the cliques and popularity contests that emerge in the schools – is the enforcement mechanism for conformity to the lowest common denominator. Its product is the unthinking acceptance by millions of young people of the latest fads, the most careless risks, and a complete unawareness of their future potential.

It is true that formal schooling could work in some cases – where every student is already reasonably knowledgeable, motivated, and respectful of others. A university course where each student desires to delve deeply and earnestly into the subject matter is a good example of this. But even universities today have become populated with students who neither need nor deserve to be there – all a result of government subsidies fueled by a mistaken perception that college and university educations are needed for even the most routine clerical jobs. As a result, the universities are rapidly succumbing to the same kinds of intellectual apathy, lowest-common-denominator teaching, and reckless behavior that have long plagued the public schools. The term “student” no longer carries a connotation of great honor and respectability, as it did even a century ago. Instead, everyone appears to have a Bachelor’s Degree these days, and to have trouble finding work at a fast-food restaurant with one. In an effort to remedy this, the best and brightest are often pigeonholed by public opinion into attending graduate school, even though many of them have little interest in subsequently becoming academicians. By the time they leave graduate school, they are already in their late twenties, almost certainly poor, and likely in severe debt. Misguided overvaluation of formal schooling has prevented aspiring lawyers and doctors from simply taking the bar and medical exams whenever they wished and receiving their licenses if they passed the rigorous exams. Instead, protectionist professional associations – the white-collar equivalent of labor unions – have collaborated with academia to make the expenditure of hundreds of thousands of dollars on formal schooling a requirement prior to even being allowed to take these exams. The ideal of a meritocracy or natural aristocracy of talent has been replaced by the ideal of the pecking order of seniority and pull, where one must grovel and pay in hopes of someday – probably only when one’s health begins to fail – receiving the groveling and payments of others.

At the same time, societal attitudes make formal schooling a virtual requirement for self-esteem. Many bright, talented individuals who could accomplish tremendous feats if they entered a trade in their early teens are pressured to feel inferior and incompetent until they have served their time. In truth, they have nothing to feel substandard about. Formal schooling is not a requirement for knowledge, skill, or good character; it is not a substitute for entrepreneurial insight, creativity, or determination. It cannot make a person a success or prevent failure. It cannot teach a person anything he could not teach himself. It is not needed as a proof of a person’s competency, nor as a requirement to get a job. Most of what a person does for a living is learned through the experience of doing it – and schooling requirements simply serve as arbitrary barriers to deny some the opportunity of getting this experience.

Formal schooling, to be sure, has its uses – especially for training the academicians and other intellectuals of the next generation. But it would only be strengthened in this role if educational institutions did not have to deal with the people who do not need to attend them and whose education can be achieved spectacularly without them.

Read other articles in The Rational Argumentator’s Issue CCX.

A College Degree Does Not Make You a Million Dollars – Article by Andrew Syrios

A College Degree Does Not Make You a Million Dollars – Article by Andrew Syrios

The New Renaissance Hat
Andrew Syrios
April 13, 2014

It is becoming substantially less difficult these days to convince people that college is not a sure fire way to the good life. Even Paul Krugman has conceded that “it’s no longer true that having a college degree guarantees that you’ll get a good job.” You can say that again: 53 percent of recent graduates are either jobless or underemployed. Unfortunately, myths die hard. Many people still believe as Hillary Clinton once said, “Graduates from four-year colleges earn nearly an estimated one million dollars more [than high school graduates].” This may sound convincing, but this figure — based on a Census Bureau report — is about as true as it is relevant.

After all, isn’t it true that the most hard-working and intelligent people tend more to go to college? This is not a nature vs. nurture argument, the factors behind these qualities are unrelated to the discussion at hand. If one grants, however, that the more ambitious and talented go to college in greater proportion than their peers, Mrs. Clinton could have just said “the most hard-working and intelligent earn nearly an estimated one million dollars more than their peers.” I think the presses need not be stopped.

For one thing, the Census Bureau estimate includes super-earners such as CEO’s which skew the average upward. Although some, such as Mark Zuckerberg and Bill Gates, didn’t graduate college, most did. This is why it’s better to use the median (the middle number in the data set) than the mean or average. It’s also why Hillary Clinton and other repeaters of this factoid don’t.

Furthermore, just because most smart people go to college doesn’t mean they should. They may earn more money, but what they keep is more important than what they make. Financial columnist Jack Hough created a very illuminating hypothetical scenario with two people, one who chooses college and one who enters the labor force after high school. Hough then uses the average cost of college as well as U.S. Census Bureau data for the average income of college graduates and non-graduates, adjusted for age. He assumes both save and invest 5 percent of their income each year. By the age of 65, how does the net worth of each look?

  • College Graduate: $400,000
  • High School Graduate: $1,300,000

When one thinks about the common narrative of college vs. no college, it truly becomes absurd. Indeed, who exactly are we comparing? We’re not only comparing Jane-Lawyer to Joe-Carpenter, but we’re also comparing financial analysts with the mentally disabled, medical doctors with welfare dependents, building engineers with drug addicts, architects with pan handlers, marketing directors with immigrants who can barely speak English, and university professors with career criminals (whose earnings, by the way, are rarely reported). Many of these troubled people didn’t graduate high school, but it is shocking how they shuffle kids through the system these days. Some 50 percent of Detroit high school graduates are functionally illiterate and it isn’t that much better for the country on the whole. And something tells me that these particular non-graduates need something other than four years of drinking and studying Lockean (well, more likely Marxian) philosophy.

It certainly could be a good thing to earn a college degree. If one wants to be an accountant, engineer, or doctor, a degree is required. And those jobs have very high incomes. But can one really expect to make a killing with a degree in sociology or Medieval-African-Women’s-Military-Ethnic Studies? Pretty much the only jobs those degrees help one get, in any way other than the “hey, they got a college degree” sort of way, are jobs teaching sociology or Medieval-African-Women’s-Military-Ethnic Studies. And that requires an advanced degree as well (i.e., more money down the tube).

Furthermore, a college degree does not even guarantee a particularly high income. CBS News ran an article on the 20 worst-paying college degrees. The worst was Child and Family Studies with a starting average salary of $29,500 and a mid-career average of $38,400. Art History came in 20th with a starting average of $39,400 and a mid-career average of $57,100. Other degrees in between included elementary education, culinary arts, religious studies, nutrition, and music.

These are decent salaries, but are they worth the monetary and opportunity costs? With the wealth of information on the Internet, many skills can be attained on one’s own. Alternatives to college such as entrepreneurship and apprenticeship programs are often ignored. Indeed, apprentices typically get paid for their work while they are learning. The average yearly wage of a plumber and electrician are $52,950 and $53,030 respectively. That’s better than many college degrees and comes without the debt.

And that debt is getting bigger and bigger as college tuition continues to rise. In the last five years, tuition has gone up 24 percent more than inflation. Including books, supplies, transportation and other costs, in-state college students paid an average of $17,860 for one year in 2013 (out-of-state students paid substantially more). And despite all of that, many students don’t even finish. According to US News & World Report,

Studies have shown that nonselective colleges graduate, on average, 35 percent of their students, while the most competitive schools graduate 88 percent. Harvard’s 97 percent four-year graduation rate might not be that surprising … [but then] Texas Southern University’s rate was 12 percent.

12 percent is simply ridiculous, but the 35 percent for nonselective schools is extremely bad as well. Even the 88 percent for competitive schools leaves 12 percent of their students with no degree, but plenty of debt.

Given all of that, it can’t be surprising that the default rates on student loans (which cannot be wiped away in bankruptcy) appear to be much higher than is typically reported. According to The Chronicle,

[O]ne in every five government loans that entered repayment in 1995 has gone into default. The default rate is higher for loans made to students from two-year colleges, and higher still, reaching 40 percent, for those who attended for-profit institutions …

[T]he government’s official “cohort-default rate,” which measures the percentage of borrowers who default in the first two years of repayment and is used to penalize colleges with high rates, downplays the long-term cost of defaults, capturing only a sliver of the loans that eventually lapse …

College is good for some people. If you want to go into a field that has high earning potential (engineering, medicine, accounting, etc.) or you really like a certain subject and want to dedicate your career to it even if it may not be the best financial decision, go for it. But don’t go to college just because as Colin Hanks says in Orange County, “that’s what you do after high school!”

Andrew Syrios is a Kansas City-based real estate investor and partner with Stewardship Properties. He also blogs at See Andrew Syrios’s article archives.

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