What’s a Good Education Worth?

Fred Wilson has an interesting take on the student debt issue:

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?…

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. 

There could be some pretty strong arguments made against tying the amount of a loan to the likely return of a degree. Someone who majors in English Lit with a concentration on 18th century poetry doesn't seem likely to have a high paying job, i.e. a high return, but you never know. There's also a compelling case for allowing kids to go on an intellectual exploration during their undergraduate years, and if you tie their loans to the return on any given degree you're likely to stifle that exploration.

But that's a nit-pick. Fred's core point, that we need to rethink how we structure and pay for higher education, is spot on. With two kids at NC State our family can tell you that the effects of reduced state funding are very real, and they are having a significant impact on students' abilities to fund their educations. Reduced state funding is leading inexorably to higher costs, which means more debt for students and an increasingly urgent need to figure out a way to turn the tide on student debt. 

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