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Curbing college costs & student debt

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By Peter Morici
Saturday, Jan. 19, 2013, 9:00 p.m.

Universities charge too much, deliver too little and channel too many students into a lifetime of debt. Genuine reform must be brought to bear to curb those abuses.

College graduates still earn more and are unemployed less often. But with so many recent grads serving cappuccino and treading water in unpaid internships, a four-year diploma is not quite the solid investment it once was — and should not be so often viewed as a necessity by society.

Since 2007-08, the average pay for recent four-year graduates has fallen nearly 5 percent, while the average earnings of a typical American worker, as tracked by the Bureau of Labor Statistics, are up 10 percent.

Graduates in high-demand disciplines can still earn good starting salaries and expect rising earnings as experience grows. But in many majors, they increasingly face market conditions that have bedeviled skilled-manufacturing workers for decades: too many folks chasing too few jobs.

Over several decades, Americans have become convinced that too many jobs require college education. But fast-food restaurant managers and cellphone salespeople don't need an education in English, math and politics beyond a decent high school education.

And universities, enjoying such a captive market, have overexpanded, acceded to faculty demands for light teaching loads, layered on costly bureaucracies and unconscionably raised the cost of college beyond what it frequently is worth to students and society as a whole.

Outstanding student loans now exceed $1 trillion, but most significantly one in six is in default, and that ratio likely will grow.

Unlike loans taken to capitalize a small business or buy a house, student loans are not dischargeable in bankruptcy, and stories abound of folks in their 40s and 50s still saddled with onerous debt.

University presidents are like the bankers who wrote the bad mortgages during the housing boom — they admit students, facilitate lots of borrowing and pay themselves well but don't have much skin in the game.

For their students to qualify for both government-sponsored and private bank loans, universities should be compelled to provide audited information about the likely time required and cost of obtaining degrees in various majors, salaries graduates earn in the first years after graduation and the resulting repayment burdens. Like CEOs of corporations who must now attest to the accuracy of financial statements, university presidents should be required to do the same and be subject to similar legal penalties for failure.

Student loans should be dischargeable in bankruptcy when these investments don't work out. Otherwise, we will continue to create Dickens-era debtor lives for many victims of the higher education system. And universities should be on the hook for a significant share of defaulted loans — perhaps 25 percent to 50 percent.

Well-run institutions would then get their costs and tuitions under control and become transparent about the prospects of students finding decent-paying jobs after majoring in art history vs. mechanical engineering.

Schools that take students' money and deliver too little would go the way of Circuit City and the St. Louis Browns, and they will stop blighting the futures of young people.

Peter Morici is a professor at the Smith School of Business, University of Maryland, and former chief economist at the U.S. International Trade Commission.

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