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Why Don't Student Loans Account for Earning Potential?


Over at Forbes, Hardeep Walia zeroes in on one of the key factors driving the student debt crisis: loans are often given out with little regard to students’ future earning potential. STEM students, for example, have more jobs open to them and earn far more on average than, say, philosophy students, yet both are treated as equal when it comes to applying for student loans. As a result, a loan may be reasonable for one student but far too high for another, even for people of similar socio-economic backgrounds:

Facts are stubborn things, and the fact is that students in certain majors will have a hard time paying off their loans. Some majors lead to jobs with starting salaries of $98,000 a year. Some lead to starting salaries of $20,000. The loans needed to earn a degree at a private institution costing more than $50,000 a year don’t fit a social worker’s salary.

Obviously, if people don’t need loans, then they can major in whatever they want—and the likely salary upon graduation shouldn’t be the only criterion for picking a major. The world needs people with the kinds of skills that humanities majors develop. The world needs social workers, too. In fact, government might decide that some of those going into social work should have their educations subsidized so that they can start their careers with little or no debt—but any subsidies should be explicit, not mixed in with policies in lending.

This is a good point, and Walia’s call for lenders to evaluate the earning potential of the degree a student aims to earn bears serious consideration. Aspiring scientists, engineers and doctors come to college looking for something very different than philosophers and artists, and their financial aid packages should be better tailored to their goals. More broadly, greater distinction between skills training and liberal arts education would help clear away some of the curriculum clutter that has reduced many a B.A. to a meaningless credential.

[Ball and chain image courtesy of Shutterstock]

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  • Pete

    This idea won’t fly.

    The population of STEM majors has below the acceptable percent of blacks in it. So to favor those who majored in hard core majors like science and engineering will be to discriminate against blacks … or so will rule the Thought Police

    • Anthony

      Hidden biases are capable of guiding our commentary without our being aware of their role (mindbugs).

      • Fred

        Even granting arguendo that Pete’s comment arises from “hidden biases”: a) are you saying he’s wrong? and b) if so, please demonstrate. Having said that though, I still think trying to guess which graduates will make more money is a fool’s game. I got a degree in English. Fortunately for me, I never went into much debt to fund my education, but had I, I make more than enough money now to repay it.

        • Anthony

          Good you are in the black; as for reply to Pete, if you want legitimate answers utilize that English background (I don’t read WRM’s blog to justify position of others – to paraphrase late Senator Patrick Moynihan: we believe that people have a right to their own opinion but not a right to their own facts. Thanks.

        • Pete

          Thank you,Fred.

          My comments are not from any biases, hidden or otherwise.

          They are based on impartial & objective observations since the early 1970s.

          The problem here is that political correct indoctrinated Kool-aid drinkers do not like to face this reality. To them, it’s like showing sunlight to a vampire; they go haywire..

          • Corlyss

            I’ve long believed everyone was entitled to his own prejudices because often they serve a useful purpose: i.e., they save one time so you don’t have to keep repeating the same fruitless exercises. If you know you don’t like vanilla ice cream, you can stop experimenting with floats, pie a la mode, ice cream cakes, frozen treats, etc., made of vanilla ice cream. To say the same thought process is somehow “wrong” when applied to people simply defies experience and human nature. True, it’s often more problematic when applied to groups, but still it is often based on experience which can’t be gainsaid.

          • Anthony

            What you are describing is “orderly living depends on the use of categories.” Fair enough, but category thinking can and does have consequences and hidden costs to both unmindful and categorized. Also, Moynihan’s quote applies equally to prejudices when dressed up as experiential fact.

          • Anthony

            I never drank Kool-aid (even as child); but I learned early on (thanks to many wise people of all hues) to recognize blind spots in thinking dressed up as independent experiential thought – no matter how you describe it the basis for normal prejudgment reduces to a mind built to use categories.

    • Corlyss

      Amen. The race pimps would be all over it in a heartbeat.

      • Anthony

        Race or implication thereto no where in article but for those who need to castigate, race is never to far away as convenient mechanism to utilize IAT results. Quick Take premise is both exorbitant college costs and subsequent loan debt – both weighty issues relative to health of commonwealth.

        • Corlyss

          I realize race wasn’t mentioned, but when picking winners and losers in academic curricula, which is what student loans programs had ramped up to do even before the feds took them over 100%, you can bet your last dollar that they will NOT be getting rid of programs that have blighted the modern university since 40 years now, including deconstructionist nonsense in English lit, Zinn-style historiography, minority studies, feminist studies, and LGBT studies. The only thing those latter programs do, besides cost money, is to perpetuate obsession with social victims and social justice.

          • Anthony

            … societal ax to grind.

          • Anthony

            …serial ax to grind and a mind definitely inclined to mental categories – see Gordon Allport’s book The Nature of Prejudice (the human mind must think with the aid of categories). But, let’s move on; there are new Quick Takes to read.

          • Corlyss

            I like that term, even if the moderators didn’t know what to make of it. May I quote you?

          • Anthony

            Of course my pleasure, have at it.

  • Anthony

    “…loans are often given out with little regard to students’ future earning potential.”

    Not having read article I qualify my comment. Yet to my mind, suggestion on initial contact appears practicable; but upon closer scrutiny it conflates institutional objectives that are not necessarily synergistic. That is, lending institutions are profit centers and colleges/universities as corporate entities seek to expand their cachet. So, an integral factor underlying both institutions is money – considering market segmentation ( i.e., different graduates’ potential) while reasonable may actually be counter productive from lenders and universities point of view; they already corner the market and are not left with a loss despite student outcome.

  • Corlyss

    “loans are often given out with little regard to students’ future earning potential.”
    Since the most useless degrees are minority and women’s studies, because they are basically geared to teaching more of the same, I’d like to see any university try to cut those on the grounds of how useless they are in the real world. In fact, if loan officers were to even contemplate discriminating on such a basis, the entire administrative weight of the federal government would come crashing down on them and they’d find themselves in the same uncomfortable position as that of bankers who tried NOT to loan to deadbeat minorities with no jobs and no income and no prospects. The bankers were threatened with reprisals and decommissioning from the FDIC IAW the Community Reinvestment Act.

  • Matt_Thullen

    Based on some small articles I’ve read over the past couple of years, I think that it’s more likely that colleges will try to raise their already sky-high tuition for those people majoring in the more lucrative fields.

  • Kevin

    The way to drive this is to require either the school or a private lender to bear a substantial share of the cost if the loan is not paid back on time rather than the Federal treasury. Once they had skin in the game schools and lenders would quickly figure out which majors and students were prudent to lend to given their future prospects. Until this happens they are all just playing with someone else’s money. Privatizing profits (i.e. tuition for the school) while socializing losses (i.e. defaulted loans) never ends well, whether it banks that are too big to fail or student loans. We’ve spent too many years in this country allowing the insiders and politically connected to treat the Treasury like they own private piggy bank.

  • cubanbob

    The idea of making loans based on the probability of being repaid just makes too much sense for the political class.

  • Kevin

    Just wanted to give you the heads up I included you in my weekend wrap up of my favorite student loan/personal finance posts from the last week.

    Thanks for the great site!


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