College debt begins with a perilous teen fantasy. If your kid's in high school, the brain-washing is already done

As U.S. interest rates rise, outstanding college indebtedness rises, and both the number of defaulting borrowers and the proportion of default-category loans increases, it’s timely to ask What is college debt?

In concrete terms, college debt is the second-largest debt category in the U.S. (The first is home mortgages. It surpasses consumer and credit card debt). It is $1.5 trillion outstanding, representing 44 million borrowers. By 2023, it’s estimated that 40% of those borrowers will be in default. For the class of 2016, the average debt load is $37,172. By debt volume, 11% of that $1.5 trillion is already in default (over 90-days non-repayment), each quarter another 2% falls into default. Another 14% of that debt volume is in deferment or forbearance.

College debt is a different kind of debt from mortgages, auto-loans, corporate debt or working capital. College debt has no collateral. The student-borrower usually has no income history or assets. He has

No income, assets or business plan.

no business plan. There is no incremental demonstration of his strategic viability. Unlike credit card debt, there isn’t even an incremental demonstration of repayment culture, since repayment is typically deferred until after the completion of studies. College debt is nearly impossible to discharge through bankruptcy (The College Investor explains how here). There is no pledged asset that can be foreclosed or short-sold to facilitate the borrower’s climbing out. It is very difficult to run away from.

This handy tool provided by FinAid.org may be a helpful visualization of repayments by loan amount at current interest rates. Assuming an interest rate of 6.8% and a 10-year repayment plan, a graduate paying off the average debt load of $37,172 would expect to pay $428 per month. FinAid also advises what a borrower should aim to earn per annum in order to manage his loan-size; for this average loan volume, he needs to earn $51,000 to manage repayments if his household size is 1 person--and that's less likely over 10 years. 

College debt and default are growing differently for different groups, and that’s also revealing some deeper problems. A recent Brookings study found that black and African-American borrowers on average hold three-times greater outstanding college loan volume than white borrowers, and default five-times more frequently. Attendees at for-profit colleges and universities show default rates that are almost double that of graduates from 4-year undergraduate programs at public universities. The borrower profile is aging, too, and that tells us something not only about later-in-life education, but longevity of debt; 30-39 year-olds hold 30% of the $1.5 trillion college debt, and that has increased by nearly a third in the past 5 years. Borrowers over age 40 constitute 36% of the 44 million outstanding borrowers; they are paying off a long tail-end of educational leveraging.

Sixty-percent of that $1.5 trillion is undergraduate debt. And within that, the worst-performing segment is for-profit colleges and students who started but didn’t complete degrees.

Interestingly, borrower default does not correlate with overall initial loan size, suggesting that it’s not just a question of over-borrowing by volume that drives the college debt trap. According to the Brookings study, defaults are highest among those who started with initially relatively smaller loans (e.g., $10,000-20,000), but these borrowers are stretching out repayment periods, compounding overall debt well into their late-30s and 40s.

This is where it may help to read through the numbers a cultural narrative about young people. How does the fairy tale start?
Here we see an uncertain young person. It’s not clear that she is excited about classroom learning; the practice of lecture-listening, note-taking, essay-writing might not come easily. But nor has school introduced or allowed any time that she might learn a skill on Udemy, take up a 30-hour-week internship, work for her parents, or seek an online micro-credential. She found the secondary classroom monotonous and dull; her focus during those years was somewhere else, disengaged, waiting for the bell to ring. Doing as little as possible was a release from the annoying controls. Somewhere late in that process she sensed an external urgency that she needed to “make something of herself”, and college seemed to be the key.

Here we see secondary teachers and administrators. They see themselves as champions of knowledge, the stamping out of young people's days into uniform templates around uniform subjects as a social good driving equality and opportunity. Their credibility rides on the claim that such-and-such percentage of the graduating class is moving on to 4-year colleges. These claims are held up

Reach for the stars, right?

from state to state and town to town as if all students need and want the same thing. They are also judged on graduation rates, which had better improve year-on-year during anybody’s tenure. And one way to make sure that happens is to fudge it; let students take summary refreshers, inflate grades. They welcome the proliferation of colleges of all stripes, because it means there is a place for everybody; any kind of student, if goaded along to apply, can get in somewhere. And that’s the statistic that counts.

Here we see the parents and community. Who wouldn’t want to believe that anybody can become anything? That everything is possible when you put your mind to it? That the sky’s the limit? This is the American-dream narrative. And families buy into it bit by bit, so that they are not thinking about the $1.5 trillion, or 25-years of $250/month payments, disillusionment and entrapment at the beginning. Instead, they are thinking about high school recognitions and how good that feels. And sports and clubs, and putting their child in the right light. Then PSATs and how important it is to prepare for standardized tests. Then SATs and application packages and where so-and-so got in. As in an auto showroom, it’s about momentum, pride, and feeling like a winner. The financing package comes last.

Here we see the college industry. There are literally thousands of these guys, and they come in every possible form. All of them are claiming to make dreams come true. They keep up the appearance of selectivity, print viewbooks, solicit 15-year olds, and impress grandmothers with tours of ivy-covered buildings and quadrangles. They raise money, show off new athletic centers, choose and partially-fund incoming students through an opaque process that leaves everyone uncertain how much things really cost and what it really means to “get in”.

Here we see the first employer. She couldn’t care less what the 24-year old applicant read in freshman composition, and will never ask her to write an essay about anything. She doesn’t ask for political discourse. She is looking for an adaptable person who will learn fast, cooperate within her team, and master skills specific to this job. Her HR officer assumed that meant that a BA would be required, so she has a drop-down menu, and cut out all the candidates who don’t have one. Now the employer is surprised during interviews at how little experience, and how distant from reality her candidates seem to be.

Something like this iterates during the young worker’s life, as ambitions for advancement and fears about raising a family on a limited income drive further loan-taking and degree-seeking.

If we can be honest with ourselves about what’s driving college debt, then policymakers would be honest, too, about what it’s going to take to fix this.

It’s not a question of making college more affordable through subsidy. The most frequent defaulters took relatively smaller initial loans. Further, there’s decades of evidence (see this Federal Reserve Bank of New York 2017 staff study) that universities hike tuitions year-on-year directly absorbing all increases in federal student loan support, so that it’s unlikely that additional subsidy would reduce average loan volumes.

And I would further counter Scott-Clayton’s two take-aways from the 2017 Brookings study cited above:

--That degree-attainment should be “improved” for enrolled students, a vague allusion to the kind of grade-inflation, course-repeating and watering-down of skills requirements that does nobody any real service neither in secondary nor university education; to the contrary, it keeps pumping hot air into a degree-inflated culture, such that the degree itself diminishes in value as more people of varied scholastic aptitude all have one;

--That income-contingent loan repayment options should be promoted, which implies substantially more expensive and risky loans at the outset (and perhaps the need for loan pricing that takes account of degree type, major, non-profit/profit-status of the school), or an uncertain Federal government posture toward future loan forgiveness (and uncertainty itself may undermine repayment culture), or introducing another ex-ante forgiveness scheme (which perversely incentivizes greater loan-taking, all else equal).

If we can be honest with ourselves, the college debt problem is about a well-intentioned but misdirected dream that moves further and further from reality. And one particular industry has hitched itself (and taxpayer liabilities) to that dream, politicized it, amplified it, so that the dream is about loving our children, valuing knowledge, self-improvement and the American way. Who could argue with that?

The alternative dream is modest, unsexy, and not-so-fairy-tale-like. The kids who have been vegetating in secondary school should be broken out, to spend more hours pursuing with energy

Time for a new fairy-tale narrative.

and enthusiasm things that they actually want to do. And communities need to re-calibrate expectations of teenagers not to measure-up on scores and standards, but to diversify, volunteer, get involved in the real economy, connect with mentors. Students with limited motivation and showing weak scholastic aptitude need to find their own paths, even when this means that teachers and parents won’t see the standard progress indicators. All of this will look a lot more sloppy, cut-and-paste, and individualized than it does now.

Kids won’t be pushed off a conveyor belt by self-interested secondary administrators, but would self-launch at different times into online studies, micro-credentials, vocational trainings, and a wider variety of much lower-cost learning. [Professional schools and certifications are still out there, but they shouldn’t need a BA to get in!] Parents and young people won’t take a gigantic loan for the “big event” of 4-year college, but rather will have to make with their children month-by-month cost-benefit decisions about online credentials, visiting enrollment, internship opportunities and housing costs that begin at a much earlier age and may continue well into the young person’s adult life (and policy regarding the use of 529 educational savings accounts should follow suit and become more flexible!). Thousands of charlatan and half-baked colleges need to go under. And the best of individual trainers and educators have been emerging (for a decade already!) in online and blended, pay-per-use formats that make interactive, quality learning far more accessible.

It’s the culture that has to catch up with already-existent potential.

It’s a brain-washed, false American dream that has to be stopped where it starts in the families of young teens.

When the 4-year undergraduate degree stops being “the thing”, will high school have an identity crisis?

There are so many hollowed-out Main Streets in America that one hardly needs to recount the story of what happened when shop-retail gave way to big-box retail. And there is an even uglier asphalt wilderness left behind when big-box retailers bankrupted each other, and then ultimately lost to online shopping. People in small towns still need a Main Street that is about strengthening families, civic engagement, getting outside, and supporting the arts. But in many towns where retail stood in for those goals, its demise meant the demise of greater Main Street, too.

In case you didn't know,
college is the thing to do!

We shouldn’t let that happen to secondary education! Teen learning should be an exploratory and idiosyncratic process. It should be the recognition of one’s place in a historical continuum-- deference and respect for those who came before, curiosity and identification with one’s local and religious community, and an emerging sense of duty to contribute further to it. It should be many brave attempts, numerous failures, and the first glimpses of opportunity.

But in most high schools, it’s not.

The culminating moment. 

Rather, the association with college preparation has become so pervasive that many accept the two as inextricable.

Just as retail is not civic engagement, nor are preparatory classes and obligatory service assignments human exploration and growth opportunities (don’t let those college essays fool you!). Quite the opposite.

For the most ambitious teens, a fixation on grade-point average, class rank, and what “looks good” on a resume squeeze out time for real intellectual exploration (is there really time to pick up a book, even an article, of one’s own choosing?), limit risk-taking, and preempt the budding of a spontaneous, judging, moral self with a contrived, mechanical, inert and compliant self that ticks off the boxes of grades, sports, and volunteerism.

For teens that don’t show ambition, struggle with behavior, or admit that they’d rather be someplace else, high school is an externally-applied machinery to which they are subjected for 7 hours each day. And that raises a million other questions that we should be thinking about. Is conceptual dialogue meaningful, even possible, when forced against the participant’s will? Is there a point to content recollection when it’s almost immediately forgotten? Is the effort to achieve measurable, standardized results placing an abstract social prerogative ahead of the human being that’s subjected to this process? More simply, if you were forced to sit through this against your will at age 40, would you resist?

And yet we not only accept, but endorse high school’s current role. Why? Because it is preparing a generation of teens for college-- that great ‘transformative’ journey of lectures, projects, parties, sex and debt sewn into the quilt of American coming-of-age. High schools measure their worth on the percentage of graduates heading to 4-year colleges. They adorn their entry halls with commendations of the college-acceptances of their seniors. The whole junior and senior curriculum is built around college prep and advanced college credit. Counsellors, teachers, and administrators strenuously shepherd wavering teens back into the flock, moving forward in unison toward one certainty. The thing to do is college.

But what will happen when college is no longer “the thing” to do?

There are predictions of a college enrollment implosion and of a slow decline. Personally, I think if we are to take cues from the housing sector, we’ll see a loss of confidence in securitized student loans, a shake-up of political commitment to Sallie Mae, a spike in student loan interest rates and further defaults. We’re already seeing the rise of microcredentials, loss of distinguishing value in a Bachelor’s Degree, multinational recruitment and distribution of tasks across an increasingly anglophone world talent population. None of that bodes well for the last sheep to be herded toward American college admission, and what today averages $36,000 (public in-state), $100,000 (public out-of-state), or $136,000 (private) for four-year enrollment.

What could the “next thing” look like? I think it will be 18-25 year-olds who continue studying on Coursera and Udemy and other coursewares to achieve specific skills targeting work opportunities that they are undertaking in parallel. I think it will be young people living from one Airbnb to the next in shared spaces in large cities. I think it will be a blending of micro-credentials and internships, whereby those who invest the most in social networking, build their LinkedIn referrals and recommendations, demonstrate jobs well-done and connect themselves to promising projects will emerge with more opportunities. I think teams will increasingly form around temporary projects, but the breadcrumbs of their shared interests and positive feedback will contribute to new forms of validation, more timely, specific and discriminating than undergraduate alma maters. This has the potential to be hugely empowering to brilliant, hard-working people from very low-income backgrounds, at the same time that it’s horribly unsettling to the parents of low-ambition, go-through-the-motions teens from middle-income America.

[Don’t get me wrong, professional certification will still have its role. Surgeons, dentists, operators of heavy machinery, and hundreds more job classifications will require special training in state-accredited programs, culminating in tests and certification. But the presumption that the 4-year undergraduate degree is the precursor to such specific study will be broken.]

Which brings me back to high school. It’s one thing to turn one’s tassle, take a life-guarding job for the summer, and self-importantly drive off to University X in September. Administrators and parents applaud a job well done, and dust their hands of another class. But it’s something very different to factor quadratic equations one day, and struggle to self-network, set up temporary domicile, build reputation and secure health insurance the next. John Knowles expresses nostalgia for those last months of adolescent boys’ innocence, awaiting a WWII draft in A Separate Peace. For today’s young people, it’s not so much a leap from innocence, as an incompetent, self-absorbed, and morally empty tripping into a hyper-cost-conscious, commoditized, automated, decentralized, transient, unforgiving reality, to which their “preparation” has been exactly wrong. For those touted as the brightest students, the narcissistic emphasis on self-enrichment, individual achievement, and stylized pretending at community engagement instill attitudes and behaviors that adults would find abhorrent to work with in a team, to manage as an employee, or to be married to. For those that endured, rather than enjoyed high school, it’s hard to say what could have been of those years. Dreams, creativity, rebellious spirit and outside commitments have been hollowed out by a relentless daily process into which those things didn’t serve any purpose. They will have to recover and rebuild a part of their intrinsic selves. Young adulthood will not consist of gym coaches, history tests and algebraic equations, after all, but the potential energies of these students will have to be discovered from scratch.

I know I’m making gross simplifications. I know that numerous teachers are reaching above and beyond to identify students’ special capacities, to encourage extra-curricular projects and increasingly to train in vocational skills. But here’s the point. These are added-onto a thing that is called high school, where pre-defined curricula, standardized testing, arbitrary timing, and college prep are at the core. My argument might come across as a No shit moment, but it’s precisely because we accept these things as the DNA of high school, that high school cannot adapt to what’s coming.

So what comes next? I believe that an alternative model for teen learning is emerging at the periphery. Homeschooling was the first wave, but the mainstream looked at is as inaccessible-- too demanding of parents, too nerdy, too weird. Even among homeschoolers, few continue through the teen years, and very few take a try-and-see, exploratory approach (the most common posting on homeschool Facebook groups, I think, is “Can anybody recommend a curriculum for my xx-year old?”). But the very small try-and-see group is onto something. Their teens remain close to their parents, follow social and political issues, read books out of curiosity, visit foreign universities, speak multiple languages, intern at real jobs, participate at their churches, and volunteer when nobody is keeping track.

I believe we can learn from and expand this approach through a million local efforts in families, community groups, churches, synagogues and mosques.

Learning cluster in Kabul,
Afghanistan. Learn more about them at:
https://www.indiegogo.com/projects/
breakaway-learning-project-
kabul-kids/x/17612837#/

I believe that a new format called “cluster learning” will foster thoughtful, creative, and brave young people from the roots of parents, pastors and mentors. They’ll meet in living rooms and coffee shops and church basements. They’ll be a tangle of laptop chargers and headsets, a jumbled bunch of different-aged young people reading and skype-chatting with tutors and taking online courses, in between talking with their supervising mentor, or playing frisbee together at the park. They’ll come and go some months studying, and some at a homestay in another country, at an internship or visiting a university campus.

This learning cluster in Bo City, Sierra Leone,
is still short of furniture, but students are pretty happy
to be working with tutors and mentors,
taking university-level courses and one-on-one
chats for $24/month.

It won’t look like much, and it might take a few more years than high school, but each one will be navigating her own path, racking up her own kind of credentials, and moving eyes-wide-open into the new adult reality.

Defenders of high schools have already tried all means of discrediting this movement (religious fanatical, neo-conservative, anti-diversity, etc), but it won’t help their identity crisis. And when some states introduce vouchers, the exodus of the brightest, most self-disciplined and motivated students toward cluster-learning will strengthen the perception that public high schools are behavior-management facilities. Their adherence to group-management and an outcomes-driven approach will deepen their alienation from individualized learning, as their identity crisis goes from bad to worse.

Could high schools be saved from becoming the next shuttered Main Streets? Yes, but like Main

Don't let these become another
asphalt wasteland.

Street retailers, a massive and irreversible dislocation is coming. Unless states can loosen rules governing standardization and outcomes-focus in secondary education, high schools themselves

Maybe time for another sofa.

will have to stop being high schools in order to be relevant. If they can reinvent themselves, they are local assets that could be re-modeled as smaller, cozier, flex-use spaces offering ready mentors, tutors, wifi, devices and other resources. (Personally, I would prefer a comfy Airbnb space or a coffee shop, but hey, some people dig painted cinder blocks and Lysol-smell).

I hope that the transition can be a productive one, like the small towns that have creatively re-invented their Main Streets. Parents and community leaders should look at 15 and 17-year olds as emerging 20- and 25-year olds. They need choice, risks, and agency in their lives. Because the “next thing” is going to be a lot less comfortable and certain than it was before.