Dispatch From Behind The Desk – The Business of Colleges and Student Loans

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Guest post by Dr. Jerry Hionis, Jr., PhD.

Between 2000 and 2004, I was fortunate enough to attend a private university that cost, on average, around $30,000 a year. After four years, my undergraduate education cost close to $125,000 – adding in textbooks and random supply costs. The high tuition costs were reflected in small class sizes, highly accredited business and liberal arts programs, and exclusivity of acceptance (the rate was close to 40% at the time). Fortunately for me, my parents were in a position that my education could be paid for without the use of student loans or any other form of financial assistance. This, I know that, was a unique situation.

I was also fortunate to begin teaching at the same university, amongst many others, while getting my doctorate. This is affectionately known as the “adjunct hustle” among graduate students. Having been on the other side of university business now, going on seven years, I can inform you that colleges and universities are – in general – hitting a massive financial wall. As of 2012, the same university I went to for my undergraduate degree now charges $60,000 plus a year and has an acceptance rate at or above 90%. The same education now costs around a quarter of a million dollars. In addition, the percentage of classes taught by adjunct professors is close to 60% and a proposal has been made to double the average class size. Why? Higher education has been struggling due to more and more competition (online universities, satellite state campuses, etc) and the financial troubles of the economy as a whole. In short, many are realizing that there a is not firm correlation between the tuition and the return on the investment for many universities. And the schools are very, very aware of this.

Basically, there are two models that universities seem to experiment with. The first is to make access and acceptance very easy, offer low (relative) tuition costs and institute high standards to graduate. In other words: easy to get in, hard to get out. This model is very affective for state institutions due to government subsidies and loan programs. The second model restricts access but charges higher tuition, what is sometimes referred to as the “luxury model”. These colleges are harder to get into, but are generally easier to exit. The latter is very hard to establish and takes many years to earn a solid reputation; i.e., ivy league. Many other private (non-Ivy) institutions have been getting by, but usually because they offered some niche: religious, athletic, program focus, etc.. The problem is that there are just too many of these schools now.

Of course, there is now a third hybrid model: charge high tuitions, increase acceptance and emphasize student loans. How do I know of this? Because every university and college I teach at heavily promotes student loans. This is the basic argument

You cannot afford our tuition? That’s okay – your student loan interest rate is fixed and tied to your postgraduate income. No, we are not doing this because we want as many students as possible and need the tuition to pay off our expansion project. We just want to make sure everyone has the advantage of a college education so that it is not only for the wealthy.

Again, this is not an exaggeration. Nor is it meant to be an unscrupulous and disingenuous offer by the institutions themselves. It has more become the conventional wisdom that many believe to be the best offer. There are many problems with this argument. If you are fortunate enough to graduate and find a high paying job, your loan rates substantially increases. If you don’t find a job, your loan rates are low \ldots but you still have to pay them with wages from a job you don’t have. Either way, student loans are a terrible burden.

In addition, there is a fundamental issue with loans that is not discussed openly: the face value of the loan is not fixed. WHAT? That is correct. For example, a $250,000 loan does not adjust for inflation or deflation within the economy. If the economy experiences increasing inflation rates, the cost of your loan will technically decrease. If deflation occurs, your loan is now more expensive. The later was an immense problem in the U.S. during the post-Civil War Dust Bowl era. Unfortunately for the borrower, the government is very aggressive towards fighting inflation but not so against deflation. In addition, interest rates usually increase when inflation increases, but very rarely does the opposite happen. The point: not only will you be paying interest on your student loan, but you will most likely being paying a higher principal as well. One might then say: “But this is unfair! Unethical!” Maybe, but that is what you will agree to when you sign the loan papers. As the saying goes: The big print giveth and the small print taketh away.

The reality is that most prospective students, and their parents, are not comparing the academic differences between institutions. From discussions with many students and parents, the key factors in the decision are: internship programs and probability of employment after graduation, prestige of university, campus size and quality of the buildings, location, presence of diversity (both for it and against it) and religion. I personally have never heard anyone ask about the scholarship of the faculty, the courses offered, accreditation of the department or the return on investment.

So what are one’s options? Unfortunately, or fortunately, college education in the U.S. has gone beyond just getting an education. It is a sociological and anthropological phenomenon. For some it is an entitled rite of passage. This is amplified by families that immigrated to the U.S., especially if their home country has few college institutions. Others, a step up the social ladder. Many students I talk to feel great pressure from their parents to go to the best university they get accepted to, regardless of tuition costs.

All too often, the muslim community has two perspectives on “American Issues”: either to strictly shun and claim the practice is haram, or to simply criticize those who shun and claim the practice is haram. If we tell families and future college students that student loans are forbidden, what then are their options? True, the best option would be to finance one’s education without any loans – this is true for muslims and non-muslims alike. But like health insurance and mortgages, it is very difficult to completely avoid these practices in their entirety. That being said, there are ways to at least minimize one’s participation.

First, research the companies in the field you think you would like to work for in four years. Try to find out what universities their employees went to. This is actually easier than one thinks – try emailing the human resource department or look up the resumes of current employees. I think most would generally surprised that not everyone went to Harvard, MIT, Princeton and Penn. Next, when looking at different colleges and universities, here are the real questions to ask the tour guide:

  1. What is the average completion rate in four years?

  2. What percentage of students – within your prospective program – get desired (not just a random sales job) employment within a year of graduating?

  3. Are there any internship programs? If so, how competitive are they? Are they paid internships? How many get job offers from the companies they intern with?

  4. How many people switch majors?

  5. What are the employment opportunities on campus?

If money is an option, look at the satellite campuses of state schools. They may not have the prestige of others, but they offer the (almost) same opportunities as the main campuses. Transferring from satellite to main is relatively painless after a couple of semesters and a solid GPA. Student loans may be unavoidable, but that does not mean one should borrow a quarter million dollars to finance an education whose return is equal to that of a cheaper university.

In general, one should remember that college education is a business and, hence, is run like one. A prospective college student should approach their decisions in a similar matter. One must always make the appropriate investment dependent upon the investment’s return.

Dr. Jerry Hionis graduated from Saint Joseph’s University in 2004 with a degree in economics and philosophy. His post-graduate work includes both an M.A. and PhD from Temple University in  Mathematical Economics and Development Theory. Beyond teaching economics as an adjunct professor at a number of institutions in the Greater Philadelphia area, his research includes the theoretical study of civil wars and political conflict theory.

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