How The Supreme Court Created The Student Loan Bubble
In a 2014 post at The Spectator, Bill McMorris writes about the worthless degrees that cost big bucks and the myth that a college degree is the ticket to a nice chunk of earnings:
Yet records for new college enrollment continue apace. Parents, desperately seeking a marquee university bumper sticker to show off to the neighbors, tell their children that college is the ticket to the high life, despite the fact that half of recent graduates are working jobs that do not require a college degree. Politicians bend over backward to boost student loans and keep interest rates artificially low, despite $1 trillion in loans outstanding and default rates that would make Bear Stearns blush. The only thing Americans, Right and Left, seem to agree on is that college is an unquestionable good.Daring to speak out against the lemming-like charge toward the higher education precipice seems to invite only scorn from reporters in the press, who, like me, are a tad self-conscious about their useless, over-priced, fraudulent, academically bankrupt journalism, communications, gender studies, and poli-sci diplomas.Yet a few men are taking on the challenge. Serial entrepreneur Peter Thiel uses the millions he made from shorting housing to issue $100,000 investments to get promising students out of college and into the marketplace. Mike Rowe, of Dirty Jobs fame, is telling technically minded youths there's neither shame, nor poverty, in a hard day's work. Both men should be lauded for their realism about America's education obsession. But neither Thiel, nor Rowe, nor any college bubble apostle has offered anything but superficial scratches to the well-armored tank that is Big Education. That's because none has addressed why young Americans are forced to go to college in the first place. Their money and brainpower would be better spent overturning Griggs v. Duke Power Company.
The 1971 Supreme Court decision remains largely unknown, but no ruling of the past forty-five years (except for Roe v. Wade) has done more harm to the American way of life. It changed the way companies hire, pay, and promote workers, ensuring that America would be a country defined by credentials rather than merit. Griggs is why we're wasting money and time on a dubious good like a B.S. degree--pun intended.
The saga began in 1969 when Willie Griggs, a black man born in the segregated South, decided he was overdue for a promotion. In order to get one, per Duke Power Electric Company rules, he had to pass two aptitude tests and possess a high school diploma. Griggs smelled racism. The tests surveyed employees on basic math and intelligence questions. None of Duke's fourteen black workers passed. Griggs and twelve others sued the company for discrimination. A district court and federal appeals court accepted Duke's claim that the tests were designed to ensure that the plant operated safely. Duke bolstered its case by pointing out that it offered to pay for employees to obtain high school diplomas and that white applicants who failed to meet the requirements were also denied promotions.
The Supreme Court wasn't buying it. This was North Carolina after all. The court compared the tests to Aesop's fable of the Fox and the Stork, in which a fox offers a dish full of milk to a stork, whose beak prevents it from satisfying its thirst. The implication that black and white workers were of a different species did not strike any of the justices as racist, unlike the objective tests. Griggs found that if blacks failed to meet a standard at a higher rate than whites the standard itself was racist--a legal doctrine known as disparate impact.
...The lie that props up our Big Education regime is that the GI Bill, which paid for World War II veterans to attend college, produced the upward mobility and economic boom of the postwar period. It's a heartwarming story, the veteran who would have been a dust farmer but for the grace of government generosity. But it just isn't true. Only one out of every eight returning veterans attended college. The rest, the vast majority, benefited from something even more egalitarian: aptitude testing. The format favors raw talent above all else, allowing companies to hire high-potential candidates from any background and groom them to fit the company's needs.
These tactics came to commerce from a familiar source.The armed services were forced to process hundreds of thousands of recruits during the war, and in order to filter and assign soldiers, the government developed aptitude tests. Businesses witnessed the U.S. defeat the two most efficient peoples known to man, thought there must be something to this whole testing thing, and followed suit. The chief hiring metric in the postwar era was not whether someone had a degree, but whether he had the aptitude that would enable him to succeed. Every industry from blue-blooded high finance to immigrant-heavy manufacturing employed testing to determine who would rise through the ranks, regardless of lineage, heritage, or education. Testing enabled men who set out to be blue-collar workers to ascend based solely on their ability.
Above all, tests are effective.
"Despite their imperfections, tests and criteria such as those at issue in Griggs (which are heavily...dependent on cognitive ability) remain the best predictors of performance for jobs at all levels of complexity," University of Pennsylvania Professor Amy Wax has found.
...The Griggs decision has made that organic rise through the ranks impossible, as disparate impact left businesses liable for those who failed to pass hiring tests.
...The solution for businesses post-Griggs was obvious: outsource screening to colleges, which are allowed to weed out poor candidates based on test scores. The bachelor's degree, previously reserved for academics, doctors, and lawyers, became the de facto credential required for any white-collar job.
Welcome to the student loan bubble.
The Supreme Court could resolve many of these issues by beheading disparate impact and the diploma-as-credential. Does Wall Street need humble, ethical young men and women? Then give them tests, start them at the bottom, and let them earn their way up based on merit. Want to teach risk management? Pull students out of the classroom goldfish bowl and put them in the real world.The real world doesn't operate in idealized, rational markets. If it did, no one would go to college.
via Andrew Garland via Instapundit
I have no interest in the racial component. But it's clear that any adult ready to face the world with a $300K loan is probably less intelligent than an adult with zero loans and a useful skill.
The only thing Americans, Right and Left, seem to agree on is that college is an unquestionable good.
One needn't listen to them, any more than one needs to listen to them that a degree, a mortgage, or a passel of children is the golden key to happiness. All of this requires $0 in educational investment, but ... c'est la vie. Enjoy your expensive misery.
Kevin at July 21, 2021 1:26 AM
Credentialism, , rather than aptitude and skills testing is designed to cover for the educational establishment which has failed in a big way to impart basic skills.
The basic skills mission has been totally replaced with a psychological one; to *build self esteem* a benchmark which is impossible to measure for a reason.
Isab at July 21, 2021 1:56 AM
The only thing Americans, Right and Left, seem to agree on is that college is an unquestionable good.
I'm not sure the right would call it that after the past year, too many examples of it bring indoctrination centers over education. With CRT being exposed, too many parents have sent their sweet kid off to college only to get a blue haired American hating socialist back with a ridiculous bill.
Joe J at July 21, 2021 2:51 AM
It can be. The big issue comes down to what we expect of college, job training or education. We try to combine both with the first two years of most college curricula being about a liberal arts education and the second two years being a deeper dive into a specific subject.
We've watered down public high school with social promotion and self-esteem nonsense to the point that we're graduating illiterates. And we wonder why companies require college degrees for the most basic jobs.
To be fair to the Court, there was a fair amount of codified racism still extant in the South in 1969. The Court's suspicions were not unwarranted. Its conclusion, however, was erroneous and somewhat racist.
The same racist sentiment and obstruction suspected in Griggs was present in the North as well, but since it was disguised as union activism, it was lauded, not decried.
One interesting thing that has come out of this recent white supremacy and systemic racism kerfuffle is the widespread exposure of Northern racism - e.g., the true motivation behind the New York Draft Riot of 1863. Of course, now it's being blamed on the Irish.
Conan the Grammarian at July 21, 2021 5:46 AM
"The only thing Americans, Right and Left, seem to agree on is that college is an unquestionable good."
The social security administration published a piece indirectly covered here a short while ago.
https://www.ssa.gov/policy/docs/research-summaries/education-earnings.html
The conclusion is:
"Overall, these findings confirm the significant long-term economic benefits associated with college education."
That analysis considers a film degree the same as a business degree. Something that is obviously false. The difference in how profitable the average man's degree is between the average woman's indicates how different the profitability is between female and male dominated degrees.
From their data it look likely that most degrees don't ever pay off and are not an economic good.
Ben at July 21, 2021 8:30 AM
A very good analysis. It's 50 years past time that SCOTUS overruled that terrible case and outlawed both affirmative action and the bogus criterion of "disparate impact."
The way to realize MLK's dream is to enact it.
jdgalt1 at July 21, 2021 9:22 AM
A good alternative would be to revamp the bankruptcy laws to allow student loans to be dischargeable, and either make the government get out of the student loan business or set variable loan caps based upon degree program.
For all the supposed smarts of American business, you'd think they'd have an incentive to get away from credentialism and go back to aptitude tests. I guess the legal departments think the risk is too great. It creates a multitude of seemingly random catastrophic failures in business by allowing the rise of incompetence, which in turn shields a lot of poor ethics. One wonders, for example, if Enron would have happened if there had been more competence in the boardroom and accounting departments.
ruralcounsel at July 21, 2021 12:00 PM
Rural, I doubt it would make much difference in the Enron situation. Smart people make some of the dumbest mistakes. It is just part of the human condition.
Same with variable government loan caps. They may be set perfectly, but life changes while the bureaucracy doesn't. It is the nature of the two. A few decades later and it all becomes a mess again.
Ben at July 21, 2021 12:54 PM
"A good alternative would be to revamp the bankruptcy laws to allow student loans to be dischargeable" ruralcounsel
No why punish banks forced to make the loans or the taxpayers for bad loans when the universities are selling bad degrees.
universities have no skin in the game if they deliver a bad product, that is what needs to change.
Joe J at July 21, 2021 3:21 PM
> revamp the bankruptcy laws to
> allow student loans to
> be dischargeable
Never. These are the people, by definition, who've been best equipped by their choices to distinguish themselves economically, culturally and socially from those without the grades or wherewithal to get degrees.
They're the last people on the planet to whom we should be throwing free candy.
We've got one and only one lever to pull academia away from its cancerous growth… DEBT.
Let the tool do its work.
Crid at July 21, 2021 5:07 PM
"The solution for businesses post-Griggs was obvious: outsource screening to colleges, which are allowed to weed out poor candidates based on test scores"...this is a point that is often made. But note: the original Griggs decision *also* found that the high school diploma requirement was discriminatory. This doesn't sound like something that would support the outsourcing of employee evaluation to educational institutions.
I suspect that the original ruling was modified, either by later court cases or by legislation, but haven't seen any specifics on this.
David Foster at July 21, 2021 6:08 PM
Listen— If you think the collusion of government and education is a sinister force already, watch what happens when you show them that their income will always, always be guaranteed.
Crid at July 22, 2021 6:26 AM
I think what Crid and Joe J miss is that
(1) I never said anyone would be forced to make student loans. So no, no banks would be punished, and they would run the risks of making loans like they do for anything else. They can loan or not loan. A purely business decision. These student loans have no collateral, so it's a naked gamble on an individual's life success. More like indentured servitude than a real loan.
In the end, it may be the colleges themselves that have to make the loans and hold the debt and suffer when it can't be repaid. Which would really create some tensions and incentives for them to clean up their act.
(2) Bankruptcy isn't "free candy." Free market capitalism means failures as well as successes, and we need a way to let the failures restructure or fold in an organized way. Every single business or person you know could go bankrupt. Everyone with any sense factors that in when extending credit or making loans. It's built into the system. And face it, when BAPCA passed in 2008, it changed the rules for student loans. Loans taken out before then should get to play by the older more lenient rules.
Everything I suggested would make it harder to get student loans, and harder to get large student loans. This dries up the pool of kids to defraud. If the loans are dischargeable in bankruptcy, it will be a lot harder to get those loans and the people making them might actually do some due diligence before writing a check.
College is a scam for probably 80% of the people who attend it. That is never going to change; statistically only STEM degrees have a chance of positive ROI. That isn't the universities fault (though they are willing co-conspirators in the fraud). It's everyone who tells kids to "follow your passion" without looking at the ROI.
So while we may disagree about the mechanics of a solution, I think we agree on the problem and how risk needs to be redistributed.
ruralcounsel at July 22, 2021 7:43 AM
I never said anyone would be forced to make student loans.
They would be, because any difference in loans to Asians and blacks is considered proof of racism and would be taken to court. Too many ways to judge students before they go to college. grades, IQ test, SATs, extra curricular activities. Some states are pushing top % of the HS. Problem with that is obvious with bad Baltimore schools where only 5% of graduates are proficient in Math or reading.
Joe J at July 22, 2021 1:34 PM
Well Joe, when you said 'why punish banks' I can only see it being punishment if you force them. If they do it of their own free will ... it's on them.
'Too many ways to judge students before they go to college. grades, IQ test, SATs, extra curricular activities.'
Well, that's the whole point now isn't it? If loans are to be made on a sound basis, then you have to use all that information to judge the soundness of the loan. And that's a good thing. Private financial contracts based upon using all the available information to judge if the loan can be repaid. I'd argue that they ought to be able to use juvenile criminal records too.
No matter who makes the loans, they intend to be repaid. So the people making the loans will use whatever they can to evaluate the risk of default. THis is why the government should NEVER be involved in student loans. Because they act like it isn't their money and the pile they loan from is bottomless. Ands they don't make use of any information about the student's ability to successfully graduate with a worthwhile degree. They don't even know what the student is studying.
The ideal situation would be only colleges and universities could make student loans to their own students. That puts the risk of default right where it belongs.
ruralcounsel at July 22, 2021 6:11 PM
> I never said anyone would be
> forced to make student loans.
Worse: You promised that they would be (endlessly) incentivized to do so, without regard to probability of repayment.
> Free market capitalism means
> failures as well as successes
Free market capitalism allows competitive testing of approaches and contenders, such that each can make a reasonable guess about which market will be a good fit for their talents.
If you're going punch a ticket for college to everyone with a pulse without regard to grades, studiousness, or fitness for higher education, you're describing about the free-est, sweetest candy imaginable… And not just for the students… But perhaps more importantly, for academe and its administrators.
Crid at July 23, 2021 10:12 AM
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