The Hidden Student Loan Debt Problem

Much outrage has been expressed over the difficulty U.S. college students and recent graduates are facing because of their student loan debt. Since the recession began in 2008, the amount of student loan debt has spiked by 84 percent, with borrowers owing a record $1.2 trillion. Nearly 40 million Americans have at least one outstanding student loan, according to new research by Experian. But is the problem as dire as some make it out to be?

Today, the average student owes about $28,000 on student loans. That is a big number, but a recent article in Forbes used some comparisons to help put that number into perspective. For example, the average American car loan is $27,000 and purchasing a car does not deliver the high return on investment that a four-year college education does. The U.S. Census Bureau estimates that over an adult’s working life, someone with a bachelor’s degree can expect to earn nearly an extra million dollars on average compared with someone with only a high school diploma. Similarly, the average home mortgage loan in the U.S. is now over $280,000. Some observers have suggested that student loan debt may prevent young people from purchasing cars or homes and hence is a serious problem. That may be true to some extent, but I argue that the real problem today is wage stagnation, which adds years to when borrowers can pay off their student loans and does much more to limit their opportunities in life.

Please understand that I am not downplaying the hardships of student loan debt or the seriousness of the rising cost of education. A college education has become part of the American dream, right up there with home ownership and apple pie — and rightly so. Years ago, government programs were created to subsidize student loans to honor the belief in higher education and recent proposals aimed at forgiving or reducing student loan borrowing seem to echo the same sentiment.

Let’s review some recent legislation and proposals. A law signed by President George W. Bush to provide forgiveness of student loans for people going into public service for 10 years will begin helping people in 2017. Other officials are working to provide even more support to indebted students. Senator Elizabeth Warren (D-MA) developed the Bank on Students Emergency Loan Refinancing Act, which allows borrowers to refinance their student debt at today’s lower interest rates. Such refinancing is already commonplace with mortgages and cars, but has not been easily available in the student loan sector. The Obama administration estimates that the bill has the potential to help 25 million borrowers to save about $2,000 over the lifetime of their loans. Earlier this summer, the bill was blocked in the Senate, primarily because it would require the imposition of new taxes or the loss to the federal government of $60 billion in student loan interest payments over the next decade.

In truth, while the amount of student loan debt is concerning, it’s not the most serious problem facing college students and recent graduates. When adjusted for inflation, student loan debt has increased, but, as noted, it is about the size of a car loan on average. While horror stories have been reported about individuals who borrowed massive amounts to finance multiple degrees in fields offering few jobs, that problem is connected to factors beyond the availability of loans. A critical problem today is the stagnation of wages, which makes people take longer to pay back loans. Politicians overlook this and often focus on symptoms of the problem. This diverts attention from the stagnant economy and the reduction of public funding for higher education, which is being felt in many states, including Pennsylvania.

Colleges do play a role in the problem, both for increasing costs so rapidly and for facilitating situations in which students can earn degrees that offer few opportunities in the job market. In an era of global markets, where jobs are often mobile and technology has automated many functions, colleges have not uniformly adjusted their standard model to ensure that students receive adequate preparation for work. While it is fine for university officials to say that they wish to educate students for their career and not their first job, it is imperative for colleges to provide career skills that allow students to find employment by using the critical thinking skills and other attributes provided in a traditional liberal arts education.

It is also essential for colleges to supplement the student experience in ways that enhance the employability of graduates. For example, a recent Gallup study showed that students who have strong relationships with faculty and mentors and have access to experiences that allow them to apply what is discussed in the classrooms (through internships, cooperative education programs, and other real-world and experience-based learning practices) are more successful in their careers and happier in life. Gallup identified six specific attributes and concluded that only three percent of the respondents strongly agreed that they had exposure to all six.

I am not saying that student loan indebtedness should be ignored. It is a problem, but it is less serious than other related problems. It is a symptom of a vicious cycle: State governments have reduced funding for higher education, which pushes tuition higher. Government-guaranteed student loans provide options for students to deal with higher college costs. Colleges use the increased tuition revenue to ensure budgets are met. There is inadequate pressure on colleges to emphasize job placement outcomes. Students and graduates have problems repaying the loans.

We are at a crossroads and must employ different solutions to address student loan debt. For their part, colleges must provide students with the necessary skills to be employable — even if it requires changing the traditional educational focus by adding career-focused majors in the liberal arts. Government must support higher education through consistent funding and by applying common sense to a variety of government-supported loan programs — for example, let people consolidate loans and set reasonable caps on the maximum amount that can be borrowed with a government guarantee. Society should recognize that some students will benefit more from a technical education program than a traditional college. Most importantly, government needs to stimulate wage growth, as this will lessen the problems of student loan debt much more effectively than will the creation of new legislation to forgive debt or the creation of new bureaucracies for monitoring colleges.


Blogging Alone: How the Social Media Disconnect Will Affect Business Schools

The ubiquity of social media reveals an interesting irony: Though we are more connected than ever before, loneliness is on the rise, and more people report they have no one to talk to, according to a number of research studies. Apparently, having a few real world friends is superior to having a million Facebook friends, which drives home the idea that Facebook is about quantity and not quality. Indeed, the purpose of Facebook is to broadcast, display and report ourselves to our wide world of “friends.” While there is nothing wrong with this new approach, it makes the old-fashioned method of sharing your thoughts with a few close friends seem increasingly antiquated.

For all the good social media brings, a generally unmentioned corollary is the fact that the more someone posts or tweets, the less time he or she has to read, experience or listen. Time is a limited resource. People must choose how to spend their time, and increasingly the choice is to reflect through social media — especially on oneself or one’s experiences — and as a result people are losing their ability to listen and engage others.

Because this dynamic affects human interactions and society, it will affect business schools. I see it exacerbating the existing trend of students coming to school with higher test scores but having a growing need for the development of emotional intelligence and social graces. Good grades alone don’t guarantee jobs. In today’s globally competitive environment, students must also develop social skills—especially the ability to interact, collaborate, and communicate. Texting is not the solution.

As a consequence, schools need to address this student deficiency in the curriculum. Doing so will require more than offering isolated non-credit seminars and Toastmasters groups. In my experience, it is highly effective for programs to emphasize hands-on learning activities and team-based projects. My school, for example, offers a variety of MBA and undergraduate consulting projects with companies and an MBA capstone simulation in which students are a firm’s executive team. The experiences take students out of their comfort zone, requiring them not only to use new skills from class, but also to address the concerns of a real Board of Directors. This helps students understand how it is possible to ace tests and fail interviews.

In some respects, a focus on soft skills is contrary to the traditional business school emphasis on mastery of a set of analytic tools and skills — i.e. foundational courses, specialized electives, and knowledge of certain facts. Today’s workplaces, however, require young people to be able to make sound judgments.  Yet, we educate students in a system that emphasizes standardized test results above all else – but that’s another blog entry entirely.

Beyond its influence on interpersonal skills and extroversion, social media may provoke other interesting effects. In the past, relationships forged between students and professors have fueled philanthropy and loyalty to alma mater.  Such close relationships are beneficial in other ways, too, as a recent study suggests that having a mentor in college leads to more engagement by students in their future careers. But if students continue to disengage from face-to-face interactions as they spend more time online, such relationships will occur less often. And faculty members, seeking to protect time for research, may prefer the result. For universities, the problem will not become apparent until years in the future. It will be a major issue for public universities, which have more students in the classroom and less state support to pay for their education.

In some cases, students’ reliance on technology and media will lead them to expect the same instantaneous response from faculty as from Siri or the customer service staff at an Apple Store. They will be primed to think it is a wise idea to email the CEO, ask for a raise for everyone, and copy much of the company workforce.  Already, Internet access in the classroom allows students to publicly “fact-check” professors — that is, when they are not showing their boredom by surfing the web. Professors need to spend time dispelling a student’s incorrect Googled notion instead of discussing the subject matter. Furthermore, the exchanges embolden students to believe they know more than they really do. This tendency is elevated by beliefs that everything can be handled through multi-tasking.  I am sure that faculty will take students to task. At the same time, because student satisfaction is part of the data used in business school rankings, the discrepancy between students’ expectations and faculty views may play out in a way schools detest.

Before you conclude I’m just an old Luddite, know that I see much value in the changes brought by social media and recognize that we are not going back to the quaint old days. Our hyper-connectedness has many clear advantages. It is democratizing and has in many instances increased transparency. Social media channels are revolutionizing how business schools can engage with students, alumni, and other audiences. Now, instead of sending a quarterly magazine, monthly e-mail or annual report, schools can talk to their audience (or a selected segment) on a daily basis. This offers an incredible opportunity to mobilize support for campus events, mentoring programs, employment referrals, fundraising, and more. We would be foolish to ignore the technology that provides such opportunities.

But we must also recognize the importance of how we use our time. As technology becomes further integrated into our lives, it is not clear whether it is fundamentally good (improving efficiency and the quality of life) or fundamentally bad (we are becoming part of the Borg). Moreover, in a world where people blog alone, what will stop them from doing more things alone? If the secret to eternal life is being connected to a central processor (i.e., the Matrix), will evolving generations choose that fate over normal messy interactions with other people?

Business schools must prepare students for the onslaught of technology, while being blind to what technologies will do or enable in the future. This makes speed more important than ever in what we do in b-school. And it exposes the vulnerability inherent in our deliberative governance processes. Will business school see this shift in the human experience as an opportunity to train students to generate revenue or a societal matter that requires discussion and the exercise of social conscience? Stay tuned for an answer. It may surprise you.


B-School Lessons from the Centennial of the Great War

Throughout 2014, the world will commemorate the 100th anniversary of the start of World War I. This anniversary will generate much thought about the war itself, as well as its causes, effects and implications for humanity. Just as there was much tumult among world powers in 1914, today’s higher education landscape is rapidly changing, with many potential implications for business school strategies, outcomes and success.

There are four primary dimensions of World War I that can be translated as a note of caution to today’s business school landscape:

1. Providing Outcomes in Demand

Governments had broad support around the time of the Great War — as long as they provided outcomes demanded by their citizens.Similarly, business education has been enormously popular because of the implicit general belief that it provides good economic outcomes.  However, as more schools have developed undergraduate and MBA degrees, and the alumni pool has grown, it is inevitable that the economic value of business degrees will decline on average.  Thus, as the cost of business education – including opportunity costs – continues to increase, average returns will decline and popularity may follow suit. In this environment, which appears to exist today, the B-schools that thrive will be those that continually adapt and provide students with in-demand business skills. The underlying lesson is that it is important to anticipate where the market is going, as well as to provide the outcomes it demands today.

2. (In)Effectiveness of Strategy

The strategies of both the Allied and Central powers in World War I were largely ineffective, leading to a stalemate that lasted from 1914 through 1918. Though each side employed new weapons and technologies, the effects were calamitous and ultimately unsuccessful, as neither side advanced and many died.

I frequently speak with students who wish to study and understand business strategy in order to prepare for the world of consulting and to develop the skills to be successful managers. They often underestimate the importance of knowing a business thoroughly and seek immediately to be in a position determining strategy.  However, strategies regularly play out differently from intention – especially when guided by little experience. To the extent that B-schools and business faculty increase their distance from the economy and industry, there will be greater variance in the success of their proposed strategies. Moreover, as long as B-school faculty focus much of their research on empirical analyses of the past, the disconnection with evolving markets will render research-generated studies inadequate. For this reason, B-schools should encourage research projects that combine data analysis and interactions with people. The lesson is that we must get out of the office to understand the relentlessly changing environment of business if we are to produce successful strategies.

3. Differentiation from the Crowd

Both the Allied and Central Powers implemented new technologies and weaponry, but their satisfaction with historic approaches contributed to the war’s stalemate. It was, in due part, America’s rapid adoption of new practices (automobiles, manufacturing methods, etc.) that reshaped the world economy, and prosecuted the war to a conclusion. In today’s higher education landscape, it seems every university aims to be the residential college of the future. However, as B-schools – including the very top ranked and “best” schools – show little discomfort with the order of things, we are vulnerable to disruption by new challengers. While I won’t venture a guess as to whom these challengers will be, or which will prevail, they will likely appear from sectors ignored or disrupted. And the winning solutions will be those preferred by the customers of business education – not the providers. The lesson is to be comfortable at your peril.

4. The Importance of Forward Thinking

The armistice signed on the 11th hour of the 11th day of the 11th month in 1918 ensured that the German people would suffer as a result of the aggression inflicted by their leaders. However, there was neither forward thinking nor adequate contemplation of the choices that a suffering people would feel impelled to make. As a result, two decades later, Europe, Asia and the wider world were rocked by devastation on a larger scale in World War II.

Today’s B-schools display less forethought than might be expected. An emphasis on generating revenue has created a situation in which some important outcomes – e.g. the integrity of graduates or faculty – receive little attention. Similarly, emphasis on lectures, theory, and classroom learning, even when facilitated by technology, means the vast majority of business students have little experience creating results. Fortunately, some schools have recognized this disparity and, in turn, have made experience-based learning central to their mission. Client-based consulting projects, fellowships, cooperative education programs, and case competitions are just a few examples of how students can gain practical hands-on business experience.  The lesson is the need to build experience into education so students are prepared for their careers.

As we reflect on the centennial of the Great War’s beginning, let’s hope that the parallels noted above for business schools are resolved by the 100th anniversary of the war’s end. There are many crucial lessons and areas of growth for B-schools, and these key learnings will generate much good for the future economy and provide meaningful lessons for tomorrow’s business students.