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We learned last week that bad debts on U.S. student loans now exceeded those on all credit card debt. Yet politicians, educators and economists continue to advise American youth to aim for a college degree, on theory that it represents a job for life. However according to the Economic Policy Institute the unemployment rate for college graduates aged 21-24 is 9.4% and the underemployment rate is 19.1%. This trend, of declining employability and rising debt, has worsened substantially in recent years and isn’t about to improve. Thus at some point we will come to recognize: the four-year college model is broken.
The keynote speaker at the Texas Workforce Conference, where I presented last week, was Professor William Symonds, of the Harvard Graduate School of Education. I had expected Symonds, given his provenance, to give a robust defense of the four-year college, but he didn’t. Instead he presented his Pathways Project, which works with state governments to improve the preparation of young people for the workforce – a vital task in a period of prolonged high unemployment and declining workforce participation rates. Symonds pointed out that, although 60% of young people now attend college, less than half of those attempt a four-year degree. Meanwhile, the economy increasingly contains jobs that require a considerable amount of specialized training, but not a college degree. Such jobs abound in health care, but also include specialized welding in the manufacturing sector, where employees need mathematics beyond high school and a considerable amount of computer savvy, as well as an advanced training in welding itself.
Middle-skill jobs are plentiful in many sectors, and employers are having difficulty in filling them. Part of this is economic illiteracy on their part; a New York Times story recently described the CEO of a small manufacturing company in Minnesota, who was having great difficulty attracting welders with today-level skills, whom she was proposing to pay $10 an hour. Mostly, that’s her ineptitude; with the minimum wage now $7.50 per hour, you should not expect to recruit highly skilled operatives for only $10. Such jobs often paid $15-20 an hour thirty years ago, and with the necessary skill levels having increased, should probably pay $30-40 per hour in today’s money, even given the decline in blue-collar living standards.
Part of the problem is welfare provision, which has become much more easily available in the recession. When specialized welfare payments are combined with an earned income tax credit more generous than was historically the norm, the results can be counterproductive. For example, a single mother will now enjoy as much disposable income with a wage of $29,000 as with a wage of $69,000. Needless to say, while relatively few skilled welders are single mothers, even today, the incentive on anyone for whom the welfare system works efficiently is to move to an area with cheap housing and generous welfare, but few well-paid jobs. The cost of this to the economy and to the workforce is considerable; for most people it is much more satisfying to achieve a high skill level and a $69,000 income than vegetate at $29,000, even if your take-home pay is the same.
The other huge cost to society comes from college drop-out rates, which in the U.S. are among the highest in the world. Only 56% of students complete a four-year college degree in six years, while the staggeringly low rate of diploma completion for two-year colleges is a mere 29%. Thus only 40% of 27-year olds have completed an AA degree or higher, indicating the enormous amount of waste in the higher education system.
Given the very high cost of college to students, and to the national economy, this drop-out rate is also a human tragedy, which will become even more damaging as the volume and default rate on student loans spirals. Since the pernicious 2005 legislation preventing student loans from being extinguished in bankruptcy, and the damaging 2008 decision to issue most student financing with a government guarantee, the cost to both taxpayers and students of these very high dropout rates is appalling.
According to Symonds, increasing numbers of employers complain that students lack 21st century skills, yet it’s not for a lack of resources devoted to their education. Clearly the entire higher education system operates with an inefficiency that would not be tolerated in any walk of life in which the free market was properly operational.
The current situation, in which four-year college graduates and even PhDs are unable to get work commensurate with their education, and even when they do so, suffer from remuneration inadequate to service their college debt, indicates that through perverse incentives we have developed a thoroughly counterproductive system. Far from 30% of students graduating from four-year colleges at a cost of $250,000 to themselves or to the taxpaying public, no more than 10% should do so. Conversely, since skilled community college graduates are much in demand from employers, the proportion of two-year college degrees should be expanded to take up the slack.
To achieve this, reforms are necessary. State-funded higher education should be sharply cut back and reoriented. Subsidies should be reduced, and about half the four-year colleges currently in existence should be closed or, better converted to two-year colleges (which will presumably be able to graduate twice as many students each year). Direct state aid to students and guarantees of student loans should be eliminated except for a very few scholarships for very poor students to four-year colleges at the top of the scale. This will result in student aid being available only for courses which lead to jobs that pay enough to repay the loan.
This will not result in colleges coming to resemble the current “for-profit” education sector, which relies heavily on the availability of government funding for courses which are often of low quality and do not lead to significant earnings increases on their completion. With government funding scarce, students will come to expect that their course of study, generally at a two-year college, will lead directly to well-paid employment. Colleges will be forced to adapt.
There will also be a need for re-thinking at the high school level. With the proportion of students heading for four-year colleges halved, high school counselors will be forced to gain information on the community college offerings in their area, and the needs of local employers, since that will be the direction in which most students will go. High schools will also need to up their game in a number of areas where the U.S. K-12 education system is lamentably slack compared to foreign competitors, in particular elementary calculus, the ability to write comprehensibly and grammatically and “Technischen Hochschule” skills comparable to those in Germany.
There will also need to be re-education of employers. Too often, large companies and the government in particular demand entirely unnecessary college qualifications for management jobs.   The apotheosis of this tendency is seen in the Federal government, which promotes and pays based largely on credentialism, producing that extraordinary phenomenon, unknown until the spread of mass education, of the PhD graduate with a well-paid government job, albeit one using modest skills unrelated to his or her PhD, who would be entirely unemployable in the private sector. Large bureaucracies tend to attract the least capable in our society; it is telling that they also insist on the highest academic credentials. This is not a paradox; the ability to acquire credentials in second-tier academic institutions is mostly unrelated to intelligence.
Viewed properly, graduate schools would also become largely superfluous. Law, most medical specialties and above all business are skills that can be acquired in a relatively short space of time, and do not require a four-year degree as pre-requisite. Thus law schools, medical schools and business schools should recruit directly from among high-school graduates, short-circuiting the unnecessary four-year college requirement. While at the very top of all three professions, specialist qualifications may be needed, they are certainly unnecessary for the ordinary practitioner, and merely serve to drive up costs. Abraham Lincoln and Pierpont Morgan did not go to law school or business school.
Cutting back the four-year college will not overall produce a less educated population; too many college degrees are in any case of low quality and cannot properly be described as educations in the classical sense. Moreover we now have an enormous technological capability in the Internet, which can provide college-level courses to those interested at a tiny fraction of the cost of conventional courses. Welders who wish to study Aristotle or Game Theory can accordingly do so by this means, from a course that is of at least the quality of most colleges and at a tiny fraction of the cost. This will not be an inferior  education system; with lives longer and retirements later, most people will need to retrain several times during their career and will demand top quality means by which to do so.
The 21st century workforce requires a 21st century education. However, this requires the state to spend less, not more on education, focusing it where employers’ needs are greatest. The four-year college degree, costing $250,000, deserves to go the way of the dinosaur.
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005)—and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley—2010).