Clash between Ideology and Reality

The Financial Aid Game

What's the Value of Attending College?

A recent article in the NYT, “Placing the Blame as Students Are Buried in Debt” by Ron Lieber, presents the case of a woman who graduated from NYU with $100,000 in student loans, and who is having great difficulty paying the loans back.

Mr. Lieber recognizes why the schools would resist counseling students against attending based on financial aid considerations:

Colleges don’t always know how much debt its students are taking on, which makes it hard to offer good counsel…

Then there’s a branding problem. Urging students to attend a cheaper college or leave altogether suggests a lack of confidence about the earning potential of alumni. Nobody wants to admit that. And once a university starts encouraging middle-class students to go elsewhere, it must fill its classes with more children of the wealthy and a much smaller number of low-income students to whom it can afford to offer enormous scholarships. That’s hardly an ideal outcome either.

Finally, universities exist to enroll students, not turn them away…

Mr. Lieber does fault parents and lenders for allowing students to take on heavy loan burdens that the students may have great difficulties in paying pack:

[T]here are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting -- [“How could her mother have let her run up that debt, and why didn’t she try to make her daughter transfer to, say, the best school in the much cheaper state university system in New York?”] -- and loan underwriting -- [“plenty of lenders will step forward to roll the dice on desperate students, especially because the students generally can’t get rid of the debt in bankruptcy court”].

In the end, though, Mr. Lieber makes the case that the financial aid office is in the best position of advising students as to the appropriateness of them taking on massive student loans:

But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students … who got in too far over their heads… The financial aid office often has the best picture of what students … are up against, because they see their families’ financial situation splayed out on the federal financial aid form… University officials should take on this obligation, even if they aren’t willing to advise students to attend another college…

Clash between Ideology and Reality

When it comes to providing higher education, there is an obvious clash between ideology and reality.  Ideologically, everyone should have the opportunity to get the best education they can, and everyone should be encouraged to follow their bliss (i.e., make their career choice based on doing what they love rather than on doing what will pay the rent).  In reality, though, resources (e.g., space in schools, funds to pay for education, availability of jobs) are limited, and as such, society cannot afford to provide the best education available to everyone and to have each student educated in the areas of his or her choosing.

A less obvious clash between ideology and reality occurs with the timing of education.  Ideologically, education should be delayed until students are emotionally and financially prepared to make the most of their time in school.  In reality, however, the best time for students to become educated occurs at the earlier stages of their lives, so that they have the most time to benefit from their education.  In other words, the best time for students to attend college is precisely at that time when they’re least able to afford it, and perhaps also at that time when they’re least prepared (emotionally) to extract the greatest amount of benefits from their education.

From a social standpoint, given that resources are limited, how should society determine who gets to fill the most prestigious spots?  If the best spots go to those who can afford to pay the costs of their education (price-based allocation), then society will end up favoring (and perhaps perpetuating) the rich over the poor.  Alternatively, if the best spots go to those who have achieved the most by the time they reach college age (merit-based allocation), then society will end up favoring those with better access to quality teaching, those with access to better or more varied extracurricular activities, and those who mature earlier, which, arguably, again favors the rich over the poor.

Furthermore, from a social standpoint, given that resources are limited, should society encourage students to study those subjects they enjoy the most, or should society encourage students to study those subjects that will best prepare them to be “good” social citizens (how do you define “good”?)?

So even if we decide to use a system that allocates students to schools based optimizing social welfare, it’s not clear where each student should end up.  In particular, the results will strongly depend upon the amount of resources a society has (i.e., the extent to which society can afford need-based aid), the degree to which society values “happy” citizens (i.e., the extent to which students should be encouraged to study what they like vs. what will make them “good” citizens), and what society values (the extent to which businessmen or technicians earn more money than do artists and teachers).