Bank Account Garnished In Texas

The pyrrhic victory of American higher education: bubbles, lemons, and revolution.

INTRODUCTION

While mingling with an old high-school friend–let’s call him
Troy–at a wedding recently, the conversation took an unexpected turn. I
asked him how his work at the local
grain elevator

 had been going; he
retorted that it was great, aside from the $600 monthly remuneration he
was paying in college loans. After inquiring about how much longer he
would be making these loan repayments, he
despondently
  
adj.
Feeling or expressing despondency; dejected.


de·spondent·ly adv.
 answered,
“the rest of my life.” Troy spent more than three years at a
large state university in Ohio, but, feeling as if he never truly
belonged, dropped out with nothing to show for it except tens of
thousands of dollars of debt and nearly four years of his life seemingly
wasted.

The prospect of insurmountable education debt, unfortunately, is
one that plagues thousands of individuals across the country–degree in
hand or not. (1) Many of these dejected souls echo similar tales of
peer, parental, and societal pressures, encouraging them to pursue the
illusion of the “American Dream,” where everyone goes to
college and no one has to do “manual labor.” Unfortunately,
with the economy still reeling from the credit crisis and college
enrollment at an all-time high, a large portion of those entering–or at
least attempting to enter–the workforce will face the same fate as
Troy.

While this predicament may be easy to dismiss as merely a negative
effect of the current economic crisis that will eventually
equilibrate
  
v. e·quil·i·brat·ed, e·quil·i·brat·ing, e·quil·i·brates

v.intr.
To be in or bring about equilibrium.

v.tr.
To maintain in or bring into equilibrium.
,
it is more likely that the crisis has exposed a larger problem with our
educational system–the proliferation and
devaluation
 decreasing the value of one nation’s currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments.
 of higher
education,
colloquially
  
adj.
1. Characteristic of or appropriate to the spoken language or to writing that seeks the effect of speech; informal.

2. Relating to conversation; conversational.
 known as the “massification of higher
education.” (2) While a more educated populace is a noble goal,
overeducating comes at an expense, and politicians and policymakers must
weigh the benefits against the costs in ascertaining the ideal amount of
education. (3)

This Note will attempt to expose a few of the myriad problems
created by the over-education phenomenon and offer some suggestions on
how to deal with them without major social conflict. (4) First, Part I
will begin with a brief introduction and rundown of the statistical
trends in
educational attainment in the United States

. Part II will then
detail the history of higher education policies–political, societal,
and economic–which affect Americans’ educational choices. Next,
Part III will explain the serious
side effects

 these policies have
created–including, increasing education costs, lower wages for workers,
and higher unemployment. Part IV will then explore a potential solution,
as well as suggestions proffered by others, to diffuse this delicate
situation with some not-so-delicate ideas, including changing the high
school curriculum and restricting the federal student loan program.
Finally, the Note closes with some concluding remarks.

I. TRENDS IN HIGHER EDUCATION

It is instructive to begin with a short summary of educational
achievement trends in the
United States
 officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
. Americans today are more
educated than they ever have been in the past. (5) A study by the
United
States Census Bureau

) is a part of the United States Department of Commerce.
 in 2010 revealed that of adults between the ages of
twenty-five to thirty-four, 31.1% had attained a bachelor’s degree.
(6) In the early 1950s, this number was in single digits. (7) The study
also found that for adults twenty-five years and older, the percentage
with high school degrees and the percentage with bachelor’s degrees
were both at all-time highs. (8) Similar trends are present across all
genders, (9) races, (10) and socio-economic backgrounds. (11)

Over the past few decades, there has also been a major increase in
the cost of higher education. From 2002 to 2007 alone, the average cost
of attending a public four-year university shot up thirty-five percent,
outpacing inflation over the same period by a significant margin. (12)
In fact, between the 1976-77 and 1986-87 academic years, the
“average annual inflation-adjusted increase in public four-year
college … was about [two] percent” (13) and, since then, has been
about four percent. (14) This trend has been most pronounced in the
realm of public four-year colleges, as compared to private four-year
colleges or public two-year colleges, and it is expected to continue
into the future. (15)

II. PUBLIC POLICY IN HIGHER EDUCATION

Many factors combine to determine the access, availability, and
perceived benefits of higher education. The government intentionally
creates or manipulates some of these incentives to help individuals
better themselves; others are societal norms, disseminated through peer
pressure; and still others are market forces that induce people to take
certain actions or prepare themselves in specific ways to be more
attractive in the
labor market
 A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience
. Subsection A will identify some of the
governmental and legal policies aimed at improving access to higher
education; subsection B will explain societal pressures and, more
specifically, how the “American Dream” has fueled this
over-valuation of higher education; and finally, subsection C will give
examples of how market forces have created a preference for individuals
with college degrees.

A. Governmental and Legal Policies

The government subsidizes higher education in numerous ways. First,
the government established land-grant institutions, which evolved into
today’s “state schools” in the Morrill Act of 1862 (16)
as a more cost-effective alternative to private universities.
Furthermore, the government subsidizes higher education by offering tax
deductions and/or credits for education expenditures. (17)
Most
importantly

, for the purpose of this Note, the government supplanted
private industry in the realm of student loans in the middle of the
twentieth century to control interest rates and access to funding for
higher education.

The history of governmental and legal policies in higher education
is the paragon of good intentions gone awry. Higher education has always
been expensive, so, beginning in the Cold War era, the government began
enacting statutes to make college more affordable to all prospective
students. (18) Originally, Congress designed Title IV of the Higher
Education Act of 1965 to “assist in making available the benefits
of higher education to qualified high school graduates of exceptional
financial need, who for lack of financial means of their own or of their
families would be unable to obtain such benefits without such aid.”
(19) Congress amended this Act multiple times to increase both the
number of students eligible for federal loans and the borrowing limits,
as well as to reduce the applicable interest rates. (20) Moreover,
between the original Higher Education Act and the early twenty-first
century, the government also began creating tax incentives through
student loan interest deductions, in a further effort to
incentivize
  
tr.v. in·cen·tiv·ized, in·cen·tiv·iz·ing, in·cen·tiv·iz·es
To offer incentives or an incentive to; motivate:
 individuals to pursue higher education. (21)

Then, in 1972, the government created a Government-Sponsored
Enterprise (”
GSE

“) (22) called the Student Loan Marketing
Association, known as ”
Sallie Mae
 see SLM Corporation.
,” (23) in an effort to make
college loans available to still more people. (24) Although later
privatized, (25) Congress used Sallie Mae to guarantee loans to private
lenders at a specified interest rate, which allowed private institutions
to increase the number of loans available to the public, while
effectively disregarding the
creditworthiness

 of the borrowers. (26)
More recently, as part of the Health Care and Education Reconciliation
Act of 2010, (27) President Obama sought to “make college
affordable
in the midst

 of the
rising tide

 of
college tuition

” by
removing the “middlemen” role of private banks in the loan
process. (28)

These policies made the cost of borrowing money for college–and
post-graduate education (29)–cheaper and easier for students to attain,
and in turn, induced more and more students to attend college. (30)
Thus, a number of policies since the 1960s have accomplished the
admirable goal of making college more affordable for the less fortunate.
These policies, however, like so many others subject to the haggling,
compromising, and pandering of the political process, quickly expanded
in scope, magnitude, and variety, to include not only low-income
households, but also moderate- and upper-income households as well. (31)

B. Societal Pressures

Similarly, social norms have also contributed to this trend, with
“common knowledge” being that college comes after high school.
(32) In fact, one commentator and critic of current higher-education
policy suggests this idea is one of the top “Commandments” of
the “American Religion.” (33)

Attaining statistics concerning people’s tastes for a good is
difficult.
Circumstantial evidence

, however, demonstrates that the
demand for college is increasing as a matter of individual preference.
Normally, we could observe the price of the good fixed for inflation–if
the constant-dollars price was increasing while the overall quantity
consumed was also increasing, it would imply that the demand curve had
shifted to the right, and thus the increase in price was driven by an
increase in demand. (34) This scenario is opposed to a shift in the
supply curve, in which case, if these quantity increases, the price
would decrease and
vice versa

. Since the current trend in education is
an increase in quantity and price, the demand curve must have shifted to
the right, as opposed to a shift in supply. (35)

In the current situation, however, this evidence is not a reliable
indicator of demand, because the subsidization of higher education by
federal loans may be distorting the market. (36) A general directional
trend, however, may be ascertained. First, in constant 2006 dollars, the
average cost of a four-year, private institution was $12,375 for the
1986-87 academic year. (37) This number, in constant 2006 dollars, rose
to $16,843 and $22,218 in the academic years 1996-97 and 2006-07
respectively. (38) Over the same time, however, the maximum federal

Stafford loan

 available was $22,708.65 in 1986-87 (39) and $23,000.00 in
1996-97. (40) By determining the rate at which the amount of loan money
available was increasing, and comparing that amount to the rate at which
college tuition was increasing, we should at least see a rough estimate
of the directional trend in the preferences for college education. (41)

As indicated by the numbers presented above and the fact that a
higher percentage of high school graduates are attending college today
than in previous generations, the relative change in federal funding
available could not have been the sole factor fueling the increase in
college enrollment over the past several decades. As a result, changes
in personal taste and the general perception of the advantages of a
college degree have likely contributed to the observed increase over the
past twenty-five years. (42) This point should not be controversial
either, since every day, there seems to be another commercial asserting
that “the college grad makes on average $1 million more over their
lifetime.” (43) With the “guarantee” of $1 million merely
for attending college, why would anyone decide not to go?

This pressure is not only from commercials either, as families also
generally place pressure on students to continue pursuing education. It
is normal for parents to challenge their children to excel in everything
they do, and it is normal for students to
aspire to

verb , desire, pursue, hope for, long for, crave, seek out, wish for, dream about, yearn for, hunger for, hanker after, be eager for, set your heart on, set your sights on, be ambitious for
 be the best they can
be, including attending college. When, however, students are bombarded
with potentially misleading statistics daily, (44) as well as parental
and societal pressure to attend college, (45) individual incentives may
be
perverted

adj.
1. Deviating from what is considered normal or correct.

2. Of, relating to, or practicing sexual perversion.
 and preferences distorted, ultimately pushing the market
for college enrollment out of equilibrium. Parental pressure may make a
graduate more likely to attend college for fear of
reprisal
 in international law, the forcible taking, in time of peace, by one country of the property or territory belonging to another country or to the citizens of the other country, to be held as a pledge or as redress in order to satisfy a claim.
 and reproach
from her family and society in general. High school graduates hearing of
the “indispensable” benefits of a college degree may perceive
college as conferring instant success and benefits upon them, which is
not necessarily the case. (46)

C. Economic Incentives

While at least part of this trend is attributable to governmental
policies and social mores, the increase in higher education enrollment
is also a result of increased demand for college-educated workers in the
labor market. If businesses increasingly prefer a bachelor’s degree
for employment, (47) the logical response by those in the workforce is
to react to such a preference, making the corresponding increase in
college enrollment logical and proper. So, the question is: If the
market dictates that more people should go to college, is there really a
problem? To answer this question, it is important to understand the
manner in which the markets for workers in different industries view a
college degree.

Sometimes, a college degree adds very little value to a worker, but
employers nonetheless still require or prefer one. Employers
increasingly require or give preference to college graduates for
positions, such as firefighters, (48) library technicians, (49) and
interior designers, (50) any of which could be learned on the job, in a
special training program, or in a trade school. Frankly, outside of
specialized scientific or technological careers, most new workers learn
what they need to know on the job. (51) In fact, the United States

Bureau of Labor Statistics

 website provides a listing of countess
occupations in which a college education is “preferred” but
most experience is acquired on the job. (52)

If most workers gain the necessary knowledge while on the job,
however, why attend college at all? The answer is simple–job market
signaling.
Nobel Prize
 award given for outstanding achievement in physics, chemistry, physiology or medicine, peace, or literature. The awards were established by the will of Alfred Nobel, who left a fund to provide annual prizes in the five areas listed above.
 winning economist
Michael Spence

 first discussed
this concept in his 1973 article Job Market Signaling. (53) The thrust
of the article is that in most job markets there is an information gap.
(54) The employer is uncertain about the productive capabilities of
prospective workers at the time they are hired and for a short time
thereafter. (55) Thus, hiring, from the employers’ perspective, is
an investment decision in their firm with some future expected payoff.
(56)

Spence suggests that employers attempt to reduce the uncertainty of
their investment by interviewing their candidates and observing
characteristics about them, including “education, previous work,
race, sex, criminal and service records, and a host of other data.”
(57) Some of these characteristics are outside of an applicant’s
control, whereas others are within her control. Those factors that the
applicant can control are known as “signals,” and by
manipulating them, the applicant may influence the employer’s
hiring decisions. (58) For education, when an applicant invests in her
education, she is theoretically signaling to potential employers her
worth as an employee. While signals can be manipulated, there are costs
associated with doing so, and generally, a worker will only invest in
education if there is “sufficient return as defined by the offered
wage schedule.” (59)

This wage schedule indicates to a worker what her potential salary
would be depending on the different levels of education she may attain.
Thus, knowing the wage schedules available, an individual worker will
select the level (and type) of education that best signals her abilities
to the job market. For example, if an individual understands her natural
abilities to make her well-suited to be an attorney, she will invest in
a level of education up through law school to signal to potential
employers that she possesses those skills. Moreover, intelligence is not
considered a signal and is more akin to an uncontrolled characteristic.
(60) Thus, if a student does not believe that her natural talents lend
themselves to the higher wage schedule, she will decide not to bear the
signaling costs necessary to increase her level of education to that
required by the employer for hiring. (61) Although all people would
strive for a higher wage schedule, and thus purchase more education, the
cost of attaining the education should normally dissuade people from
purchasing too much of it. (62)

One common criticism of this hypothesis, however, is that it relies
upon the assumption that an individual can adequately evaluate her own
potential and is thus unrealistic. This objection, however, is
unmeritorious, because society expects individuals to make rational (63)
decisions based on their perceptions of their own abilities constantly
throughout life. (64)

Likewise, an employer will use education as a means of
differentiating between candidates for a job. As a signal, education
reduces
information costs

 between an employer and the candidates, as
well as the coordinate uncertainty in hiring of whether a candidate is
“teachable” and well-suited for the job, by demonstrating the
applicant is willing and able to learn. (65) Understandably, employers
prefer to hire the best talent, which is a natural objective. When
signaling becomes “diluted” by the incentives created by
societal and governmental policies, however, problems may arise. These
problems are discussed below. (66)

III.
UNINTENDED CONSEQUENCES

 

The prospect of a more educated populace is generally a desirable
objective, but problems arise when the level of education rises above,
what this Note will refer to as, the “equilibrium amount.”
This amount is the theoretical quantity where the true
“demand” and “supply”–i.e., without governmental
subsidization and societal interference-of higher education intersect.
(67) As discussed above, education plays an important signaling function
in the labor market. (68) When policymakers and society intervene in
this market, there may be grim consequences. This Part of the Note will
discuss two problems: (A) a potential “bubble” in higher
education and (B) adverse selection in the labor markets.

A. A Higher Education “Bubble” (69)

First, a bubble is an economic phenomenon where the price of a
commodity or investment outpaces its equilibrium amount, unduly
inflating the value. (70) A number of factors, including speculation
(71) and perverted market incentives, (72) may precipitate this
disparity between equilibrium amount and price. While this often leads
to many speculators getting rich, it
invariably
  
adj.
Not changing or subject to change; constant.


in·vari·a·bil
 leads to a situation in
which investors become wary of the market, pull their money out, and
ultimately, depress the market price–sometimes even to levels below the
equilibrium amount, (73) forcing the holder of the asset to
internalize

To send a customer order from a brokerage firm to the firm’s own specialist or market maker. Internalizing an order allows a broker to share in the profit (spread between the bid and ask) of executing the order.
 the loss. When asset devaluation occurs, the bubble has officially
“burst.” In order to understand how legal policies can inflate
a bubble, this Note will first examine the most devastating bubble in
recent history–the real estate bubble, which led to the subprime
mortgage crisis–and then will
analogize
  
v. a·nal·o·gized, a·nal·o·giz·ing, a·nal·o·giz·es

v.tr.
To make an analogy of or concerning:

v.intr.
 the higher education bubble to
the housing bubble.

1. The Real Estate Bubble and Housing Crisis of 2008

In order to understand how prolonged governmental
over-subsidization can create problems in the long run, this Part will
briefly explain the factors that gave rise to the housing bubble of the
early twenty-first century. (74) A mixture of the two aforementioned
causes of bubbles–speculation and perverted market forces, such as low
interest rates–contributed to the housing bubble in the early 2000s.
Succinctly stated, speculators in the market reacted to political
decisions that perverted incentives. First, land generally appreciates
in value due to a finite total amount, an ever-increasing demand fueled
by unfettered population growth, and a general desire by the populous to
own property. (75) Land’s tendency to appreciate unfortunately
means that the potential for one to own land is predicated on her wealth
or her access to credit, and thus, it tends to be more difficult for
lower-income households to own property. (76)

During the 1970s, the government sought to manipulate these market
forces by increasing access to credit through the creation of two
GSEs–the Federal National Mortgage Association (
Fannie Mae
 see Federal National Mortgage Association.
) during the
Great Depression and the
Federal Home Loan Mortgage Corporation
 commonly known as  privately owned, government-sponsored organization that uses private capital to buy home mortgages as a means to help lower housing costs.
 (
Freddie
Mac

 see Federal Home Loan Mortgage Corporation.
) during the 1970s. (77) The government created these GSEs to
purchase the mortgage loans that banks made to borrowers,
“instantly infusing the banks with liquid cash without having to
wait thirty years for the payments, which in turn, the banks [could]
then lend again to another home buyer.” (78) Fannie Mae and Freddie
Mac drastically increased the funds available for loans, forcing
interest rates down, and decreasing the banks’ risk in
lending–moving such risk from the banks’ balance sheets to the
GSEs’ balance sheets. Because they did not have to bear the entire
loss in the event of default, the banks made riskier loans. Fannie and
Freddie, in order to protect themselves from the overzealousness of the
banks, implemented their own restrictions about the creditworthiness of
borrowers, thus keeping the banks honest in their lending; however, even
these restrictions were no match for congressional hegemony. (79) In the
1970s, the country experienced a multitude of changes in the area of
mortgage lending. Through multiple acts of Congress and subsequent

litigation

, banks were not only incentivized, but also legally mandated,
to make high-risk loans as part of a movement that “championed
homeownership for all Americans.” (80)

This political atmosphere, coupled with very low interest rates,
lax regulations on bank-leverage requirements, and very few restrictions
on over-the-counter derivatives (such as swaps and option contracts),
(81) set the stage for market players to react by packaging highrisk
mortgages into asset-backed securities to increase their liquidity and
diversify the risk. (82) With increased liquidity and less market
discipline, due to banks becoming “too big to fail,” real
estate investors and homeowners were able to bid the price of the
mortgages continually higher and higher, leading to a thirty-three
percent increase in the price of the average single-family home from
2000 to 2005. (83) Because Fannie and Freddie infused so much liquidity
into the housing market, homeowners were able to afford more expensive
houses, increasing the overall demand for houses, and ultimately,
forcing the prices well beyond their equilibrium amount. (84) When the
bubble finally burst, housing prices dropped drastically, leaving many
homeowners “underwater”–owing more than the house is
worth–on their mortgages and Fannie and Freddie holding $2 trillion
worth of the debt. (85)

2. The Market for Student Loans

There are many similarities between the current market for student
loans and the housing market of the early 1990s. Rather than learning
from their recent mistakes precipitating the mortgage crisis, lawmakers
in this country are following a very similar path with student loans.
Just as in the market for land, the market for higher education lends
itself to a market price that outpaces the rate of inflation. (86) This
upward pressure on price induced the government to enact legislation and
to subsidize the cost of college in various ways to combat the rising
prices and to increase access to education, including policies to keep
interest rates low and to make loans more readily accessible. (87)

By increasing the amount of readily-available funds for student
loans, however, the government has ”
eviscerate
  
v. e·vis·cer·at·ed, e·vis·cer·at·ing, e·vis·cer·ates

v.tr.
1. To remove the entrails of; disembowel.

2.
[d] all natural risk
mechanisms,” just as it did in the housing market. (88) This
subsidization of the market, in turn, increased the demand for
higher-educational services, which afforded colleges the opportunity to
increase their prices. (89) Professor Richard Vedder, an economist at
The
Ohio State University
 main campus at Columbus; land-grant and state supported; coeducational; chartered 1870, opened 1873 as Ohio Agricultural and Mechanical College, renamed 1878. There are also campuses at Lima, Mansfield, Marion, and Newark.
, points out that “[t]he reason colleges
have been getting away with raising their fees so much is that loans
allow parents to tough it out,” (90) so raising tuition is a
logical response to increases in enrollment most institutions have seen
in the past few years. (91) The problem is that the increased
availability of loans has created a cycle of tuition hikes, followed by
a governmental response of injecting more loanable funds into the
market, followed by more tuition hikes, inflating the price more and
more with each turn of the cycle. (92) This inflationary cycle, coupled
with societal pressures to attend college, as well as the natural market
incentives preferring educated labor, (93) has increased the price of
college to astronomical rates over the past few decades. In this
situation, the government has again created perverse incentives, and,
like derivative traders in the housing market, students fill the role of
“market
speculator

.” Essentially, there is a breakdown in
information (94)–the students believe that the education they pursue is
worth more than it actually is, so they still consume the services, even
at inflated prices.

One peculiar aspect of a higher education bubble is the question of
how it will “burst.” In a normal market with a bubble, (95)
when the bubble bursts, the assets held by individuals rapidly devalue,
forcing the asset’s market price down and the holders of the
commodity to internalize the loss. (96) This occurrence is because
normally the price paid for and the value derived from a commodity are
determined by the same market–a fact that is not true in the market for
higher education. Because the market value of education is derived from
wages, when someone’s education devalues, one would expect it to
manifest in the form of lower pay. This, however, is not entirely the
case in the market for higher education, because students consider both
the price of tuition as well as expected wages when determining when to
go to college, which do not move in
lockstep
  
n.
1. A way of marching in which the marchers follow each other as closely as possible.

2. A standardized procedure that is closely, often mindlessly followed.

Noun 1.
. (97) The two markets still
interact with each other, but they interact as compliments, rather than
as a single market. Thus, wages do not ”
deflate

” as rapidly as
the price of houses did when the housing market collapsed. The Note will
address how these adverse effects manifest in the labor market later.
(98)

Nevertheless, the deflated bubble will likely manifest itself in
two ways: increased default rates on federal student loans–due to
depressed wages–and possible social upheaval. First, expect to see
default rates increase substantially, as the benefit derived from a
college degree is no longer able to “cover” the
ever-increasing expense of attaining it, so many students will be unable
to repay their loans on time. This increased default has already started
happening, as the “cohort default rate”–the rate of student
loan defaults–has increased steadily over the past few years. (99)
While some of the increase is due to the current economic climate and
relatively high levels of unemployment, (100) the default rate has
steadily increased over time and has not jumped recently due to the
shock of the current market conditions until very recently. (101)
Moreover, even before the recent recession, the default rate was
increasing, (102) which suggests that the two are not
inextricably
  
adj.
1.
a. So intricate or entangled as to make escape impossible:

b.
 correlated.

Worse yet, defaults on student loans are especially burdensome, as
one is legally unable to discharge a federal student loan through
bankruptcy, unless not doing so would cause ”
undue hardship
 Social medicine A term used in the context of the ADA, in which an employer may claim that the accommodations required to comply with the ADA are financially unviable and represent an undue hardship.
.”
(103) Because student debt is so hard to discharge, students must
shoulder it for years into the future, restricting their consumption.
Furthermore, when someone defaults on a federal student loan, her wages
may be garnished, (104) and her credit score is affected adversely,
again with few remedies available. (105) This situation forces people to
live under austere conditions, in which it is more difficult to obtain
credit to purchase a car or house and they must greatly restrict their
consumption. (106) With a poor credit score, garnished wages, and a
burdensome monthly loan payment, a person is unable to purchase a new
car, house, or other amenities, adversely affecting other sectors of the
economy as well. President Obama recently introduced a new plan to cap
student annual loan payments and discharge the balance after
twenty
years

, (107) but this remedy only seems to address the
“symptoms” rather than the “disease.” (108) If the
true problem is too much debt, then the true remedy is lowering the
price of college, or conversely, making funding for college less
available. This alternative would decrease the demand for, and
subsequently the cost of, college, rather than merely capping payments.
(109)

Secondly, and potentially much more dangerous, in a situation where
people are not making the money they expected to and believe they
“deserve,” eventually social unrest might emerge. For example,
the “Occupy Wall Street” movement recently erupted in
New York
City

 see New York, city.


New York City

City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S.
 and other cities across the United States. (110) While the
“Occupy” movement is a decentralized group with a diverse list
of demands, one primary complaint concerns the student loan burden many
students shoulder and the lack of means of alleviating that burden.
(111) The demonstrators’ plight suggests that the price they paid
for their education was not worth the benefit they eventually received
in the job market. Without many of the policies discussed above, some of
them might have rationally decided not to incur the tremendous debt
obligations of pursuing a higher education.

B. Adverse Selection

Another problem that has arisen from the lax loan standards and
available money is adverse selection, which decreases productivity due
to lost market signaling. Adverse selection is a basic economic concept,
where asymmetrical information forces prices down due to increased risk
in the market. (112) This Part introduces the concept of adverse
selection through an abridged rendition of George Akerlofs classic
example of the market for “lemons,” and it then goes on to
apply the same theoretical framework to the labor market.

1. The Market for “Lemons”–Used Cars

Akerlof attempted to illustrate the problem of asymmetrical
information–and by corollary, the importance of market signals–through
the market for used cars. (113) Assume there is a market for
automobiles. After owning a car for some time, the owner comes to know
whether or not it is “a good car” or “a lemon,”
(114) but there is no corresponding increase in the knowledge about the
car to a potential buyer in the market. (115) Because of this gap in
information at the time of purchase between the buyer and the seller,
and assuming that the price of an automobile normally varies directly
with its quality, eventually only lemons will remain in the used car
market. (116) This unfortunate result occurs because if there is no
credible way to signal to the market that a car is good, the risk of
purchasing a lemon disincentivizes any
market participant

 from spending
more money on a car than what a lemon is worth. (117) Correspondingly, a
seller of a good car scorns the idea of selling her car for a price
below its actual value, so eventually the supply of good cars dries up,
leaving only lemons. (118) Akerlof’s article concludes by detailing
institutions that arise to counteract the ubiquitous problems of
uncertainty and asymmetrical information in markets. (119) These
institutions include branding, (120) chains, (121) and licensing, (122)
each of which we see in the market for used cars, which allow potential
purchasers to more efficiently
glean
  
v. gleaned, glean·ing, gleans

v.intr.
To gather grain left behind by reapers.

v.tr.
1. To gather (grain) left behind by reapers.

2.
 information about the goods in the
market and make more informed decisions.

2. Adverse Selection in Labor Markets

While Akerlof’s model explains many peculiarities in the
market for used cars, it is also applicable to the market for workers.
In the labor market, the number of workers represents the
“supply” and the number of workers that employers need
represents the “demand.” Thus, the supply of workers is
analogous to the supply of used cars, and similarly, the employers are
analogous to the buyers in the used car market. Also, as in the market
for used cars, assume there is
asymmetric information

 in the labor
market, with a schedule of workers, ranging from those who are
“good”–thus demanding a higher wage–to those who are
“bad”–thus demanding a lower wage. (123) As explained in Part
II.C above, workers use education as a means of signaling to prospective
employers that they are a good investment. (124) In this way, education
is used as a form of “licensing,” where the workers claim
their labor has been “certified” by whatever degree or
accolades they possess. (125) Or, at least, this view was historically
how employers have viewed education.

As discussed above, there is some evidence that the benefits of
attending college seem to be “leveling off’ compared to the
costs. (126) A recent study by the Department of Education found that
the cohort default rates increased to 8.8% in 2009, up from just 7.0% a
year earlier. (127) Moreover, another study found that the unemployment
rate for workers with a bachelor’s degree is the highest it has
ever been, even compared to economic recessions in the past. (128)
Finally, and most importantly, wages have stagnated, and the
median
household income

 actually decreased by four percent between 1997 and
2008 when adjusted for inflation. (129)

While lagging economic growth has likely been a major contributor
to the aforementioned trends, another contributor may be adverse
selection in the labor markets. With an increase in the number of
bachelor’s degrees, we should expect to see the benefits of
attaining a bachelor’s degree decrease as the signaling function is
diluted and risk to the employers increases in the market for employees.
Much like the price of a used car on the market, when there is
inadequate information in the market to signal the difference between a
“good” product and a “bad” product, there is a
downward pressure on price. (130)

The same principles should hold in the labor market; when a worker
cannot signal to her prospective employer that she is a “good”
employee, there is downward pressure on the initial wage level. (131)
Because the employer cannot differentiate between the “good”
and “bad” employees based on their respective market signals,
the risk of hiring an inadequate employee is higher. Thus, an employer
cannot offer the starting wage that the market dictates, because the
employer cannot risk paying such a high wage to an underachieving
employee–just as a buyer in the market for cars cannot risk buying a
lemon at the price of a good car, so she will refuse to pay a high
price. Theoretically, a student at the top of her class or in a
prestigious institution should not experience the same depressed wage as
her lower achieving counterparts, because the employers can still glean
a potential employee’s general abilities merely from the school she
attended or the position she finished in her class. Thus, this depressed
wage will most profoundly affect those marginal students who might never
have decided to attend college in the first place without the
aforementioned
market manipulation

. (132)

One important difference between the market for used cars and the
market for labor is that in the labor market, we should not see the
“good products” dropping out of the market–i.e., the good
worker simply staying home and deciding not to work. Because most people
must work to live, the good worker is faced with three scenarios. In the
first scenario, she must start at a lower wage than she could otherwise
have had and work her way “up the ladder.” This scenario gives
the employer a windfall for a period, and it forces the good worker to
operate at a loss until she demonstrates to the employer her true value
and is promoted. Here, there is a lag between the time the worker starts
and the time she begins making her “equilibrium wage,” (133)
during which the employee “loses” money. There is also a loss
of “productive capacity,” which is the time it takes the
employee to reach the position at which she “should” have
started in an efficient, healthy market.

In the second scenario, the good worker would hold out until the
job she prefers becomes available. Holding out may be necessary if there
is a proliferation of workers in the market who are not as qualified as
the good worker, and through whom the employer must sift before finding
the worker she prefers. Here, again, there is productive capacity lost,
because the “best” worker is sitting out of the market and the
employer is not putting her talents to the most efficient use, during
which both the employer and the employee are losing productivity.

Finally, in the third scenario, the good worker would realize that
her talents are not being adequately compensated in this job market, so
in order to signal her worth, she would invest in more education through
post-graduate work for an MBA, JD, Ph.D., or other
professional
certification

. (134) When she enters the market, she then is able to
signal her proper value to employers, so they may hire her at an
increased wage. Although this scenario seems fine, as the market
ultimately places the employee in the correct position, the employee has
taken on more debt and lost years of her productive work life, and the
employer has lost the worker’s productive capacity for the time she
returned to school. Thus, ultimately, the market equilibrates and the
signals function normally, but the players have more debt and there is

deadweight loss

 in the market.

Conversely, for the “bad” employee, she will not
necessarily move up the ladder, even if she pursued higher education.
She will either remain at her entry-level wage or be laid off and forced
to find work elsewhere–probably at a lower wage. Either way, the tens
of thousands of dollars of student loans she bore becomes more
daunting
  
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.


[Middle English daunten, from Old French danter, from Latin
 and seemingly insurmountable, the longer she is unable to pay. An
employee in such a situation may become disillusioned with the system
due to the unrealized better life she was “promised” before
she entered college.

Moreover, there will be other ancillary losses to the individual
and society as a result of the current economic situation of higher
education. A student with more debt may select a different,
higher-paying position than she would otherwise prefer, specifically
because of the debt-relieving potential, making her less happy than she
would be in another position. Correspondingly, if the student accepts a
position in which she is unhappy, her job performance will likely
suffer, creating a further loss to society.

IV. THE PLAN: MODIFY, RECONCEPTUALIZE, AND OVERHAUL

We do not want to disincentivize society’s investment in human
capital. If people want education, they should be able to attain it.
However, there is something fundamentally broken with the system. There
is a breakdown of information in the market–a gap which leads people to
overestimate the benefits of attending college and underestimate the
costs. To correct the problem, three changes are necessary: (A) a
modification of the required high school curriculum, (B) a
reconceptualization of the “American Dream,” and (C) an
overhaul of the federal student loan program.

A. Modification of the High School Curriculum

The problem discussed above stems primarily from a breakdown of
information concerning the potential payoff offered by the market and
the opportunity cost of attending college. In order to remedy this
problem, state legislators and school boards should modify the high
school educational system in the United States to include at least one
required class in either basic economics, accounting, or finance
(together, the “proposed classes”). By including the proposed
classes in the high school curriculum, individuals should better
understand the financial decisions they make, due to a deeper
understanding of debt, interest rates, and
opportunity costs

.

Currently, most state-mandated high school curricula require
multiple classes of mathematics, history, and English (together, the
“classic classes”), while economics, accounting, and finance
are generally offered as elective courses. (135) While there is nothing
wrong with the classic classes–and, indeed, these classes are very
important-they are not as practical in day-to-day life as are the
proposed financial classes. (136) People subconsciously make decisions
between competing alternatives every day using basic
microeconomic
  
n. (used with a sing. verb)
The study of the operations of the components of a national economy, such as individual firms, households, and consumers.
 concepts whether it be foregoing a Starbucks coffee to pay rent or
deciding which route to take on the way home from work. By adding the
proposed classes to the required curriculum, legislatures would ensure
that high school graduates understand basic financial and economic
concepts, better preparing them for managing household finances and
debts later in life. While the material taught in the proposed classes
is very important, there are also many other ancillary benefits students
gain from taking these classes, which they could then put to use later
in life when securing a mortgage or planning household finances. (137)

While state legislators and school boards should require the
proposed classes as a part of their high school curricula
irrespective
of


prep.
Without consideration of; regardless of.

preposition  
 their students’ educational aspirations, these classes become
even more important as each student decides whether to attend college.
As stated above, one problem in the market for higher education is a
fundamental breakdown of information. (138) Adding the proposed classes
is a vital step in reducing this asymmetry, ff a high school student
better understands the “opportunity costs” of college–the
alternatives a student forgoes by attending college, such as pursuing a
two-year degree, attending a trade school, or getting a jump-start on
her career–she will be more likely to make a rational decision. In
addition, knowledge of interest rates and the time value of money would
increase the rational decision-making capacity of every individual for
any career choice or business decision in the future.

A rudimentary understanding of the basic financial concepts taught
in these proposed classes could help to reduce the number of students
who decide to incur the added expense of attending college rather than
pursuing better opportunities. Even if all of these classes were rolled
into one all-inclusive “financial responsibility” class, the
effects could be palpable. This minute change would potentially require
only the reduction of one classic class from the existing curricula, and
schools would not have to incur many additional costs, as these courses
are often already offered by the schools, but they are not required.
(139)

B. Reconceptualization of the “American Dream”

Many of today’s policymakers rely upon the “American
Dream” as the
antecedent

 for the policies they endorse. Whether it
was to increase access to credit to own a home or access to funding for
higher education, politicians often champion a view of the American
Dream in which home ownership and a college education are
inalienable
rights

. (140) However, the American Dream can more aptly be stated as
“the fundamental tenet that we are not forever bound by the
circumstances of our birth, but that anyone willing to work hard can
achieve a prosperous and secure life for his or her family.” (141)
This definition clearly does not advocate the idea that every person has
a right to go to college, but instead, that everyone has the right to
have access to college if she is willing to assume the concomitant risks
and costs.

Further, the American Dream gives each person the right to make a
rational choice about whether or not to go to college with the proper
and necessary information. As such, the American Dream should not
include perverted incentives or
paternalistic
  
n.
A policy or practice of treating or governing people in a fatherly manner, especially by providing for their needs without giving them rights or responsibilities.
 ideals of what
“society” believes is “best”–no matter how well
intentioned. What is best for one person may not always be what is best
for everyone (or anyone) else. Each individual has the right to
determine for herself–without governmental interference–if she
believes the
value added

 to her human capital by attending college is
worth the tens of thousands of dollars she would have to spend and
multiple years she would have to devote to attain that value.

More directly, we need to start questioning the Orwellian notion
that college is fundamentally a better decision for everyone. As
mentioned above, the “common knowledge” that a college
graduate makes $1 million more dollars on average over her lifetime is
pervasive in our culture. (142) Recent studies, however, suggest that
this notion is not necessarily the case. Notable higher-education
skeptic James Altucher believes that there are cheaper and better ways
to obtain an education than attending college, and he credits his own
life experiences much more than his degree in computer science from

Cornell University
 mainly at Ithaca, N.Y.; with land-grant, state, and private support; coeducational; chartered 1865, opened 1868. It was named for Ezra Cornell, who donated $500,000 and a tract of land. With the help of state senator Andrew D.
 with his success. (143) Altucher submits there are
“a billion other things you could do with your money [besides go to
college].” (144) One such alternative, if you have the cash on
hand, is investing it. Two hundred thousand dollars (the amount it costs
to attend certain
Ivy League

 schools) invested and earning five percent
a year would be worth $2.8 million in fifty years. (145) Moreover,
recent government statistics indicate that only fifty-seven percent of
full-time college students seeking their bachelor’s degree graduate
in six or fewer years, (146) so the costs of attending college may be
much more than what students expect upon enrolling.

Of course, this investment scenario is infeasible for most. The
point remains, however, that financing college through loans is not
necessarily the best way to boost potential earnings. The median
earnings of college graduates do
outpace
  
tr.v. out·paced, out·pac·ing, out·pac·es
To surpass or outdo (another), as in speed, growth, or performance.


Verb

[-pacing,
 their high-school-diploma
counterparts by $16,000 per year. (147) Yet this is only the median
salary of a college graduate, and many college graduates fall outside of
the middle range. In fact, as mentioned above, there is evidence that
the payoff of a college degree has leveled off in recent years. (148) As
Professor Vedder points out, “[i]n 1970, when the overall
unemployment rate was 4.9 percent, unemployment among college graduates
was negligible, at 1.2 percent…. But this year, with the national rate
of unemployment at 9.6 percent, unemployment for college graduates has
risen to 4.9 percent….” (149) Professor Vedder concludes that
“[t]he return on investment is clearly lower today than it was five
years ago…. The gains for going to college have leveled off.”
(150)

Moreover, there is no evidence that intelligent, self-motivated
individuals will not make more money without ever attending college.
(151) As discussed above, one of the main reasons good workers go to
college is to signal to potential employers that they are the good
workers. (152) This point may suggest that the unmotivated or
less-gifted worker who is going to college merely to demand a higher
wage may be wasting her time and money. College should not be considered
some
enchanted
  
tr.v. en·chant·ed, en·chant·ing, en·chants
1. To cast a spell over; bewitch.

2. To attract and delight; entrance. See Synonyms at charm.
 place where earnings instantly increase just by virtue of
attending. It is instead better considered a decision for people who
believe their worth to the job market differentiates them from the rest
of the workforce.

There are also many jobs where employers currently
“prefer” a college degree, for which on-site training or a
trade school would suffice. (153) This fact suggests that a college
degree is not indispensable, but that society expects it, which in turn
induces more employers to require or prefer college graduates. (154) In
fact, research by Richard Steckel and Jayanthi Krishnan indicates that
wealth was more mobile–an individual could more easily move from the
lower to upper class–in the late nineteenth century than it is today.
(155) One of the reasons Steckel and Krishnan
proffer
 v. to offer evidence in a trial.
 for the current
rigidity is the “growing importance of human capital to earnings
and to wealth accumulation.” (156) They suggest that the prevalence
of high-paying, low-unemployment jobs such as lawyers, doctors, and
accountants, which rely heavily on human capital investment, could be a
driving factor in this trend. (157) Because of the relatively recent
standardization of these professions, and the necessity of education for
the performance of them, Steckel and Krishnan
hypothesize
  
v. hy·poth·e·sized, hy·poth·e·siz·ing, hy·poth·e·siz·es

v.tr.
To assert as a hypothesis.

v.intr.
To form a hypothesis.
 that education
is the barrier restricting the free-flow of wealth witnessed a century
ago. (158) Before education was a prerequisite for attaining such a job,
an individual could easily move up the social ladder, merely with hard
work; after the emergence of such jobs, however, hard work became only
part of the equation. Although Steckel and Krishnan only discuss the
human-capital-intensive occupations, a general societal preference for
college would also contribute to this trend of wealth inequality and

immobility

.

By reconceiving the American Dream as providing the
“opportunity” to assume the risk to go to college, rather than
the “right,” and providing updated, less-biased information to
the labor market, societal pressure on a high-school graduate to enroll
in a four-year university may decrease. By decreasing such pressure, an
individual student’s “costs” of not attending college may
also decrease, as the student would no longer fear the backlash or
societal stigma often imposed upon individuals who decide to forego
college and, instead, enter the workforce. (159) Of course, in order for
a person to make a rational decision, not only these societal costs, but
also the monetary costs that she must incur to purchase an education
should more accurately reflect the true value the education would add to
her human capital. This “true value” should reflect how much
“better” the person is made by attending college, all
opportunity costs and natural talents considered. Changing perceptions
in this manner is not a simple task, but restricting the federal loan
program would go a long way to remedy the situation.

C. Restriction of Federal Loan Programs and the End of Perverse
Incentives

Some scholars have proposed changes to the current higher education
system to remedy the problem of inflated prices. Professor Vedder
suggests that universities should begin including a “lowering
cost” incentive in their presidents’ salaries in the form of
bonuses for meeting lower-tuition thresholds. (160) By changing the
incentives of a university to be more akin to those of a normal
business–profit-maximizing through lower costs–the price of higher
education should drop. If a university’s goal was to keep costs
down, then the cost for a student of attaining an education would drop
lockstep with the cost of the inputs.

Others have suggested changing the entire model of the American
system of higher education, so that school is offered all year, but the
price of it would remain the same as that of the nine-month system.
(161) Other suggestions include tuition caps, (162) “progressive
tuition scale[s],” (163) and tying tuition to future earnings.
(164) Even President Obama has recently offered his suggestions on how
to fix the predicament, including introducing a plan to “cap”
student loan payments at ten percent of income to begin in 2012 and
reducing the twenty-five-year “balance forgiveness period” to
only twenty years. (165) None of these proposed solutions, however,
adequately remedy the underlying source of the problem. Some of these
ideas only act as a Band-Aid to mask the symptoms, and others actually
create more perverse incentives. (166) This Note proposes severely
limiting the role the federal government plays in making educational
loans and allowing private banks to handle the vast majority of funding
for higher education.

First, the federal government’s role in funding and servicing
student loans should be greatly reduced. With less federally subsidized
liquidity in the student loan market, most students would have to go to
private banks to secure funding for college. This shift would allow the
market to set the individual interest rate on a case-by-case basis. Each
student would then have the ability to compare the true cost of college
to the value she expects to derive from the experience. The
“price” of attaining funds for college is the interest rate
charged on the loans, so the more “risky” the candidate, (167)
the higher the interest rate should be. This revision would
reintroduce
   

v. t. 1. To introduce again.

Verb 1. reintroduce – introduce anew; “We haven’t met in a long time, so let me reintroduce myself”
re-introduce
 the market discipline in lending that the federal government’s
student loan policies have destroyed. (168) A student could then make
the rational decision of what is best for her based on her individual
interest rate, allowing her to assess the costs and benefits of each of
her options, including private universities, state universities,
two-year universities, trade schools, learning programs, or directly
entering the labor force. As discussed, the federal government’s
loan program has completely removed the market’s important role in
evaluating risk and providing this information to students by
subsidizing the market and offering standardized loans to all students
equally, rather than based on merit. (169)

With access to privately funded loans–and equipped with the
knowledge of interest rates, loans, compounding interest, opportunity
cost, and the time-value of money (170)–a student would have the
necessary tools and correct incentives to make a rational decision.
Moreover, even if one student’s interest rate is higher than
another student’s, she may still choose to pay the higher price for
the funds, depending on the value that the student with the higher
interest rate places on obtaining a college degree. Overall, this
outcome is more desirable, because the demand for higher education will
likely decrease due to the government not subsidizing the market, thus
lowering the price of college for everyone. (171) Then, the signaling
capacity of education could function properly, creating a job market
that operates more efficiently, paying workers a wage that truly
represents the employee’s worth. (172) Finally, a student who
defaults on her loans could discharge her debt through bankruptcy more
easily, affording her more
discretionary income

 and allowing her to
spend money in the economy. (173)

Many people will argue that this system would unduly burden the
less fortunate or make college more expensive for some than for others.
These arguments, however, are unpersuasive and unfounded for three
reasons. First, this Note only endorses “reducing” and
“restricting” the government’s role in student loans,
rather than “abolishing” it altogether. (174) The original
purpose of the federal student loan program was legitimate and
commendable. It allowed students who otherwise could not afford to pay
for college the opportunity to pursue an education, regardless of their
economic circumstances. As such, the federal loan program should remain,
but it should be limited to offering loans to two specified classes of
people: first-generation college students and those below the poverty
line. (175) This plan would also still
comport

 with the idea of the
American Dream as championed in Part IV.B, as it is clear, even with
private loans available, that some members of society, such as first
generation college students, do not have the means of signaling to the
banks that they are worthy credit risks for college. (176) If the
American Dream is “access” to education, this plan still
affords such access, without unduly burdening other students.

Second, grants and scholarships would still be available through
private institutions and organizations. In fact, it is possible that
with less liquidity in the market, private parties would intervene and
provide more scholarships to fill the gap left by the government’s
absence. (177) As an example of such private-sector charity, consider
the events surrounding a drought in Texas during Grover Cleveland’s
presidency. (178) During this crisis, Congress sought to appropriate
$25,000 that would allow the federal government to purchase and
distribute seeds to affected Texas farmers. (179) President Cleveland,
however, vetoed the bill, suggesting, “[t] he friendliness and
charity of our countrymen can always be relied upon to relieve their
fellow citizens in misfortune.” (180) Anecdotally, the private
sector donated ten times the amount Congress sought to appropriate to
the farmers’ relief. (181) Therefore, private donations have proven
a viable substitute for governmental intervention in the past. In this
context, the scholarships could be designed to favor those students with
financial need or exceptional merit as the private sector desires. This
outcome would be preferable to the government supplying the funding,
because here, the market would again be playing the role of
decision-maker in selecting to whom the money should be allocated. (182)

Finally, the fact that funding might be more expensive for some
students than others is not a “problem” that we should try to
avoid. Differing interest rates are a fact in every other credit market,
whether it is the market for a car or a home, and education should be no
different. In fact, this plan will likely make it cheaper for some
students to go to college, because these students would no longer have
to pay a higher interest rate to subsidize other students. (183)
Furthermore, the fact that nearly everyone could secure funding to own a
house prior to the mortgage crisis was an ideal that was unsustainable,
(184) and it ended up crippling the economy. It is not deleterious to
say with confidence that some potential homeowners should not have been
extended loans, and the market for educational loans should be no
different.

Furthermore, even if a certain private lender misevaluates the risk
of lending to a student for her education, this misevaluation is not
committed in a vacuum. The beauty of a market system is that there is
always another lender available from whom the student may seek a loan,
and, as in any credit market, society can trust that a majority of the
market participants would be motivated enough by profit to take certain
risks when investing in borderline students’ educations. (185)
Thus, even if one lender charges the student too much, other market
participants would be willing to make the loan at the correct
evaluation.

CONCLUSION

For many, higher education is intrinsically good in-and-of itself,
and a goal for which all should strive. (186) Higher education is a
wonderful and enormously beneficial investment, and society and
government, through our laws, policies, and social norms, should not
deter students from pursuing a college degree. This Note takes the
position, however, that each student should be able to make this choice
for herself, under her own beliefs, preferences, and desires, without
societal expectations and governmental subsidies unduly influencing her
decision. While the legislators are fueled by noble intentions, a famous
phrase comes to mind: “The curious task of economics is to
demonstrate to men how little they really know about what they imagine
they can design.” (187) Instead of assuming that we can control the
market for education without adverse effects and unintended
consequences, we should strive to facilitate its proper functioning by
realigning incentives and facilitating, rather than distorting, the flow
of information to students and their families. Doing so will have three
effects. First, the cost of an education will decrease, allowing those
students who truly want to obtain a college education to afford it more
easily. Second, a more efficient market will lighten the debt burden on
many Americans, allowing them to spend money elsewhere in the economy
rather than live under conditions of austerity. Finally, society’s
overall productivity will increase, because the market will allow a
worker to choose the occupations where she is the happiest and most
productive.

APPENDIX A (188)

[GRAPHIC OMITTED]

APPENDIX B (189)

[GRAPHIC OMITTED]

APPENDIX C (190)

[GRAPHIC OMITTED]

(1) As of the 2010-11 academic year, total student debt equaled
$832.99 billion, with the average student’s debt equaling $27,204.
College Student Debt Grows. Is It Worth It?, NAT’L PUB. RADIO (May
16, 2011), available at http://www.npr.org/2011/
05/16/136214779/college-student-debt-grows-is-it-worth-it.

(2) See generally F. King Alexander, The Changing Face of
Accountability: Monitoring and Assessing Institutional Performance in
Higher Education, 71 J. HIGHER
EDUC
 
. 411, 415 (2000) (“[T]he term
‘massification’ is traditionally employed to note the rapid
enrollment growth in higher education.”).

(3) This Note only considers the costs and benefits to the
individual in making the decision of whether or not to pursue further
education. Benefits include wages, personal satisfaction, and societal
admiration. Similarly, costs to the individual include the price of
college, any interest incurred, opportunity costs, and the societal
stigma placed on those who do not attend college.

(4) Shortly after beginning this Note, the “Occupy Wall
Street” movement commenced, which is just one of the many
indicia

 of the burst of the higher-education bubble. This Note will attempt to
address some of the implications of the movement; however, the main
thrust of the movement is beyond the scope of this Note.

(5) See Appendix A (depicting the trends in higher education
attainment).

(6) U.S.
CENSUS BUREAU

,
EDUCATIONAL ATTAINMENT

 2010 AMERICAN
COMMUNITY SURVEY 1-YEAR ESTIMATES, available at
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=
ACS

_10_1YR_S1501&prodType=table.

(7) Nicole Stoops, Educational Attainment in the United States:
2003, U.S. CENSUS BUREAU 2 (June 2004),
http://www.census.gov/prod/2004pubs/p20-550.pdf. This number was for
adults between the ages of twenty-five and twenty-nine.

(8) Id. at 1 (finding over eighty-five percent had attained a
high-school degree and twenty-seven percent a bachelor’s degree).

(9) Id. at 2-3.

(10) Id. at 3-5.

(11) See Sandy Baum et al., Education Pays 2010: The Benefits of
Higher Education for Individuals and Society, COLLEGEBOARD.ORG 35
(2010), http://trends.collegeboard.
org/sites/default/files/education-pays-2010-full-report.pdf (offering
statistics on “College Enrollment by Income”).

(12) See
William S. Howard

, The Student Loan Crisis and the Race to

Princeton Law School

, 7 J.L.
ECON

ECON Economy
ECON Centre for Economic Analysis
ECON Eastern Coalition of Nations  
. & POL’Y 485, 486 (2011).

(13) Trends in College Pricing, HIGHER EDUCATION SERIES 7 (2006),
http://www.collegeboard.com/prod_downloads/press/cost06/trends_college_pricing_06.pdf [
hereinafter
  
adv.
In a following part of this document, statement, or book.


Adverb

Formal or law from this point on in this document, matter, or case

Adv. 1.
 Changes Over Time].

(14) Id.

(15) Id. Tuition for public four-year institutions increased by
about four percent for the past two decades, while the rate is only
three percent for private four-year institutions and has fluctuated
between two and four percent for two-year public institutions. Id.

(16) 7 U.S.C. [section] 301 (2006). The purpose of these
institutions was “to teach such branches of learning as are related
to agriculture and the
mechanic arts

, in such manner as the … States
may respectively prescribe, in order to promote the liberal and
practical education of the industrial classes in the several pursuits
and professions in life.” Id. at [section] 304.

(17) For general information regarding Education Credits and the
tax benefits of education, see Education Credits,
IRS

 (Aug. 2, 2012),
available at http://www.irs.gov/
individuals/article/0,,id=121452,00.html.

(18) See Howard,
supra

 note 12, at 494.

(19) Higher Education Act of 1965, Pub. L. No. 89-329, 79 Stat.
1219, 1232 (1965) (emphasis added).

(20) See Howard, supra note 12, at 502-03. Here, Howard points out
that “[b]y 1993, federal programs increased borrowing limits and
brought about unsubsidized loans for middle-income students.” Id.
at 503.

(21) Id. at 503.

(22) See Carol J. Perry, Rethinking Fannie and Freddie’s New
Insolvency Regime, 109 COLUM. L. REV. 1752, 1758 (2009) (defining a GSE
as “a privately owned, federally chartered financial institution
with nationwide scope and specialized lending powers that benefits from
an implicit federal guarantee of all its obligations to enhance its
ability to borrow money”) (quoting THOMAS H. STANTON,
GOVERNMENT-SPONSORED ENTERPRISES: MERCANTILIST COMPANIES IN THE MODERN
WORLD 1-2 (2002)).

(23) Student Loan Marketing Association, 20 U.S.C.A. [section]
1087-2(a) (West 2006). The purpose for this organization is: (1) to
“serve as a secondary market and warehousing facility for student
loans …; (2) … to facilitate
secured transactions

 involving student
loans, to provide for perfection of security interests in student loans
either through the taking of possession or by notice filing; and (3) to
assure nationwide the establishment of adequate loan insurance programs
for students, to provide for an additional program of loan insurance to
be covered by agreements with the Secretary.” Id.

(24) Howard, supra note 12, at 503.

(25) Id.

(26) See generally id. (explaining how the “government-backed
guarantee increased leverage in the system when the normal market forces
signaled to lenders that it was not profitable to make such risky loans
without higher interest rates”).

(27) Pub. L. No. 111-152, 124 Stat. 1029 (2010).

(28) Howard, supra note 12, at 485.

(29) See generally
Brian Leiter

, The NY Times Jumps the Shark,
BRIAN LEITER’S LAW
SCH

SCH Socket Head
SCH Synchronization Channel
SCH Succinylcholine
SCH Space Center Houston
. REPORTS (Nov. 26, 2011, 9:41 AM),
http://leiterlawschool.typepad.com/leiter/2011/
11/the-ny-times-jumps-the-shark.html (discussing a similar
educational-cost crisis currently in law schools, prompting some
students to actually sue the schools).

(30) Indeed, this is the stated purpose for these policies. See
supra notes 18-19 and accompanying text.

(31) See generally Howard, supra note 12, at 494-96 (detailing the
transformation which the federal student loan undertook over the years).

(32) See generally James Altucher, The
Ten Commandments
 or  [Gr.,=ten words], in the Bible, the summary of divine law given by God to Moses on Mt. Sinai. They have a paramount place in the ethical system in Judaism, Christianity, and Islam.
 of The
American Religion, FREAKONOMICS BLOG (Sept. 28, 2011, 5:58 PM)
http://www.freakonomics.com/2011/
09/28/the-ten-commandments-of-the-american-religion/ (asserting that
“Thou
Shalt
  
aux.v. Archaic
A second person singular present tense of shall.
 Go to College” is the “Second

Commandment
  
n.
1. A command; an edict.

2. Bible One of the Ten Commandments.


Noun

a divine command, esp.
” of the “American Religion,” implying that
American society holds as a basic tenet the idea of everyone going to
college).

(33) Id.

(34) See Appendix B.

(35) See Appendix A.

(36) Increased liquidity injected into the market can affect
personal preferences and change expectations in the market by acting as
a subsidy–here, shifting the demand curve to the right.

(37) Changes Over Time, supra note 13, at 7.

(38) Id. The fact that the amount of federal Stafford loans
available did not increase at all over this time does not affect the
hypothesis of this Note that college is becoming more readily available,
because the argument is that the existence of any federal loans distorts
the market. Also, federal student loans may interfere with the market
and make college more available in several ways, including increasing
the number of students who qualify for loans.

(39) The federal government increased the loan limit from $12,500
to $17,250 between 1986 and 1987, but I will use the earlier figure, so
the change in inflation will not distort the numbers so much.

(40) Historical Loan Limits, FINAID,
http://www.finaid.org/loans/historicallimits.phtml, (last visited Dec.
19, 2012). To attain these inflation-adjusted numbers, the author
employed an online inflation calculator available at
http://www.westegg.com/ inflation/.

(41) Although a more sophisticated econometric analysis might be
helpful, for the purpose of this assertion, the only important variable
is the direction in which the demand curve is shifting. By fixing the
cost of college tuition to constant 2006 dollars and subtracting out the
increase in the amount of the available funding for education, one
should be able to at least determine if the price of tuition is
increasing (demand is increasing) or decreasing (demand is decreasing).
This trend is not due merely to a larger population either, because the
percentage of high school students enrolling in college is also at an
all-time high, indicating that higher education is now more desirable to
a larger faction of the population. Also, note that this subsection does
not consider the availability of private college loans; however,
“[m]ost undergraduate borrowers obtain their loans through the
federal Stafford loan program,” so the Stafford loans should have
the greatest impact upon potential students’ decisions. Jennie H.
Woo, NAT’L
CTR

. FOR EDUC. STATISTICS, THE EXPANSION OF PRIVATE
LOANS IN POSTSECONDARY EDUCATION 1 (Oct. 2011),
http://nces.ed.gov/pubs2012/2012184. pdf.

(42) Moreover, many students probably also decide to go to school
now, not for the economic benefits, but for the societal ”
rite of
passage


n.
A ritual or ceremony signifying an event in a person’s life indicative of a transition from one stage to another, as from adolescence to adulthood.
” and partying. See Thomas Sowell, Too Many Go to College,
NAT’L REVIEW ONLINE (Nov. 28, 2007, 12:00 AM),
http://www.nationalreview.com/articles/222954/too-many-go-college/thomassowell#.

(43) See e.g., Education Connection, Get a College Degree in

Pajamas

Noun, pl

US pyjamas

 npl (US) → ;
, YOUTUBE (Sept. 18, 2009),
http://www.youtube.com/watch?v=5vU5UV3vOKc (“[P]eople with a degree
on average earn a million dollars more in their lifetime.”). But
see Altucher, supra note 32 (“And don’t quote me the stat
about the differences in salaries between college grads and non-college
grads because there’s enormous selection bias in that stat and
it’s like comparing apples to oranges right now.”); Sarah
Kaufman, Is College
Overrated

? Some Families Turn Away from Higher
Education in Favor of Real-Life Lessons, WASH. POST, Sept. 10, 2010, at
C3 (quoting Prof. Richard Vedder) (“[Enrolling in college] makes
less sense for more families than it did five years ago.”).

(44) See supra note 43.

(45) See generally Wendy Loy, Parent Involvement in the College
Decision-Making Process (2008),
https://www.ncmpr.org/cp/uploads/08_conf_Poster-parent-inv-in-college
_decisions.pdf (“The role and involvement of parents in their
children’s college decision-making process continues to increase as
the Millennial Generation prepares for college.”).

(46) See
infra
 prep.
 subsection II.C.

(47) See infra notes 48-50 and accompanying text (explaining
education’s role as a signaling device to the job market).

(48) See generally Occupational Outlook Handbook: Firefighters,
UNITED STATES BUREAU OF LABOR STATS,
http://www.bls.gov/ooh/Protective-Service/Firefighters.htm (last visited
Dec. 19, 2012) (“Firefighters typically enter the occupation with a
postsecondary non-degree award in fire science or a related discipline.
In many jurisdictions, entry-level education needed to become a
firefighter is a
high school diploma

 or equivalent.”).

(49) See generally Occupational Outlook Handbook: Library
Technicians and Library Assistants, BUREAU OF LABOR STATS,
http://www.bls.gov/ooh/Education-Training-and-Library/Library-technicians-and-assistants.htm (last visited Dec. 19, 2012) (“Library
technicians and assistants have varying levels of education. Some have
only high school diplomas, while others have specialized postsecondary
degrees.”).

(50) See generally Occupational Outlook Handbook: Fashion
Designers, BUREAU Or LABOR STATS,
http://www.bls.gov/ooh/arts-and-design/fashion-designers.htm (last
visited Dec. 19, 2012) (“Postsecondary education is not required.
Most fashion designers entering the industry have some formal education
where they learn design skills….”).

(51) See generally Education vs. Work Experience, WORLDWIDELEARN,
http://www. worldwidelearn.com/online-education-guide/education-vs-experience.htm (last visited Dec. 19, 2012) (explaining the benefits of a
college education as providing flexibility in a diverse and
ever-changing job market and work experience as actually providing the
skills to perform the work);
Rich Lowry

, Tuition Skyrockets–While
Learning Plummets, REAL CLEAR POLITICS (May 20, 2011),
http://www.realclearpolitics.com/
articles/2011/05/20/tuition_skyrockets_–_while_learning_plummets_109937.html (explaining that college is not preparing students for work as
well now as it had in the past).

(52) See generally U.S. BUREAU OF LABOR STATS,
http://www.bls.gov/home.htm (last visited Dec. 19, 2012) (providing
database for searching potential employment opportunities). Any
occupation listed that includes college experience as a preference when
there is a lower-cost trade school, apprenticeship, or on-the-job
training available suggests that a four-year degree is probably not
adding anything necessary to do the job to the worker, and the same
results could be attained without the college experience. (Note that the
government updates this website frequently, so the information included
in footnotes 48-50 is subject to frequent revisions.) But cf. Richard H.
Steckel & Joayanthi Krishnan, The Wealth Mobility of Men and Women
During the 1960s and 1970s, 52 REV. INCOME & WEALTH 189, 209 (2006)
(suggesting that the perceived “barrier” to the top percentile
for many lower-income families might be due to the importance society
places on investment in human capital and education).

(53) Michael Spence, Job Market Signaling, 87 Q.J. ECON 355 (1973).

(54) See generally id. (discussing the various signals sent by
employers and prospective employees to close the information gap in the
job market).

(55) Id. at 356. It is important to note that Spence’s model
operates under the assumptions that (1) the employer is risk neutral,
(2) the wage the employer pays to the employee is equal to the marginal
return the employer expects to get from his investment in the worker,
and (3) “the costs of signaling are negatively correlated with
productive capability.” Id. at 358.

(56) Id. The employer pays a wage that the worker does not
“earn” in revenue for the company at the beginning of
employment, but that he hopes the worker will make in the future.

(57) Id. at 357.

(58) Id.

(59) Id. at 358. This assertion is not entirely true, as applicants
will also invest in education for the other payoffs, like status. Id. at
358 n.6.

(60) See generally
Bryan Caplan

 & Stephen C. Miller,
Intelligence Makes People Think Like Economists: Evidence from the
General Social Survey, 38 INTELLIGENCE 636 (2010) (presenting evidence
that natural intelligence, not education, is the most important factor
in determining what makes someone “think like economists”).

(61) See generally Spence, supra note 53, at 361-68 (illustrating
an example of how job market signaling works in practice).

(62) Because education is a proxy for intelligence, and education
by itself does not guarantee a more successful, higher-paying career,
people do not and cannot just continually purchase more education to
secure a higher wage.

(63) Although it is true that the current trend in
behavioral
economics

 is to be skeptical of the “rational-actor model,”
the field remains “far from a unified, versatile, believable
alternative to the rational-actor model.” Young Economists on the
Future of Economics, FREAKONOMICS BLOG (Aug. 2, 2012, 11:56 AM),
http://www.freakonomics.
com/2012/08/02/young-economists-on-the-future-of-economics/. Thus, the
rational-actor model is the best alternative at this time. Moreover,
while it is true that individuals do not always act rationally, many of
the innovations championed by this Note are intended to address this
problem and hopefully equip individuals with the skills necessary to
make rational decisions. See infra Part IV.A.

(64) Society expects this of individuals in situations as innocuous
as assessing whether one is responsible enough to sit next to an exit on
an airplane, to important life decisions, such as deciding when one is
ready to
beget
  
tr.v. be·got , be·got·ten or be·got, be·get·ting, be·gets
1. To father; sire.

2. To cause to exist or occur; produce:
 and raise children.

(65) Spence, supra note 53, at 361-68.

(66) See infra Part III.B.2.

(67) See Appendix C. In this case, the market is thrown out of
equilibrium due to the governmental subsidy.

(68) See supra notes 53-66.

(69) It is worth noting to begin that this phenomenon is expected
to be more prevalent in the lower strata of the higher education
spectrum, such as for-profit institutions and community colleges. One
would expect the “upper echelon” to be largely immune to
increased enrollment. Although a Harvard education might lose some value
due to over-enrollment and increasing costs, it is unlikely that neither
of these factors would ever cause the cost to exceed the value derived.
This result is largely because of society’s dogmatic reverence to a
Harvard degree and the inflated wage it demands. This fact does not
damage the hypothesis of this paper, though, because we assume that a
student who enrolls in a top-tier institution would likely enroll in
college whether or not they have increased access to funding and
consider education to be a “good investment” regardless of
governmental subsidization.

(70) See generally Justin Lahart, Bernanke’s Bubble
Laboratory: Princeton Proteges of Fed Chief Study the Economics of
Manias, WALL ST. J., May 16, 2008, at A1 (quoting Princeton economist
Harrison Hong as describing the dot-come bubble as an “example[ ]
of valuations disconnecting from fundamentals”).

(71) See id. at A10 (suggesting that “as one set of investors
becomes less optimistic, another takes its place,” keeping an
upward pressure on the price, until they “go beyond any individual
investor’s fundamental valuation”).

(72) See generally Howard, supra note 12, at 488-94 (explaining
that part of the reason for the housing bubble in the early twenty-first
century was due to government programs perverting market incentives).

(73) See generally id. at 493-94 (explaining that after the burst
of the housing market, Fannie Mae and Freddie Mac had amassed over $2
trillion in mortgage debt, due to the deflated prices).

(74) For a more in-depth analysis of the Housing Crisis, see
Howard, supra note 12, at 488-94.

(75) See id. at 488.

(76) See generally id. at 490 (detailing the process of attaining a
mortgage before the creation of Fannie Mae and Freddie Mac, which
included a twenty percent down payment and
strict scrutiny

 of the
borrower by the bank).

(77) Id. at 489.

(78) Id. at 490.

(79) Id.

(80) Id. at 491. During this time, Congress enacted the
Community
Reinvestment Act

 (1977) “which required banks to make a quota of
loans to low and moderate-income borrowers.” Id. at 490. Fannie and
Freddie also fell under the control of the Department of Housing and
Urban Development (
HUD
 , a pre-Qur’anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God.
), which began pushing sub-prime loans and set
quotas for affordable housing loans. Id. Finally, HUD began a campaign
to end housing discrimination, primarily by suing banks that
“declined a greater portion of minority applicants compared to
white applicants regardless of creditworthiness.” Id. (emphasis
omitted). However, many commentators and scholars believe that the
government played little or no role in the crisis. See Raymond H.
Brescia, Part of the Disease or Part of the Cure: The Financial Crisis
and the Community Reinvestment Act, 60 S. C. L. REV. 617, 619 (2009)
(“[I]nstead of causing the subprime mortgage crisis, the
CRA

 simply
failed to prevent the crisis.”); Adam J. Levitin & Susan M.
Wachter, Explaining the Housing Bubble, 100 GEO. L.J. 1177, 1214
(“Claims about the CRA’s role in the bubble have been
thoroughly considered elsewhere and largely debunked….”).

(81) See Howard, supra note 12, at 491-94.

(82) Id. at 491-93. During the
Clinton Administration

, Congress
also passed the Gramm-Leach-Bliley Act in 1999, repealing the
Glass-Steagall Act of 1933, ultimately allowing banks to increase in
size and become “too big to fail.” Id. at 491-92. (internal

quotation marks

Noun, pl

the punctuation marks used to begin and end a quotation, either “ and ” or ` and ‘

 npl


 omitted).

(83) Id. at 493.

(84) See id.

(85) Id. at 493-94.

(86) Id. at 494.

(87) See
Arne Duncan

, Through the Schoolhouse Gate: The Changing
Role of Education in the 21st Century, 24
NOTRE DAME
 is French for Our Lady, referring to the Virgin Mary. In the United States of America, Notre Dame
 J.L. ETHICS &
PUB. POL’Y 293, 296-97 (2010) (“To maintain our competitive
advantage in knowledge-based industries and fields, the United States
must implement an education policy that produces a ‘more flexible
labor force that can cope more readily with non-routine tasks and
occupational change.'” (quoting Alan S. Blinder,
Offshoring

:
The Next Industrial Revolution?, 85 FOREIGN
AFF

AFF American FactFinder
AFF Accelerated Free Fall  
. 113, 125 (2006))). See
generally Howard, supra note 12, at 494 (“In response to higher
prices, politicians sound the
clarion call

Noun

strong encouragement to do something
 to make college affordable
and do so by enacting programs that
infuse

v.
1. To steep or soak without boiling in order to extract soluble elements or active principles.

2. To introduce a solution into the body through a vein for therapeutic purposes.
 leverage into the market….
“); id. at 503.

(88) Howard, supra note 12, at 494.

(89) See Appendix C.

(90) Kaufman, supra note 43, at C3. This research suggests that
when an individual is able to defer payment to the future, as in a loan,
they are willing to take on greater increases in price than they would
if they had to pay for it up front. This could merely be an irrational
behavior, but this Note argues that it suggests a fundamental lack of
understanding of how credit works.

(91) See supra Part I.

(92) See generally Matthew Philips, Cost of College on the Rise
(Again), FREAKONOMICS BLOG (Oct. 27, 2011, 9:37 AM)
http://www.freakonomics.com/2011/10/27/cost-ofcollege-on-the-rise-again/
(noting that the price of college increased 8.7% for public in-state
institutions due in part to decreased state funding (to the
institutions) and increasing enrollment, but concluding on a

silver lining

n.
A hopeful or comforting prospect in the midst of difficulty.


[From the proverb "Every cloud has a silver lining".
” that “the amount of available subsidies
and tax credits have roughly doubled since 2007”).

(93) See supra Parts II.B and II.C.

(94) See
James Surowiecki

, Debt by Degrees, THE NEW YORKER, NOV.
21, 2011, available at
http://www.newyorker.com/talk/financial/2011/11/21/111121ta_talk_surowie
cki.

(95) See Peter M. Garber, Famous First Bubbles, 4 J. ECON.
PERSPECTIVES 35, 36-39 (1990) (discussing the phenomenon where
tulip
 [Pers.,=turban], any plant of the large genus Tulipa, hardy, bulbous-rooted members of the family Liliaceae (lily family), indigenous to north temperate regions of the Old World from the Mediterranean to Japan and growing most abundantly on the steppes
 bulbs sold for the price of a luxury house in Holland in the seventeenth
century as a bubble). But see generally Earl A. Thompson, The
Tulipmania: Fact or
Artifact

?, 130 PUBLIC CHOICE 99, 109 (2006)
(discussing and ultimately dismissing the “tulipmania” in
Holland as a bubble).

(96) See supra note 73 and accompanying text.

(97) See infra note 61 and accompanying text.

(98) See infra Part III.B.

(99) See generally OFFICE or FEDERAL STUDENT AID, National Student
Loan Default Rates, UNITED STATES DEPARTMENT Or EDUCATION [hereinafter
Cohort Rates], available at
http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html(indicating that the cohort default rate over the past eight years has
generally had an increasing trend).

(100) While the current economic situation has exacerbated the
problem slightly, it is likely that the economic downturn might merely
have been the impetus that revealed the underlying problem.

(101) See Cohort Rates, supra note 99.

(102) Id.

(103) 11 U.S.C. [section] 523(a) (8) (2006). “Student loans
are now generally not dischargeable through bankruptcy, and it is fairly
difficult to satisfy the requirements for an undue hardship petition,
which generally requires demonstrating that you made a good faith effort
to repay the debt, that you will not be able to maintain a minimal
standard of living and still repay the debt, … and that the conditions
that prevent you from repaying the debt will likely persist for most of
the full term of the loan.” What Happens If You Default on Student
Loans ?, THE HERALD-DISPATCH (Oct. 23, 2011) [hereinafter Loan Default],
http://www.herald-dispatch.com/news/x824265584/What-happens-if-you-default-on-student-loans.

(104) See generally 31 C.F.R. [section] 285.11 (1998) (concerning
Administrative Wage Garnishments).

(105) See Loan Default, supra note 103. Generally, when one
defaults on student loans, her loan is turned over to a collection
agency, which assesses collection fees; wages are garnished; federal and
state tax refunds can be withheld; record of defaulted loans will appear
on your credit history for up to seven years after the default is paid;
no more aid can be extended until after the entire loan is repaid or
other conditions are met; and there is no
statute of limitations

 on the
collection provisions. Id.

(106) See generally Kaufman, supra note 43, at C3. (“IT]hat
[student loan] debt is taking the place of the house [my generation]
could be buying or a number of other investments we could be making in
our lives. The loan debt just sucks a lot of that out.” (quoting
Linda McCluskey, a recent graduate of the
University of Massachusetts

 at
Amherst)).

(107) Alister Bull, Obama Acts to Ease Burden of Student Loans,
REUTERS (Oct. 25, 2011),
http://www.reuters.com/article/2011/iO/25/us-obama-students-idUSTRE79
O7HZ20111025.

(108) If the problem is increasing costs of college and a lack of
information by the student population about the value of a degree,
relieving the debt will only act to subsidize education further,
exacerbating the underlying problem.

(109) If student loan payments are capped, then one effect will be
that the principal loan will accrue interest longer, as a student will
take more years to pay off the debt.

(110) For an in-depth explanation of the Occupy Wall Street
movement, concerns, and goals, see http://occupywallst.org.

(111) See generally Amanda M. Fairbanks, Occupy Student Debt
Campaign Announces Nationwide Loan Refusal Pledge, HUFFINGTON POST, Nov.
21, 2011, http://www.huffingtonpost.com/2011
/11/21/occupy-student-debt-campaign_n_1106379.html (“Since the
first days of the Occupy movement, the agony of student debt has been a
constant refrain…. We’ve heard the harrowing personal testimony
about the suffering and humiliation of people who believe their debts
will be unpayable in their lifetime.” (internal quotation marks
omitted) (citation omitted)). Worse yet, part of the solution for the
Occupy Wall Street crowd is to get a million students to default on
their student loans to make a point, id., which, as explained above,
could have devastating consequences. See supra footnotes 103-06 and
accompanying text.

(112) See generally George A. Akerlof, The Market for
“Lemons”: Quality Uncertainty and the Market Mechanism, 84
Q.J. OF ECON. 488, 490-92 (1970) (using the example of the market for
used automobiles to illustrate how without proper signaling mechanisms,
there is an incentive for sellers to market poor quality goods).

(113) For other examples of markets in which adverse selection may
exist, see id. at 492-99 (discussing the market for insurance for the
elderly, the employment of minorities, the costs of dishonesty, and the
credit markets in underdeveloped countries). But see Jae-Cheol Kim, The
Market for “Lemons” Reconsidered: A Model of the Used Car
Market with Asymmetric Information, 75 AM. ECON. REV. 836, 842-43 (1985)
(rejecting Akerlofs conclusion by observing that in the real world,
average quality of traded used cars may actually be slightly higher than
those which are not traded, which is
counterintuitive
  
adj.
Contrary to what intuition or common sense would indicate:
 in Akerlof’s
scenario).

(114) For present purposes, the Note simplifies the example by
focusing on good and bad used cars. In his original example, Akerlof
assumed that there were four types of cars: good new, bad new, good
used, and bad used. Akerlof, supra note 112, at 489.

(115) See id. at 489-90.

(116) See id. at 490. “[I] t is quite possible to have the bad
driving out the not-so-bad driving out the medium driving out the
not-so-good driving out the good in such a sequence of events….”
Id.

(117) See id. at 490 (“[B]ad cars drive out the good because
they sell at the same price as good cars….”).

(118) See id.

(119) See id. at 499-500.

(120) Id. Brands–in the car market, Ford and Toyota–increase
consumer trust in the product by allowing them to associate with other
products on the market with which the consumer is more knowledgeable.

(121) Id. at 500. Chains serve the same function as branding only
in the context of services. For cars, chains signal about the quality of
the retailer as a way of increasing accountability.

(122) Id. In the used car market, licensing has recently begun to
spring up with services, such as CARFAX[R], which increase the flow of
information about the history of used cars to the prospective
purchasers.

(123) See Spence, supra note 53, at 356-58.

(124) See supra notes 53-59 and accompanying text.

(125) See generally Akerlof, supra note 112, at 500 (“The high
school diploma, the baccalaureate degree, the Ph.D., even the Nobel
Prize, to some degree, serve this function of certification.”).
Indeed, this function of education also explains why a degree from
Harvard is worth more than that from other institutions–more rigorous
certification standards indicate a more worthy applicant.

(126) See supra notes 99-101 and accompanying text. A very
interesting study would be to analyze the historical interest rate for
privately-funded student loans. Fixing for the
benchmark interest rate

 and inflation, and assuming that the maturity and liquidity premiums
would be constant over time, we could isolate and analyze the default
risk the private market has assigned to students over the years. If this
default risk increased, it would suggest that our students today are not
as “good” of investments as they have been in the past.

(127) Press release, U.S. Department of Education, Default Rates
Rise for Federal Student Loans (Sept. 12, 2011),
http://www.ed.gov/news/press-releases/defaultrates-rise-federal-studen
t-loans.

(128) See Kaufman, supra note 43, at C3.

(129) See Richard A. Posner, American Wage Stagnation–Posner, THE
BECKER-POSNER BLOG (Apr. 18, 2010),
http://uchicagolaw.typepad.com/beckerposner/2010/04/
american-wage-stagnationposner.html. Posner hypothesizes that most of
this is due to the lagging economy, but indicates that he believes there
is also a growing level of wage inequality due, in part, to
“increas [ing] … returns to IQ and education.” Id. It is
interesting to note that over this same period of wage decline, the
prices for “tuition, room and board at public institutions of
higher education rose by [thirty] percent …” Kaufman, supra note
43, at C3.

(130) See supra Part III.B.1.

(131) Note that the signaling function would not be completely
lost, as college graduates would still demand a higher wage than
non-graduates would initially. The wage would simply not be as high as
theoretically expected.

(132) See supra Part II.C.

(133) The wage that the employer theoretically should pay when the
cost of employing the labor equals the value derived from the labor.

(134) There is also probably a similar scenario in the advanced
degrees, only slightly more
attenuated

Alive but weakened; an attenuated microorganism can no longer produce disease.

Mentioned in: Tuberculin Skin Test


attenuated

having undergone a process of attenuation.
, due to the immense expense and
time required.

(135) See, e.g., OHIO REV. CODE ANN. [section] 3313.603 (West 2010
& Supp. 2012) (requiring, as of July 1, 2010, four credits of
English, one-half unit of health, four units of mathematics, one-half
unit of physical education, three units of science, one unit of history
and government, two units of social studies, five units of a
“combination of foreign language, fine arts, business,
career-technical education, family and consumer sciences, technology,

agricultural education

, a junior reserve officer training corps
(
JROTC

),” or any additional English, mathematics, science, or
social studies as desired). This statute requires only certain core
classes, and the proposed classes all fall under “business” in
the elective courses, which the students are not required to take.

(136) There is evidence, however, that the information students
learn today is of lower quality and importance than in the past. See
Eric Gorski, Report: College Students Not Learning Much, MSNBC.coM (Jan.
18, 2011), http://www.
msnbc

.msn.com/id/ 41136935/ns/
us_news-education/t/report-college-students-not-learning-much/#.T-d-bPXNkYJ. Although this article focuses on college, many of the concepts are
applicable to high school as well.

(137) In order to make time for the proposed classes, students may
have to forgo taking a few of the classic classes, departing from past
practice; however, as Emerson opined, “[a] foolish consistency is
the
hobgoblin
 see goblin.
 of little minds….” RALPH WALDO EMERSON, THE ESSAY
ON SELF-RELIANCE 23 (Elliot Hubbard ed., 1908).

(138) See supra notes 88-94.

(139) See supra notes 135-37 and accompanying text.

(140) See Duncan, supra note 87, at 294 (describing education as
“the means for ensuring that all Americans have a fair chance to
achieve the American dream”). This same tactic was used in the
early 2000s when the Bush Administration advocated a regulatory overhaul
of Fannie Mae and Freddie Mac. See generally Stephen Labaton, New Agency
Proposed to Oversee Freddie Mac and Fannie Mae, N.Y. TIMES, Sept. 11,
2003, at C6 (quoting Rep. Melvin Watt as saying the regulatory proposals
would “weaken[] the bargaining power of poorer families and their
ability to get affordable housing”).

(141) Duncan, supra note 87, at 293.

(142) See supra note 43 and accompanying text.

(143) Kaufman, supra note 43, at C1.

(144) Id. at C3.

(145) Id. This is a simple, compounding-interest calculation that
is taught in any basic finance class and would surely be included in the
proposed high school classes discussed above. See supra Part II.A. But
see Matthew Philips, The Numbers Game: Is College Worth the Cost?,
FREAKONOMICS BLOC (May 27, 2011, 1:00 PM), http://www.
freakonomics.com/2011/05/27/the-numbers-game-is-college-worth-the-cost?/
(suggesting other reasons for why attending college is a good idea, such
as the lower unemployment rate amongst college graduates than
non-graduates and the
wage differential
 n

 n

 wage n
).

(146) Kaufman, supra note 43, at C3. Moreover,
according to

prep.
1. As stated or indicated by; on the authority of:

2. In keeping with:

3.
 the
Institute for Higher Education Policy, only sixty percent of full-time
students earn their bachelor’s degree within eight years of
enrolling in college, and for part-time students, that number is only
twenty-five percent. Justin Pope, The Other Student Loan Problem: Too
Little Debt, ASSOCIATED PRESS, Nov. 27, 2011, available at
http://news.yahoo.com/other-student-loan-problem-too-little-debt-
180848793.html.

(147) See Kaufman, supra note 43, at C3 (“In 2008, the median
annual earnings of young adults with bachelor’s degrees was
$46,000; it was $30,000 for those with high school diplomas or
equivalencies.”).

(148) See supra notes 99-101 and 127-29.

(149) See Kaufman, supra note 43, at C3.

(150) Id.

(151) See generally Altucher, supra note 32. (“Statistically,
there’s no proof that smart, ambitious, aggressive people
won’t benefit enormously from a five-year head start against their
peers who choose to spend five years doing homework and drinking beer
and going to frat parties.”). Altucher says this in reference to an
“ambitious, aggressive” person foregoing their college
experience, but the gist of the assertion is that a person’s wage
depends not necessarily upon their level of education, but the value
they bring to the job through personal attributes.

(152) See supra notes 54-58.

(153) See supra notes 48-50 and accompanying text.

(154) See supra Part II.C and accompanying text. This is a cycle
where societal preferences force employers to require more education,
which in turn, incentivizes students to demand more education, further
fueling the cycle.

(155) See Steckel & Kirshnan, supra note 52, at 209.

(156) Id.

(157) See id.

(158) Id.

(159) See generally Alex Friedrich, Do Community Colleges Have a
Stigma ? Yes–But Some Folks See the Light,
MPR

 NEWS (Dec. 21, 2010),
http://oncampus.mpr.org/2010/12/
do-community-colleges-have-a-stigma-yes-but-some-folks-see-the-light/
(discussing the stigma associated with attending a community college
rather than a traditional four-year institution).

(160) Joseph Marr Cronin & Howard E. Horton, Op-Ed, Will Higher
Education Be the Next Bubble to Burst?,
CHRON

. OF HIGHER EDUC. (May 22,
2009), http://chronicle.com/
article/Will-Higher-Education-Be-the/44400/.

(161) Id.

(162) Howard, supra note 12, at 508-09.

(163) Howard, supra note 12, at 509.

(164) Id.

(165) Alister Bull, Obama Acts to Ease Burden of Student Loans,
REUTERS (Oct. 25, 2011),
http://www.reuters.com/article/2011/10/25/us-obama-students-idUSTRE79
O7HZ20111025. Those who take advantage of this plan will also have fifty
basis points cut off of their interest rate on their loans, and the new
program will allow six million students to “bundle” student
loans together reducing risk of default through diversification. Id. It
is interesting to consider that this “bundling” solution is
eerily similar to the “solution” to the housing crisis, which
including bundling mortgages into “Mortgage-Backed Securities”
to diversify them and reduce risk to investors. For a general discussion
of Mortgaged-Backed Securities, see generally Mortgage-Backed
Securities,
PIMCO

 (Feb. 2009),
http://www.pimco.com/EN/Education/Pages/Mortgage BackedSecurities.aspx.

(166)
Expunging
  
tr.v. ex·punged, ex·pung·ing, ex·pung·es
1. To erase or strike out:  
 debt, especially, would only act to further
subsidize the market, which could potentially induce other students to
enter the market for higher education, exacerbating the problem.

(167) A “risky” candidate would be one with
subpar
  
adj.
1. Not measuring up to traditional standards of performance, value, or production.

2. Below par in a hole, round, or game of golf.
 test
scores, poor grades and
work ethic

n.
A set of values based on the moral virtues of hard work and diligence.


Noun

a belief in the moral value of work
, and other quantifiable qualities,
which the market can measure.

(168) See supra Part III.A.2. Furthermore, the market for funding
to attend college is likely also exhibiting a form of adverse selection,
where the average student is assumed to be a “low-quality”
investment, meaning that the higher quality students have to pay higher
interests rates (the same as the low-quality students) to the federal
government for college. See Part III.B. By privatizing the market, it is
very possible that for the highest-tier of prospective students would
pay less in interest on their loans.

(169) See supra Part III.A.

(170) See supra Part IV.A.

(171) See supra Part III.A.2 and Appendix C.

(172) See supra Part III.B.2.

(173) See supra notes 103-06 and accompanying text. When the
government acts as creditor, any discharge is a direct loss to
taxpayers, so the legislature constructs additional obstacles to
discharge.

(174) Congressman Ron Paul recently suggested a similar remedy. See
Paul Wants to Phase Out Federal Student Loans, ASSOCIATED PRESS (Oct.
23, 2011), www.news.yahoo.
com/paul-wants-phase-federal-student-loans-152415774.html. However, the
plan proposed in this Note is different from Congressman Paul’s,
because it does not entirely abolish the federal student loan program.

(175) By allowing the federal government to continue providing
loans to these two classes of people, the government fills in the gaps
that the private market might not otherwise accommodate. In this way,
everyone has an equal opportunity to obtain an education and to compete
in the American job market without over-subsidizing and affecting all
students unnecessarily.

(176) Obviously, there are some people in such tough economic
situations that even if they are a “good investment,” the
market might
shy away from

 them. One problem is that banks often
generalize in evaluating risks, by factors such as race or familial
history, which could lead to
misinformation
  
tr.v. mis·in·formed, mis·in·form·ing, mis·in·forms
To provide with incorrect information.


mis
 about the credit risk of
particular individuals. In this situation, the government should be
allowed to fill the role of ”
lender of last resort

,” giving
the less-fortunate opportunities they otherwise would not have.

(177) See generally
Georgette

 Baghdady & Joanne M. Maddock,
Marching to a Different Mission, STAN. SOC. INNOVATION REV. 61 (2008)
(describing the creation of the
March of Dimes

 and its funding through
private sources). Like the March of Dimes, private individuals and
organizations, rather than the government, can and will donate money and
fund programs for causes in which they believe. Another example of this
was during
Hurricane Katrina

, when Walmart often responded more quickly
and efficiently that
Federal Emergency Management Agency

 (FEMA) to help
victims of the disaster. Erin Hayes, What Can Wal-Mart Teach FEMA About
Disaster Response?, ABC NEWS (Sept. 29, 2005),
http://abcnews.go.com/WNT/HurricaneRita/story?id=11710
87&page=1#.TryGJfKwVic.

(178) See William H. Meckling & Armen A. Alchian, Incentives in
the United States, 50 AM. ECON. REV. 55, 60 (1960).

(179) Id.

(180) Lawrence W. Reed, “Government Should Not Support the
People”, MACKINAC CTR. FOR PUB. POL’Y (Apr. 8, 2005),
http://www.mackinac.org/7440.

(181) Id.

(182) This proposal might make some people nervous, due to concerns
of racism,
classism
  
n.
Bias based on social or economic class.


classist adj. & n.
, and sexism; however, without a distorted market and
with the government filling in the gaps in the private sector, these
concerns are
de minimis

. Furthermore, although the outcome might not be
perfect, it is a better alternative than the current system.

(183) As an additional benefit, this plan would provide an
incentive for high school students to work harder in high school to make
themselves more attractive debtors to banks.

(184) See supra Part III.A.1.

(185) Some critics may argue that it is unreasonable to assume that
private lenders can adequately assess such risk, especially in the wake
of the current crisis in the mortgage industry. It is important to
remember, however, that many of the factors leading to the collapse of
the housing market and misevaluation the mortgage assets was due to
market distortions from governmental interference. Without such
interference, there is no reason to assume that a private lender would
not be able adequately to evaluate such risk. See supra Part III.A.1.

(186) However, other scholars, most notably
Milton Friedman

,
disagree and propose that private contracts should govern the human
capital markets. For a more detailed discussion of Friedman’s
position, see Milton Friedman, The Role of Government in Education, in
ECONOMICS AND THE PUBLIC INTEREST (Robert A. Solo ed. 1955), available
at http://www.schoolchoices.org/roo/friedl.htm. See also MIGUEL PALACIOS
LLERAS, INVESTING IN HUMAN CAPITAL: A CAPITAL MARKETS APPROACH TO
STUDENT FUNDING (2007).

(187) F.A. HAYEK, THE FATAL CONCEIT: THE ERRORS OF SOCIALISM 76
(W.W. Bartley III ed. 1988).

(188) National Center for Education Statistics, 2010, available at
http://trends. collegeboard.org/sites/default/files/education-pays-2010-full-report.pdf

(189) http://blog.twobeerdudes.com/2010/02/23/are-limited-release-beer-prices-destined-to-increase/.

(190) http://www.tcd.ie/Economics/staff/amtthews/FoodCourse/LectureTopics/ PricePolicy/Lecturel3.htm.

Jonathan Noble Edel, Candidate for
Juris Doctor

,
Notre Dame Law
School

; 2013
Bachelor of Science

 in Economics, The Ohio State
University, 2010. I am indebted to Professor Daniel B. Kelly for his
insight and guidance, while allowing me to be myself; my family and
friends for the discussions, thoughts, and arguments; and Mr. Aaron Dean
for helping me to
conceive of

 this idea in the first place. I am also
grateful to the editors and staff of the Notre Dame Law Review for their
editorial assistance. This Note is dedicated to my family–Jay, Debbie,
Chad, and Ashley Edel–for their unending support.