Saturday, October 12, 2019

Making US College Education and Student Loans more Labor-force friendly

According to the most recent (2015) PISA scores which measure the basic skills (reading, math and science) of 15-year-olds, the US ranked 30th in Math among the 38 OECD countries – nothing to write home about, right? We need a sea change in the way our colleges work. Also, we need to rethink the qualification criteria for student loans. Here are some remedies: 

     1. College Accreditation must require Local and Regional Business Participation – One of the perennial complaints of the US college education is that it’s too theoretical. Despite the rising trend of internships, only a small percentage of the graduating students are blessed with this fortune, mostly in highly-sought-after disciplines like the STEM. College accreditation must require local and regional business participation (including representation on the board), allowing meaningful access to the business, science and technology community. Ideally, college charters must stipulate that at least 33% of all credit courses be taught by external experts so the students get to learn how the theories are actually being implemented in ‘live’ environments. Of course, it must be a simultaneous process, meaning teaching theories and practice must take place during the same quarter or semester. For example, students specializing in real estate finance must learn from the top mortgage professionals as to how the various mortgages are originated, including the full array of the paperwork involved (industry standard forms, etc.). Likewise, the STEM students who are considering a career in technical trading must learn from the renowned hedge fund managers and (program trading) algorithm scientists. Colleges and universities must therefore offer majors in line with the availability of the aforesaid local and regional industry experts. Needless to say, there will be no dearth of successful industry people who would be more than willing to teach such classes. This joint venture is a necessity today.

     2. New Professors must have at least 3-5 years of Verifiable Business Experience – Colleges must look for qualified professors (US PhD) with actual hands-on business experience. They will rise above the “canned” case studies as they are often antiquated and out of sync with the marketplace. These new crop of professors will also make better liaison with the industry experts, thus vetting and selecting the most fitting ones (with outstanding technical expertise) to teach applications. These technical experts will be able to explain and demonstrate the pieces that comprise the black box. In other words, these professors would know how to avoid walking into the old trap – inviting generalists. Exposing the young students to such generalists tends to be futile as the missing link becomes more elusive. On the other hand, all professors – new and existing – must be allowed and encouraged to work as consultants so they remain thoroughly conversant with the ever-changing industry standards and practices.

     3. Interest Rates on Student Loans must be tied to SAT Scores and APs – Obtaining student loans should be no different than obtaining home loans. Let’s face it: Two prospective homebuyers (mortgage applicants) with 600 and 800 FICO scores, respectively, will be offered vastly different mortgage interest rates, down payment requirements and origination fees (points) by the same bank. Similarly, interest rates on student loans (to pay for college education) should be a function of the SAT and AP scores (these are comparative metrics while the general academic records aren’t). For example, the student who scores 1,580 (out of 1,600) in SAT and completes six APs with all 5’s must be eligible for a much lower interest rate than his/her counterpart who scores 1,300 in SAT and completes three APs with all 3’s. This merit-based system will incentivize everyone to do well academically from the get-go. By the same token, those who fail to do well in SAT and AP may consider other avenues: community colleges, vocational schools, etc. Simply put, we need an incentive-based school system where performers are greatly rewarded. The current system is backward-bending and requires significant overhaul.   

    4Sallie Mae must publish SAT/AP-based Student Loan Rates to provide Transparency – Sallie Mae, the largest student loan provider, and other large providers like Citi, Nelnet, Wells, etc. must develop and publish SAT/AP-based rates to educate and entice students of the advantages of the high scores. If the high school students (starting in sophomore) are taught that high score equals low rates, they would be working harder, thus gradually bumping up the curve making the system globally more competitive.

     Of course, unlike mortgage rates that change daily, the proposed SAT/AP-based student loan rates would be revised annually on the basis of the new data trends (i.e., changing scores). Hopefully, the rate chart would be prominently displayed in all high school cafeterias as a constant reminder that a little extra push would go a long way. Here is an example. Actual rates must be derived from the recent loan data from Sallie Mae and other major lenders in the field.


(Click on the image to enlarge)
  
     5. Interest Rates on Student Loans must be Significantly Higher for Lateral education (education for the sake of education) – When students stay back in schools and continue to take unrelated courses aimlessly (e.g., 2nd/3rd major or 2nd Master’s, etc.), lenders must discourage such loans by charging significantly higher interest rates related to those credits. If students plan on co-concentrating (e.g., business and economics; social science and statistics; applied economics and math; finance and applied math, etc.), they must declare their intention right at the outset while applying for loans, thus locking in their preferred rates throughout the period, as well as to avoid having to pay a significantly higher rate down the road for the “co” in the form of a second major. Oftentimes, the meaningful co-concentrations help job-seekers narrow the competition down. Likewise, many employers prefer those graduates as they bring in truly complementary knowledge.

     6. Interest-free Student Loans must be provided to All STEM Candidates – Instead of enticing foreign STEM graduates with visa adjustments, we must learn to nurture our own. And, it must start with an awareness movement at the middle and high school. At the core of this movement lies the marketing of the awareness to the female students in that they have “equal access” to this career domain. Until and unless our young ladies are convinced of the equal access, we will have no choice but to depend on the foreign employees. In promoting STEM education, teachers and counselors must also explain to the students that 10’s of thousands of STEM jobs remain unfilled and, as a result, our “volume” employers are forced to hire foreign employees to fill in those slots. Interest-free student loans could be a big incentive to entice more students to look into this colossal and unrestricted career domain. Obviously, once accepted, the qualified yet economically disadvantaged students, irrespective of ethnicity, must continue to receive (full) free STEM education, at both public and private institutions. 
    
     7. STEM Students in State Schools must qualify for Financial Aids ahead of all others – In addition to interest-free student loans, STEM students must receive financial aids ahead of their counterparts. Given the urgent need for STEM graduates in our economy, it does not make much sense anymore to treat all economic needs equally. At this point, college education must be compared with and treated like government services, meaning essential education (like essential government services) must always receive higher weights and protections than the not-so-essential education (like non-essential government services). Simply put, STEM education must be declared, protected and promoted as essential education. Ceteris paribus, the qualified STEM student population must get the first shot at the pool of financial aids and the residual will then be distributed to the other disciplines depending on the needs of the labor force. Of course, it has been assumed that the health and mental care education – another market area with critical shortages here – is part and parcel of the STEM, specifically part of ‘S.’   

     8. Ideally, a Moratorium on Student Loans is needed for Business and Humanities Majors – Due to the easy access to student loans, far too many students – relative to the aggregate market demand – continue to major in business and humanities, resulting in significant disguised unemployment all across the country, arguably reaching a point of moral hazard. In order to reduce the incidence of such disguised unemployment, we need a moratorium on such student loans for a period of time, at least 5 to 7 years, thus allowing enough time to get the excess market supply meaningfully absorbed while the wage level rises back up to the point of equilibrium. This pause will allow Sallie Mae to re-evaluate its existing debt load, meaning if they could use a meaningful stress test to evaluate if they might be approaching the "too big to fail" threshold. Meanwhile, a good chunk of the potential fallout population (business and humanities majors) would be redirected to the STEM universe. Sadly, if this decline is not arrested, the possibility of a bailout would be on the horizon in not too distant future (considering the student loan portfolio in the US has recently eclipsed $1.5T). Absent student loans for business and humanities, only a small percentage of the future student population – mostly from the well-to-do families and foreigners – will opt for these over-subscribed majors. Obviously, neither group would pose any renewed threat to the US labor force or contribute to the accentuation of the aforesaid bailout scenario.     

     9. Encourage Ivy League and other Renowned Schools to Eradicate "Legacy" Admission – The legacy admission system is nothing but a "privileged" quota system. Any quota system is detrimental to the overall growth and equality. Yes, applicants from the poorer families must not be discriminated against, but that financial hand-holding must come in the form of added financial aids. Therefore, the better way to handle that event is to increase the family income limit from $60K to $100K for full free-ships. Even a geo-indexed multiplier could be experimented with (Case in point: The purchasing power of $100K family income in NYC is significantly lower than that of Wichita, KS, so to say). In a free society, merit must never be compromised. For instance, if a particular ethnic group qualifies for 60% of all admissions at Harvard, they must be admitted as such, unconditionally. Of course, to promote STEM education, Ivys and other major schools should offer financial aids to qualified STEM applicants ahead of the other disciplines, for a period of time, until the home-grown STEMs are well-represented on the labor force. 

     10. Last but not least, Professors must be Apolitical in classrooms, leaving their ideology, affiliations and agendas outside (the classrooms) – Most American students take on huge loans for college education so they deserve the highest quality education in preparation for successful careers. Unfortunately, too many professors bring their political rhetoric and viewpoints to the classroom, in an effort to brainwash and indoctrinate students to their personal political agenda. This is totally unacceptable. We must keep our great educational institutions free from such partisan politics. Yes, the professors are entitled to their political viewpoints, without commingling with the education inside the classrooms. Going forward, all new hires must be independently vetted (including all of their social media accounts, going back at least ten years) and any political bias must be seriously investigated. Our labor force needs future industry leaders, not political activists. When our institutions become nonaligned and professors’ non-partisans, our labor force will regain its old glory, becoming the envy of the world, again! Of course, in order to weed out politics from our colleges, we must consider one final option: All professors, including the departmental chairpersons, should be hired and placed on 4-year contracts, instead of career tracks. Competition is the cure-all medicine!   

Again, it’s high time that we make our college education and student loans more labor-force friendly. Our students deserve better!

-Sid Som, MBA, MIM
President, Homequant, Inc.

Link to the Book

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