John L. King, Jr., the new Secretary of Education, knows the student-loan program is careening out of control and that millions of people owe billions of dollars they can't pay back.
So what's Secretary King's solution? Financial literacy. We can solve the student-loan crisis, Secretary King apparently believes, if college students are educated to make better financial decisions.
Thus as the nation enters "Financial Capability Month," Secretary King is touting a recent report prepared by the Financial Literacy and Education Commission that outlines how college students can develop better financial management skills.
Interestingly, the report emphasizes the role that colleges and universities can play in enhancing their students' ability to make good decisions about financing their college experiences. And the report highlights financial literacy programs that universities around the nation are offering.
For example, New Mexico State University "held a money management fair to promote games, websites, and outside financial education organizations to students." I'll bet that was fun.
And Louisiana State University, famous for its planned "Lazy River" water feature, created "financial education' handouts called "Financial Basics on the Geaux" and developed "CashCourse quizzes" to evaluate students' financial knowledge.
The Department of Education seems to think that colleges are great places for students to learn financial literacy, including the skills to manage their student loans. After all, as the Financial Literacy and Education Commission pointed out, colleges have an incentive to produce alumni who repay their student loans.
But of course this isn't really true. Colleges and universities have an incentive to maximize their revenues, which means luring tuition-paying students through the door. But higher education institutions have zero incentive to warn potential students that some of their degree programs are a bad financial investment.
And here's an example. Law students who graduated from Thomas Jefferson School of Law in San Diego in 2013 had an average student-debt load of $180,000 (among students who borrowed). That was the highest student-debt load of any law school in the United States that year.
Yet Thomas Jefferson's admission standards are quite low. According to a recent report by Law School Transparency, 75 percent of Thomas Jefferson's entering 2014 class had LSAT scores so low that they were at high risk of failing the bar. Twenty-five percent of it 2014 freshman class had LSAT scores so low that they were at extreme risk of failing the bar.
Not surprisingly, Thomas Jefferson's bar pass rates aren't high. Among first-time test takers who sat for the California bar in July 2014, less than half of TJSL graduates (44.7 percent) passed the bar exam.
As Paul Campos wrote in his 2012 book, "[I]t's likely that somewhere around four out of five current law students would be better off if they hadn't gone to law school" (emphasis supplied). And that percentage is surely even higher for people who graduate from TJSL.
Do you think Thomas Jefferson School of Law is telling its entering freshman students that they will probably face job prospects so poor that it makes no sense to borrow $180,000 to get a TJSL degree? Probably not. Thomas Jefferson needs to maximize its revenue by admitting as many law students as it can, even if a majority of its entering students have LSAT scores so low that they run a high risk of failing the bar exam.
So what's my point? Simply this. The Department of Education is being naive or cruelly cynical to suggest that "financial literacy" can be usefully taught by colleges and universities that have every incentive to attract tuition-paying students and no incentive at all to warn potential students of the risks they run when they take out student loans to enroll in expensive programs that aren't likely to pay off financially.
In short, whether you are contemplating a bachelor's degree in religious studies from an expensive, elite university or a law degree from a mediocre law school, you can't count on the higher education institutions to give you good financial advice. When it comes to acquiring financial literacy, you are largely on your own.
Focusing on financial literacy for students. U.S. Department of Education blog site. http://blog.ed.gov/2016/04/ed-focuses-on-financial-literacy-for-students/
Jeff Schmitt, The Leaders in Student Debt. Tipping the Scales, March 31, 2014. Accessible at http://tippingthescales.com/2014/03/which-law-schools-lead-in-student-debt/
Paul Caron. July 2014 California Bar Exam Results. Taxprof blog, December 29, 2014. http://taxprof.typepad.com/taxprof_blog/2014/12/july-2014-california-bar-.html
Financial Literacy and Education Commission. Opportunities to Improve Financial Capability and Financial Well-Being of Postsecondary Students. Updated 2016. Accessible at https://www.treasury.gov/resource-center/financial-education/Documents/Opportunities%20to%20Improve%20the%20Financial%20Capability%20and%20Financial%20Wellbeing%20of%20Postsecondary%20Students.pdf
Law School Transparency. Reports on law school admission data accessible at http://lawschooltransparency.com/reform/projects/investigations/2015/key-findings/