NCPA - National Center for Policy Analysis

The Root Cause of Market Failure in Higher Education

December 9, 2011

An Associated Press news story reported recently that China plans to phase out college majors that consistently produce unemployable graduates.  Any program in which 60 percent of the graduates failed to find work for two consecutive years would face funding reductions until supply was brought back into balance with demand.  China's leaders want to make sure the young cadres they educate at the people's expense actually find jobs in the private economy.  Here in the United States, by contrast, where outstanding government guaranteed student loans have recently passed the $1 trillion mark, education policy is geared not toward maximizing the employability of graduates, but toward garnering votes for politicians, says Bill Frezza, a fellow at the Competitive Enterprise Institute.

  • A college education has gone from being a means to an end -- a successful career -- to an end in itself.
  • American kids feel both entitled and pressured into getting a college education regardless of whether they have the intellectual capacity to profit from it, the work ethic to manage it or the money to pay for it.
  • Alternative means of career training, like apprenticeship in trades that remain in demand, such as plumbing, get no social respect, despite the fact that skilled plumbers can out-earn most liberal arts majors.

Countless politicians now call college education a "right."  To finance this so-called "right" to a college education a Government Sponsored Entity known as Sallie Mae was created in 1972 to issue below market rate student loans guaranteed by the federal government.  But just as Fannie Mae fueled an unsustainable housing bubble, Sallie encouraged runaway college tuition increases.

The system is nearing breakdown, which will come when student loan defaults finally push the federal agency that guarantees such loans into bankruptcy.  At that point, we will have to face the fact that capping off adolescence with a four-year party at taxpayer expense is a luxury we can no longer afford.

Source: Bill Frezza, "The Root Cause of Market Failure in Higher Education," Real Clear Markets, November 28, 2011.

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