I don’t have children, but I would think that one of the biggest worries most parents have is whether or not their kids will get into college, and possibly what they might major in. While there is a huge personal value from any college education – it helps make a person more well-rounded – it is obvious that studying accounting, or finance or mathematics will likely lead to a more lucrative career than studying art, or English literature. This is no longer a concern for most parents because the Federal government has issued regulations ensuring that all but the wealthiest of college students earn only degrees deemed to provide training that will lead to “gainful employment.”
In other words, the Department of Education (DOE) will now limit the majors that students receiving loans can study. Forget studying art, or drama, or English, or anything else that does not guarantee a large paycheck. Now the Federal Government will ensure that every student is prepared to be an accountant.
Unless of course, your family can afford college without any loans or Federal support.
Federal Restrictions on College Majors Can Cost Taxpayers $433 Million a Year
In the United States there are 3,452 Private Sector Colleges and Universities, out of a total of 7,253 post-secondary institutions. These schools educate 3.8 million students, representing 13 percent of total enrollment. In addition, the 1,132 Community Colleges located throughout the country provide educational opportunities for about 12.8 million students, nearly 60 percent of them in full-time academic programs. Together with the nation’s public and private not-for-profit colleges and universities, these institutions create an educational system that is the envy of the world.
One reason that the country has such an enviable post-secondary education system is that unlike the nation’s primary and secondary schools, which are for the most part monopoly operations, colleges and universities must compete for students. This ensures that they not only provide outstanding educations, but also that they provide a diversity of options and opportunities. This flexible and competitive system allows students of varying means to study at the best research universities in the world, or to opt for a part-time or evening program at a community college or private technical school. It also allows for a wide range of academic opportunities from medicine and science, to humanities and arts. Our culture is brighter and more dynamic in part due to our competitive system of higher education.
In spite of its success, the Federal Government through the DOE now believes that it should be the arbitrator of where and what students should study. A new rule, the so-called Gainful Employment Rule will ensure that starting next year, no program in a private or community college can be funded through Federally guaranteed student loan programs if on-average students obtaining that degree have loan payments in excess of 30 percent of their earnings. In other words, only programs that lead to lucrative careers (on average) can be accessed by students receiving student loans.
Interestingly, since wages are set in an open market, careers that may not be lucrative simply because too many people are chasing too few jobs may become quite lucrative when nobody is studying for them. Today there may simply be too many Sociology majors for the market to bear, but that does not mean that tomorrow there may be a dearth of Soc graduates. That is the wonder of the market place – price signals help determine supply. In this case, the government is determining future supply based on past price signals.
Not only does this rule cost students in terms of choice or access to programs that may help them fulfill their dreams, but it costs taxpayers a substantial amount of money. According to the DOE itself, the rule would have a direct cost of about $433 million a year. The Department was unable to quantify any benefits, though it did determine that as much as $3.8 billion a year in loan funds would be transferred from programs that students would like to attend to those that the Federal government deems that they should attend. In addition, the DOE suggests that about $423 million less in loan payments would be made as students decide not to pursue higher education.
In other words, the taxpayers will be spending a minimum of $433 million a year to ensure that about 110,000 students per year drop out of higher education.
Sometimes rules have negative unintended consequences – results that are not planned or anticipated when the government decides to impose them. In this case, the government is touting the negative consequences of a proposed rule. Rather than simply allowing people to study what they are interested in and then compete on the open market for jobs, the Federal DOE has decided that it needs to “protect” them with arbitrary restrictions that will restrict all but the wealthiest students from certain fields.
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