As I write this, protestors are gathered around the United States as part of the Occupy Wall Street movement. While they appear to lack a common platform, one of their primary concerns seems to be the enormous and growing debt load incurred by many students while attending college. Why is that load so enormous in the first place? Is there a Student Loan Conspiracy at work?

What is the Student Loan Conspiracy?

In 2009, the average college graduate had student loans totaling $24,000, up 6% from 2008. For postgraduate students, this figure rises substantially. Coupled with the challenging economic environment and the difficult job market, this has created a generation of heavily indebted students with few means to pay back their loans. Political circles have erupted with discussions of a “student loan crisis.” Heck, even professors are questioning the situation.

“Thirty years ago, college was a wise, modest investment. Now, it’s a lifetime lock-in, an albatross you can’t escape.” ~ Professor Fabio Rojas, Indiana University

All of this might be forgivable if students were getting good value for their money. However, the facts say otherwise. According to Richard Arum’s and Josipa Roksa’s book Academically Adrift: Limited Learning on College Campuses, 45% of U.S. college students show “no significant gains in learning” after two years in college. 36% of students show no such gains after four years of college. That might be because today’s students spend “50% less time studying compared with students a few decades ago.” And the things that are learned aren’t necessarily helpful. There tends to be a gigantic mismatch between the skills acquired in college and the skills that students need and use after college.

How did we get into this situation? Why are high school graduates spending money they don’t have in order to obtain a college degree that in all likelihood, involves little to no self-improvement?

The Origins of the Student Loan Conspiracy?

The origins of the Student Loan Conspiracy can be traced back to 1944. Prior to World War II, higher education was a small, private, and rather expensive industry. Its services were of little value to most individuals and thus, were only utilized by about 10% of high school graduates. This all changed in 1944 when Congress passed the Servicemen’s Readjustment Act. This Act, more commonly known as the G.I. Bill, gave educational subsidies to former veterans. More importantly, it marked the beginning of a “crony capitalism” relationship between college universities and the U.S. government.

With a precedent in place, it was only a matter of time before the U.S. government expanded its intervention in college education. In 1965, President Lyndon Baines Johnson signed the Higher Education Act of 1965 into law. It established several student loan and grant programs intended to make college more affordable. The increase of subsidies were a boon to the education industry and lifted enrollments. Unfortunately, this also had an unintended consequence. As subsidies increased, colleges realized they could raise tuition prices in response. And as they continued to raise prices, the government continued to increase subsidies, leading to an as-of-yet endless spiraling of education costs. As a result, since 1978, “the price of tuition at U.S. colleges has increased over 900 percent, 650 points above inflation.” Unfortunately, I was unable to find figures going back to 1965 but I imagine that the numbers would show a similar trend.

The Second Piece of the Student Loan Conspiracy Puzzle?

But that merely explains the origin of student debt in America. It doesn’t explain why so many people are willing to incur it. After all, its not like higher education is a necessity for most people.

“…the United States has become the most rigidly credentialized society in the world. A B.A. is required for jobs that by no stretch of the imagination need two years of full-time training, let alone four.” ~ James Engell & Anthony Dangerfield, Saving Higher Education in the Age of Money

This second piece of the puzzle can be traced to a 1971 Supreme Court case known as Griggs v. Duke Power. Up until that time, many companies used aptitude tests as a tool to screen potential employees. However, the Supreme Court, led by Chief Justice Warren Burger (pictured above), changed that when it issued its opinion on Griggs.

So, the Supreme Court basically forced companies to stop using aptitude tests for screening purposes. However, that didn’t end the need for screening. Firms still needed a way to whittle down ever-growing pools of applicants. Thus, companies started to make the “possession of a college degree a requirement for applicants – even for jobs that could easily be learned by anyone with a decent high school education.” And just like that, the cheap, quick, and focused aptitude tests were replaced by ultra-expensive, ultra time-consuming, and ultra-unfocused college degrees.

Guerrilla Explorer’s Analysis

In 1940, just 10% of high school graduates went to college. By 1970, that number was at 40%. And by the 1990s, it had risen to 70%. That’s because a college degree has become little more than a “signaling game.” By attending college, students “signal” to potential employers that they’re smart, hard-working, and easily trained. The ability to send that signal to employers, which was once accomplished via aptitude tests, is the sole reason that most students attend college in the first place.

The Student Loan Conspiracy isn’t a deliberate one. I don’t think any of the politicians or judges who created the current situation ever envisioned the full impact of their decisions. But unintended consequences can be harsh. The result is that many students who wish to work at regular jobs have no other choice but to waste four years of their lives at college. They end up studying subjects with little relevance to their futures and accumulating tens of thousands of dollars of debt for the privilege.

If politicians are serious about reducing student loan burdens (and this seems doubtful at best), they might consider removing themselves from the educational process. By re-legalizing aptitude tests, they can give employers a far cheaper and less time-consuming way of screening for employees. And if they remove themselves from the student loan business, colleges will be forced to slow tuition growth. Only then will the Student Loan Conspiracy finally, at long last, come to an end.