Student Loans: Crisis…or Conspiracy?

Over the past few months, reports of a “student loan crisis” have erupted throughout the United States. But is this really a crisis? Or a student loan conspiracy of epic proportions?

The Student Loan Conspiracy?

We first visited the student loan issue back in October 2011. To put it simply, the high cost of college and a difficult job market has “created a generation of heavily indebted students with few means to pay back their loans.”

Now, we have some new information to kick around. According to the Federal Reserve Bank of New York, the average student holds $23,300 in student loan debt. Breaking it down, about 43% of all students have loan balances less than $10,000. The rest owe more than $10,000. Amazingly enough, 27% of eligible payers “have past due balances.”

There are two pieces to this conspiracy. First, why is college so expensive? And second, why do so many people spend so much money pursuing college degrees? We talked a lot about the first question in October. So, we wanted to focus more on the second one this time around.

Why is College so Popular?

America’s intense pursuit of college degrees in a curious phenomenon. Not only are degrees ultra-expensive, but students appear to get poor value for their money. According to Richard Arum’s and Josipa Roksa’s book Academically Adrift: Limited Learning on College Campuses, 36% of U.S. college students show “no significant gains in learning” after four years of college. Even worse, there seems to be a mismatch between the skills acquired in college and the skills required for navigating the real world.

So again, we must ask, how did we get into this situation? Why are high school graduates spending money they don’t have in order to obtain college degrees that do shockingly little to prepare them for the real world?

The answer, in our view, is Griggs v. Duke Power. During the 1950s, Duke Power restricted black people from working in all departments except for the low-paying Labor department. In 1955, they started requiring high school diplomas for certain positions.

After the passage of the Civil Rights Act of 1964, Duke Power ended its race-based hiring policies. Instead, it instituted IQ tests. At the time, black people were less likely to hold high school diplomas. They also performed worse on the IQ tests. Thus, they were selected for Duke Power positions at a far lower rate than white candidates.

I won’t go into the particulars here. But eventually, a man named Willie Griggs filed a class action lawsuit against Duke Power Company. The case made its way through the legal system. In 1971, the Supreme Court ruled against Duke Power. In doing so, it prohibited the use of general IQ tests when screening applicants, regardless of whether there was an actual intent to discriminate. In order to pass muster, IQ tests were required to be a “reasonable measure of job performance.”

“…in 1971 the U.S. Supreme Court issued a ruling (Griggs v. Duke Power) saying that if companies use aptitude testing to screen potential employees, they must be prepared to show that their tests are precisely calibrated to the needs of the job. Otherwise, they will be guilty of employment discrimination if their tests screen out minority workers who might have been able to do the work. Rather than face discrimination suits by the federal government, most employers started using a less precise but legally safe method of screening applicants—college degrees.” ~ George C. Leef, Why on Earth Do We Have a Student Loan Crisis?

Griggs vs. Duke Power had far-reaching impact. It largely ended the practice of aptitude tests. But companies still needed a way to screen job applicants. So, they turned to college degrees, “even for jobs that could easily be learned by anyone with a decent high school education.” As a result, college enrollments (and student loans) exploded.

“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.” ~ David Meyer, The Student Loan Conspiracy?

Guerrilla Explorer’s Analysis

General aptitude tests aren’t perfect. In fact, they’re heavily flawed. In Griggs vs. Duke Power, it was discovered that those who’d passed aptitude tests and held high school degrees performed their jobs at the same level as those who’d failed the tests and didn’t hold degrees.

So, why don’t employers just create new aptitude tests that are “reasonably related” to individual jobs? The biggest reason is the threat of lawsuits. Even a well-crafted aptitude test could backfire in this respect. It’s far easier to just use college degrees as a screening mechanism and avoid the lawsuit risk altogether.

And that’s unfortunate. Aptitude tests hold significant advantages over college degrees. They’re cheap, quick, and can be tailored to fit individual jobs. College degrees are ultra-expensive, ultra time-consuming, and ultra-unfocused. So unfocused in fact, that the 1971 ruling should have invalidated college education screening as well.

“Recall that the problem in Griggs was that the specified requirements for job applicants were not clearly and directly related to the actual demands of the work. If challenged, could employers who have set the college degree as a requirement show that it has anything at all to do with the ‘business necessity’ of the employer or are ‘job-related’? That is very doubtful. Employers have grown to rely upon a new credential that is imperfect and probably rules out many qualified candidates. If the EEOC and the courts were to scrutinize the college degree requirement, they might well conclude that it has a ‘disparate impact.'” ~ Bryan O’Keefe and Richard Vedder, Griggs v. Duke Power: Implications for College Credentialing

The Student Loan Conspiracy isn’t a deliberate one. But the unintended consequences of Griggs vs. Duke Power have been highly destructive all the same. Many people waste years of their lives and accumulate thousands of dollars in student loan debt just to be eligible for basic jobs.

Companies will always need a way to screen potential employees. We here at Guerrilla Explorer don’t favor aptitude tests or anything else for that matter. We just think companies should be allowed to screen in whatever fashion they choose rather than fearing discrimination lawsuits. Without that lawsuit risk, however, we think many employers would switch to specifically-designed aptitude tests. Perhaps then, the Student Loan Crisis would finally come to an end.

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