Should Colleges Provide Money-Back Guarantees?
A Brookings Institute op-ed poses the question: Should college educations come with money-back guarantees? At first glance, it might sound ridiculous, but authors Beth Akers and Stuart Butler argue that expensive and complicated consumer goods and services frequently include a guarantee. Akers and Butler explain that expensive products or services can have financial implications, and consumers cannot easily identify a complicated product or service as a “lemon.”
It’s an interesting premise, but, should colleges and universities really be held accountable for the success – or lack thereof – of their students? After all, parents don’t seem to be held accountable for teaching their kids the basics of money management. One report reveals that many college students are failing financial literacy, and only 51% of students say their parents taught them general money management skills.
Of course, college and universities are different from parents – the most glaring difference is that students don’t have to pay their parents an average of $31,000 a year in tuition for a period of four to six years. Also, it’s expected that a child is a parent’s primary responsibility. However, colleges often have other priorities, such as boosting prestige and funding.
But at the same time, next to parental figures, students probably place the most trust in the messages they receive from institutions of higher education. While for-profit schools have been subject to a higher level of scrutiny for “promising” jobs after graduation, most colleges and universities extol the virtues of attending their particular school.
However, there are things schools don’t tell students. For example, a report by the National Student Clearinghouse reveals that college students who transfer often lose credit and money – and half of all college students transfer schools during their college career. Students lose an average of 13 credits after their first transfer, and 39% cannot transfer any courses. But in most cases, students won’t know if their classes will transfer from the previous school until after they enroll at the next school. And having to spend additional time and money are two of the primary factors that determine if a student will stay in school or not.
Regarding the money factor, Consumer Reports published a study that found students were dropping out of college because they couldn’t afford to continue borrowing money – but students who drop out are less likely to be able to repay their loan. One 28-year-old student profiled in the study owed $90,000, but had a job paying $12 an hour.
And then, there are the majors that students like that may not lead to jobs or a living wage. That’s because there are big gaps between the degrees students are earning and in-demand jobs. A Georgetown University Center on Economics and the Workforce report reveals that some of the most popular majors are communications, psychology, mass media, and education. But if employers are looking for job candidates with degrees in computer science, nursing, pharmacy, or engineering, is it the school’s job to funnel students into these disciplines?
Critics of this idea say that there will always be a need for students with degrees in the humanities, social sciences, etc. But who is to blame if/when these students can’t find jobs, can’t find jobs in their field, or can’t find jobs in their field that pay a living wage?
An idea whose time has come?
Schools that choose to offer money-back guarantees will undoubtedly be more popular among cost-conscious students, and Mamie Voight, vice president of policy research at the Institute for Higher Education Policy, tells GoodCall® this practice would be used as a recruiting tool in marketing materials, etc. A handful of schools already offer either free tuition for students who don’t graduate on time, or they guarantee grads will land a job within a certain time frame or earn a certain income.
However, Voight warns students to thoroughly read and research the fine print accompanying these promises. “Many of these guarantees come with strict eligibility requirements, such as taking a full course load, signing a contract, maintaining a resume and a certain GPA, and being willing to move for a job.”
Richard Vedder, distinguished professor of economics emeritus at Ohio University and director of the Center for College Affordability and Productivity, tells GoodCall®, “Conceptually, I like the idea of some accountability for schools, and if large numbers of a school’s students are unable to get a job, there should be consequences.”
A possible downside is that adopting this policy could result in a more selective admission process, which could negatively impact all of the school’s students in general, and certain applicants in particular. “Ultimately colleges need to finance these guarantees – either by ensuring few students claim them or by raising funds elsewhere, perhaps through tuition hikes,” Voight says. She believes schools would either become more selective with applicants or create a rigid set of requirements to restrict access.
According to Vedder, there would have to be some sort of criteria or the program wouldn’t be fair and students wouldn’t be incentivized. “If a student is partying, and not studying or going to class, the school should not have to pay them back for making bad decisions.”
Money-back guarantees: The Advantages to Students
Students and their parents already know that a college degree is a good bet, and Voight says that’s why they are willing to assume debt, cut expenses, and work long hours without any money-back guarantees to this point. “However, students also face the threat of non-completion, and at some schools, they risk taking on debt for a credential that does not reap the rewards they expect.” Money-back guarantees could put a lot of families at ease. Voight says “a well-constructed guarantee could provide students with a safety net that offers reassurance when writing that tuition check or signing for a student loan.”
However, she reiterates the importance of schools being transparent, and she says students need to read the fine print to be sure these money-back guarantees are not a marketing ploy.
There’s another idea gaining popularity: income-share agreements. According to Vedder, “This is a way for wealthier schools, in particular, to make investments in their own students by paying part of the tuition with their endowment and the student pays the school back after graduation.” For example, he says graduates could pay 10% of their incomes for the next 10 years. “The schools are taking some of the risk, and the student doesn’t have to pay all of that tuition up front.”
It’s uncertain whether either plan will gain steam, but Voight believes schools still have an obligation to their students. “Colleges should do their part to make sure students can access the courses and receive the supports they need to be successful at graduation and in the workforce, regardless of whether a guarantee exists.” Voight says.