In Two big questions for economists today, a January 2015 report from the American Economics Association convention, I wrote the following:
Justine Hastings, of Brown University, presented “Earnings, Incentives and Student Loan Design: The Case of Chile.” It seems that Chile did what the U.S. did, i.e., offered a lot of student loans for higher education. Their program was more intelligently designed, however, in that they didn’t allow universities to raise tuition in response to this new source of funds. Schools ended up with more students, but not more money per student as has been prevalent in the U.S. Nonetheless, the default rate has been high, especially for graduates of non-selective schools and especially for those who majored in humanities and arts. Unlike Americans, Chileans don’t like to keep flushing cash down the toilet, so now they are experimenting with adjusting the maximum loan amount according to the expected return to getting a particular degree (in Chile you don’t apply to “University of Santiago” you apply for a specific major). It turns out that when students see that the government won’t lend them the maximum for a particular degree program they get the message and try to switch into a degree that will result in higher post-graduate earnings. … Hastings has a separate paper “The Labor Market Returns to Colleges and Majors: Evidence from Chile” with the discouraging result that attending a lower quality college and majoring in poetry will not set the country’s employers on fire and, in fact, many people would have higher lifetime earnings if they refrained from attending college.
“Programs That Are Predatory: It’s Not Just at For-Profit Colleges” (nytimes) shows that Americans may gradually be catching up:
The Harvard program is run by the A.R.T. Institute at Harvard University (A.R.T. stands for American Repertory Theater). It’s a small program, admitting about two dozen students each year into “a full-time, two-year program of graduate study in acting, dramaturgy or voice pedagogy.” On average, graduates earn about $36,000 per year.
The problem, from a regulatory standpoint, is that they borrow a lot of money to obtain the degree — over $78,000 on average, according to the university. The two-year tuition total is around $63,000. And because it’s a graduate program, students can also borrow the full cost of their living expenses from the federal government, regardless of their credit history.
After accounting for basic living expenses, the average Harvard A.R.T. Institute graduate has to pay 44 percent of discretionary income just to make the minimum loan payment.
Related:
Once again I am disappointed by the headline.
I was hoping this was going to be an article about kind helicopter pilots giving Berkeley students and faculty free scenic Pacific Ocean tours.
–Ed
I don’t think that the student loan by major would be able to get off the ground in the U.S. There are entire departments that seem to exist to make it easy for unqualified students to graduate, such as all the “Studies.” It would be considered racist, sexist, anti-LGBT, etc., if these were not subsidized with loans. Also, they are where students head after a quarter or two of STEM when they find out they can’t handle it, but are too ashamed to just drop out of college. You couldn’t just flunk out students and not give them a mick major to transfer into.
A degree in acting is just an extreme example of the “Why Drug Dealer’s Live with their Mother’s” examined in Freakonomics. Top Hollywood actors make over $20 million/year. Every aspiring actress thinks that she is going to be the next Jennifer Lawrence just like every lottery ticket buy thinks that HE is going to draw the winning ticket. For 99.999….% of lottery ticket buyers, the return on investment is zero but people keep buying them because for ….001% there is an amazing return.
Harvards ART involves a trip to Russia and studying russian things. Both you and the news often talk of Russian so maybe there is some additional commentary to be had about ART.