Read Everything Is Bullshit: The Greatest Scams on Earth Revealed Online
Authors: Zachary Crockett
These are important points. But the available evidence does
suggest that while both critiques have teeth, they account for only part of the
increased earnings of college graduates. A number of studies — from
comparisons of twins of different education levels to investigations of the
increased earnings of those who attend college without graduating —
suggest a college education itself leads to increased earnings.
The student loan crisis, however, is not a myth. Both debt
burdens and delinquency rates have increased steadily over the past decade. So
why do so many students fail to reap the benefits of what seems to be such a sound
investment?
Four
Theories of Student Loan Defaults
Before
we discuss what could be driving high default rates, we should note what is not
responsible.
Entitled
Millennials
pursuing useless
liberal arts majors and expecting a plush job to reward their knowledge of
Plato and Pointillism does not account for the debt crisis.
As of 2008, the average undergraduate worked 30 hours a week.
Undergraduates also focus intensely on preparing for the job market. Nearly
half study business, economics, science, technology, engineering, or
mathematics. The rest mob programs linked to jobs, like law school and nursing
programs. Only 12% study the humanities — and usually find careers, as they
always have, in business, law, and the many fields that demand writing or
artistic skills.
Nor can we ascribe the student loan crisis to a temporary result
of the most recent recession. It certainly contributed. More students decided
to ride out the recession in college and state budget crises resulted in
reduced subsidies at public universities. But the trends of increased college
spending, tuitions, debt, and default all pre-date the recession.
So what explains this paradox that the financial returns to
college have never been higher, yet more students than ever are indebted and
defaulting on loans?
One possibility is that the data is deceiving us. Since we
cannot predict the future, researchers inevitably look backward to calculate
the returns to college. In the 1970s, research suggested that college was a
losing proposition economically. But college students who ignored that advice
benefitted as the economic value of a college degree increased over the course
of their careers. We could face the opposite situation today.
While this is a good reminder to view calculations of the
40 year
payoff of college with skepticism, it does not seem
to explain the paradox. Available research shows the financial payoff of a
degree increasing.
A second theory is that while college is on average a sound
investment, rising costs mean that college is no longer worth it for an
increasing number of students for whom the returns of attending college were
already close to zero. And for every student, as debt burdens go up, the
chances of defaulting increase as well.
Could all this focus on averages hide a huge number of
struggling students on the margins? Researchers criticize the government and
colleges for not providing the data to answer this question precisely. But some
research suggests that the returns to college are so high that almost all
students
benefit. One recent study compared the earnings of
students who just made the academic cutoff to attend the Florida State
University System with those of students who fell just below the cutoff (and
mostly did not attend college as a result). We might expect these students to
struggle with student debt, yet they reaped returns of 11% from attending
college.
A third, complementary explanation is the rise of “merit aid.”
Colleges sometimes use merit aid to compete for top students, but they
increasingly use it to shore up their finances by attracting average students
who can pay more tuition. This is especially true at state schools looking to
attract nonresident students who will pay higher, out-of-state tuition costs.
More merit aid means that an increasing share of aid goes to students who don’t
need it: The percentage of grants awarded to students in the lowest income
percentile dropped from 34% in 1996 to 25% in 2012. The end result is that
college becomes more expensive for low-income students, who are most at risk of
defaulting on their student loans.
A fourth and final theory is that low profile, inexpensive,
poorly performing schools are responsible for the lion’s share of defaulting
graduates and delinquent debt. The main evidence for this theory is the context
of who holds delinquent student debt.
The unemployed law school graduate facing a
six
figure
student loan debt makes headlines. But student debt in default
consists primarily of debts of one to several thousand dollars. Its holders are
mostly individuals from low-income families who dropped out of college or even
failed to complete high school and took on student debt for a non-degree
training program. A disproportionate number are Hispanic or African-American.
So while big name schools are behind the spending race driving
up tuition prices, the student debt crisis is best understood by looking at
little known universities, community colleges, and even training programs. The
schools with the highest reported default rates fit this description: they are
local schools, tuition is only a few thousand dollars, and nearly half of the
students receive Pell grants (federal grants for low-income students)
supplemented by loans.
The rise of for-profit universities has likely fueled this. Good
data on for-profits is scarce, but we know that for-profits now enroll 10% of
all students, up from 3% in 1999, and account for a quarter of federal aid
money. Not all for-profits deserve scorn, but many have drawn scrutiny for
terrible graduation and default rates. The dominant business model is to
receive accreditation by buying a non-profit
college,
aggressively market degrees of limited utility (including online accreditation)
to low-income students and returning veterans, and then suck up their federal
student aid money. Half of all student loans at the for-profit Corinthian
Colleges fail, although the colleges still get their federally backed loan
payments. The Corinthian Colleges enroll over 100,000 students.
The student debt crisis has fueled anxiety in middle-class
families. But the real victims seem to be low-income students who drop out at
disproportionately higher rates and attend training programs and
lesser known
colleges of questionable value.
Is There a
Bubble?
The
recession, high tuition costs, increasing default rates, and $1 trillion in
outstanding student debt have led to a flurry of articles, reports, and sound
bites that use the most feared words in America: “crisis” and “bubble.”
Student loans, however, seem unlikely to cause a 2008 style
collapse of the financial system. As former Federal Reserve Chairman Ben
Bernanke has noted, student loans don’t threaten the entire financial system
because the government is liable for the majority of the debt — not
banks. Out of the $1 trillion student loan debt, the federal government
guarantees around $850 billion.
Nearly half of the remaining
$150 billion is held by Sallie Mae, a previously public institution that
performs minimal banking activities
.
Nor are the rising prices people pay for college based on
irrational optimism or divorced from intrinsic value — the essence of a
bubble. Despite the gloomy pronouncements, the value of a college degree has
increased over time. The data indicates that it is a sound investment —
better than the stock market, corporate bonds, and the housing market,
according to research by The Hamilton Group — and that there may even be
an undersupply of college graduates.
Grading
America’s Colleges
This
does not mean that we should give American higher education a pass. Not
bringing down the entire financial system is not a high standard. And the high
delinquency rate suggests a serious waste of public and private money.
The skills-bias of technology over the past 30 years has been a
gift for colleges, making a college degree increasingly valuable. College
graduates could have reaped the benefits of increasing returns to college. This
could have also made public subsidies less necessary. Instead, colleges ramped
up spending, largely unproductively, necessitating a flood of government
subsidies and unnecessary student debt burdens.
The human toll and bad investments represented by the high
delinquency rate may represent the actions of certain colleges with
particularly poor graduation and default rates. Or colleges’ profligacy may be
increasing the risk of default across all institutions and pushing students on
the margins of benefitting financially from their education toward negative
returns. Either way, high college spending is a drag on the economy and a
terrible burden on young graduates.
For American colleges, a ‘D’ is still a passing grade. Despite
recent disillusionment, Americans need to know that — on average —
a college degree is still a very sound investment. But they also should know
that most colleges have performed poorly at providing value to their students.
The fact that college is still a sound investment should not keep us from
demanding better of the purveyors of lofty speeches about human progress. Nor
blind us to the possibility of challenging the
four year
degree system.
College may seem at a glance to be too much of a
four year
party. But don’t simply blame the students. For an
increasing number of them, it’s a party they’d rather skip.
Because
after graduation, the party continues for the colleges.
Only the
graduates endure the long hangover, and, between the graduates’ debt and
taxpayer subsidies, we all foot the bill.
THE BUSINESS OF MANIPULATION
***
“You know,
I know this steak doesn't exist. I know that when I put it in my mouth, the
Matrix is telling my brain that it is juicy and delicious. After nine years,
you know what I realize? Ignorance is bliss.”
(Cypher,
The Matrix
)
HOW MARKETERS
INVENTED BODY ODOR
I
n the mid
1990s, the executives at consumer goods
company
Procter & Gamble thought they had developed a new hit product. Thanks to
several million dollars of research, they had created a spray that could
eliminate odors. They called it
Febreze
.
To roll out the new creation, Procter & Gamble (P&G)
assembled a marketing team that put together ads showing relieved customers
taking deep breaths of fresh air after spraying
Febreze
on jackets that reeked of cigarette smoke and sofas that stank of wet dog. As
related by journalist Charles
Duhigg
in The Power of
Habit, confidence in the product and advertisements ran so high that the team
started planning for promotions and bonuses as they launched the advertising
campaign.
After a few weeks, excitement turned to alarm.
Febreze
did not fly off the shelves; it was barely selling.
The P&G executives were alarmed, and the marketing team struggled to figure
out what they had done wrong. The epiphany came at the home of a crazy cat
lady.
Duhigg
elaborates:
“When P
.&
G.’s scientists walked
into her living room, where her nine cats spent most of their time, the scent
was so overpowering that one of them gagged. According to Stimson, who led the
Febreze
team, a researcher asked the woman, 'What do you do
about the cat smell?'
'It’s usually not a problem,' she said.
'Do you smell it now?'
'No,' she said. 'Isn’t it wonderful? They hardly smell at all!'
Febreze
had
failed, the marketers realized, because people had no idea that they needed the
product. People generally adjust to bad smells in everyday life until they no
longer notice them. Had Procter and Gamble studied the experience of deodorant
companies eighty years earlier, the company might have been better prepared for
the challenges of marketing
Febreze
.
In 1912, an Ohio high school student named Edna
Murphey
attempted to sell an antiperspirant invented by her
father, a surgeon. As an article in Smithsonian Magazine recounts, her father
used it to keep his hands dry during surgeries while
Murphey
found it prevented sweating and odor in her armpits.
Murphey
called the company
Odorono
, a word meaning, “Odor? Oh
no!”
The product had it share of problems. It could stain clothing
red — one woman’s wedding dress was a victim — and irritate the
skin. But it was an improvement over practices at the time. On particularly hot
days, women might use “dress shields,” which were simply cotton or rubber pads,
to prevent sweat from soaking clothing.
But as with
Febreze
, deodorant solved
a problem no one felt they had. People believed regular baths to be sufficient.
Men found odor masculine; women used perfume to cover up any smells. Worst of
all, in the Victorian culture of the time, talking about bodily functions or
sweaty armpits publicly was taboo. During a long, sticky summer of hawking the
deodorant from a trade booth,
Murphey
struggled to
sell her product. So the plucky high school student took the meager profits she
made selling
Odorono
at the 1912 Atlantic city
exposition and hired a copywriter from the J. Walter Thompson Company, an ad
agency.
What came next, Sarah
Everts
explains
in Smithsonian, was a marketing coup. After several years of muddling success,
the young copywriter, James Young, decided to convince women that they smelled.
A first ad, “Within the Curve of a Woman’s arm,” read:
“A woman’s arm! Poets have sung of it, great artists have
painted its beauty. It should be the daintiest, sweetest thing in the world.
And yet, unfortunately, it isn’t always.”
As
Everts
writes, his ads suggested to
women that they “may be stinky and offensive, and they might not even know
it... If [they] wanted to keep a man, [they’d] better not smell.” In other
words, Young tried to convince every woman that she was the oblivious cat lady
and that the rest of the world was the
Febreze
marketing team, running off to gag at the smell.
The ad shocked. Young’s female co-workers stopped talking to him
and women cancelled subscriptions to magazines running the ad. But it worked.
Sales doubled,
then
rose above a million dollars per
year. “Within the Curve of a Woman’s arm” is considered a classic in marketing,
an ad that launched the Advertising Hall of Fame career of James Young. Once
deodorant companies pulled the same trick on men — convincing them that
their manly odors could get them canned from their desk jobs and putting
deodorant in whiskey bottles so it didn’t seem wussy — they had the
entire population spending billions to use their products every day.
Procter & Gamble, on the other hand, solved its problem by
marketing
Febreze
as an air freshener. Although
aerosols and other fresheners had long existed, good marketing combined with
P&G’s market dominance propelled sales. Eventually, P&G began to tell
people again that
Febreze
eliminated odors, which was
now recast as a differentiating feature from other fragrant aerosols. Through
the
trojan
horse of an air freshener,
Febreze
became a bestseller and anti-odor sprays became a
major product.
Odorono
and
P&G faced a similar problem — their products solved a problem that
people either did not have or did not recognize. In response, they took
opposite paths to success. The marketers of
Febreze
changed the connotation of their product from negative to positive. The image
of
Febreze
went from stinky couches to gleaming
kitchens, from dealing with bad smells to spraying a nice scent after a morning
of cleaning the house. The marketers of deodorant told the world that everyone
was
gossipping
about how bad their armpits smelled.
One campaign went positive and the other negative, and they both
worked. But it may be telling that while the
Febreze
campaign relied on the brute force of a Fortune 500 company’s resources, the
Odorono
campaign turned the project of a Cincinnati high
school student into a
multimillion dollar
company.