This morning we learned the administrator has revived the accrediting group for-profit colleges, despite of their low track record.  Will it matter?  May be.  The public may need to read an exclusive report on this issue written by Senator Elizabeth Warren’s office.  Please click here.  This is just a classic example that shows how disarray the US education and public policy is.  How dysfunctional the relationships among the US Executive, Legislative and Judicial branches are.  When policies applied to benefit certain interest groups alone, it logically cannot be called a public policy.  Rather, an interest group policy, for it does not represent the American public. That is how the logic works.

By now the American public has more knowledge about the effects of going to college and the potential of creating debts that some and because of a lower ROI (Return on Investment), may not be able to take them off their shoulder, ever.  That being said, the impact may be minimal.  However, there are certain population groups who may take the baits.  If you care about your friends or family members and happened to visit the AAEA’s site or read articles in the BLOG, please share or forward the articles to them.  You may save them from taking loans which they may not be able to pay them back for the rest of their life.  Please click here for real life experience from others (One needs to scroll down to the bottom of the article).

The current administrator’s policy again confirmed what the Association has hypothesized and found in its recent research.  Systematic errors do occur and with this additional policy, perhaps, more of these kind of errors are (intentionally) infused in the system because of special interest groups, which may not necessarily represent the majority of the American public’s interest.  Consequently, the student loan debts and its growth will accelerate as well in the near future.

The Association starts with a pretty simple objective which is to revitalize the US Higher Ed.  Its first published article was written on March 13, 2013.  Today, on November 24, 2018 at around 10am, the 1 millionth magic number is reached.  There got to be clear reasons why the public keep coming back and spent time to read the articles written in the Blog.  It is not just a simple article, but it contained new ideas, logical thoughts surrounded education analytics, higher ed, and student loans.  AAEA is independent, honest, unbiased, and always used data in its analyses.  The Association does not side with anyone, except the truth alone.  DOE starts publishing the financially troubled colleges, universities and other types of education entities only after the Association has done it first.

While some college students take a couple of days off to visit their family, perhaps, this year, the forbidden topic to talk about while having the traditional Thanksgiving dinner may also include student loans, in addition to religious and politics. It is too scary and too painful for some to even think about it. No one in her or his right mind would like to ruin the once-a-year family gathering by bringing the student loans topic on the dinner table.  It is such a precious moment to be tainted.  But not discussing about it, does not mean it will bring the issue away.

However, in the real life that what million of American families have to deal with many years to come in their life.  If the US lawmakers do not have the will to deal with the biggest issue in the 21th century in the history of the country, it may impact the future of young generation’s well being.  While there are many other current problems facing by the US, such as immigration, oil price, the declining of the DOW, trade wars and others, it seems the student loans issues are not in the regulator’s priority list, at least for now.  Consequently, it may catch everyone eyes by surprise–one day in the (near) future.  However, citizens of the country need to be thankful for the support of Uncle Sam to educate them, just need a little tweak to make it more efficient.

The general public perceives it as the same.  If this is the case, may be the only option left is solving it through the deregulation.  Meaning the lawmakers need to do something meaningful.  The logic leads one to believe that they, the lawmakers are the one who can solve the issue, one-and-for-all.  So long they stand still, the problem will get worse.  So, Uncle Sam has to decide when to move.  The directions have been analyzed and shared pretty clear.  It is up to the Legislative and Judicative branch to take actions.  It is not, by any means can be solved by Executive.  Executive cannot solve the issue.  Especially when it does not have the interest to do so or it has sided toward the producers of the systematic errors. Until this happens, the American public will continue suffering.  Perhaps, other countries in the world are surprise to find out that the Uncle Sam is so powerless to solve its own problem associated with the skyrocketed student loans.  Perhaps, many economists astounded to learn that a country who has the most Nobel Laureates in Economics cannot solve this simple issue, especially when the examples can be found easily in many Asian countries, such as in Singapore, Japan, India, South Korea or China.

Unlike random errors, systematic errors are errors that fed into the system purposely.  Today, we learned from an article that confirms such errors do occur.  Based on researching and studying the US student loans historical data, the Association has written and hypothesized about it many times.  Now that, according to the published article, such issues have been proved to happen by the DOE, but was hiding from the public, until today (November 20th).  It is pretty obvious who will suffer from this classical example of moral hazard.  Even though, this malpractice obviously scattered all over the places, the administrator seems to go the other ways.

From the statistical, econometric or classical theory of measurements, increasing the sample size will solve issues related to random errors, but surely not for curing, minimizing or eliminating the systematic errors.  This kind of vital errors can only be fixed if the sources that produce them are completely removed. Otherwise, the results may not pass the reliability test.  Needless to say that the loan servicing companies are not the only source that may have infused the errors into the student loans system either by design, unintentionally or unknowingly as a compromise to a more important management goals such as making profit.  This is the caveat, if letting publicly own company, i.e., Wall Street to get involved on basic public interest area. The game of the student loans is more than a one-party game.  If the regulator is part of the issue, then things may not look so ………smart.  The American public is the only party and the judge who can test this maintained hypothesis.  Good luck!

The Association pulled some daily stock price from one of the public companies who has business on the student loans. Over the period of fifteen years, this company has done pretty well as measured by the stock price which is almost double during the period of analyses as shown below. Among many factors, one of the drivers of this company performance is its ability to make money or profit and then distributed part of it to its stakeholder and shareholders. Sharing of such a profit can be seen as wealth transfers from the students and their families to the Wall Street investors.  The company’s profit has a positive correlation with the increase in student loans i.e., as more students take the loans, the more profit and the more wealth is transferred.

There are several parties who have to deal with the burdens.  However, the entity that bare them the most in the macro level is the Country and all its citizen.  In addition to the country here are the additional lists of sustainers:

• Individual borrowers and their co-signers.
• US Higher Ed institutions.
• The hiring companies or employers.

The acts of moral hazard may not be easily or directly be observed, but their results are pretty obvious.  Many US families are waiting when the policy makers will do something meaningful for their own citizens.  Ignoring that such systematic errors exist, will not solve the existing problem, rather it may make it worse.  But, toward the end, the Uncle Sam may bill everyone out.  Hopefully, but do you know why?

The question is not whether to be a proactive or reactive, but what is best for an institution.  From a college level Management 101 course, students are fed with the most fundamental POAC or POLC, the four management functions basic concept, which later add by others such as Fayol to POCCC.  Some others add other functionalities and turn the 4-basic concept into POSDMCCC.  The point that the Association is trying to bring to the readers is on the first two letters which is P and O.  These two letters have appeared regardless of who define the management functions.

From the basic concept to the most fancy one, the P is always put on the top or the first letter.  Activities in any organization, regardless of it size, goals or business structures will start with P for PLANNING.  Without it, an organization soon will collapse.  This is exactly the situation that one will find many are happening in the US higher ed institutions.  Perhaps, only handful organizations are operating based on the P, and the results are real.  One can search on the internet by simply typing the words of “student loans”, and there will be many articles on the topic.

Despite all the crystal clear facts, there are always others who think differently.  When the decision makers have to be realistic with the budget situation, they are facing a strong resistance, which then causes a dilemma.  This kind of situation should not happen at the first place, if an organization operates based on short or long range planning.  But what unique about US higher ed, is that the top person hops from one institution to the next or retire if she or he learns problems.  Therefore, they do not need to make a plan in managing the institutions, except exit plan for themselves.  This is another example of systematic errors that cause by moral hazard which the Association has discussed many times in the past.  Therefore, none of any analytics can be used effectively, if an organization is run without the P magic word or where the systematic errors exist.

2018 Nobel prize go to Yale and NYU, where one of the recipients, Laureate William Nordhaus’ research on the impacts of climate change on economic growth is based on simulations.  The world has spoken that simulation is a useful tool to predict uncertain future events, such as the impacts of student loans on economic growth.  The answer to this question is pretty straight forward–negatively affect not just the economic growth, but also income inequality.  The politicians love to use the DOW to measure how well the US current economy has grown in recent years.  This positive growth is welcomed mostly by the investors in the Wall Street.  Or few companies such as Apple or Amazon, and their shareholders are enjoying it too.  What about the working class?  Have their wages or take-home pay going up, parallel to the DOW increases?.  What about those who still have to pay their student loans?  Given the real problem facing the nation and the world, this is a life time opportunity for anyone to study this issue, and chances may not be that bad (stated with disclaimer) for those researchers to potentially be the future of Nobel prize winner.  The American public is eager to see which economist(s) represents, either the Freshwater of the Saltwater will win this important race.

It may not be a coincident why AAEA has just published an article on September 21, 2018 which urged the analytics community to think ahead of the curve, ie., a way from IRI V.1 to IRI V.2. Most people are amazed how predictive analytics can solve their business problems, especially in the education industry. That is obsolete–that was the things of five years ago.  Many months ago, the Association of American Education Analytics and Data Scientists has proposed to move away from IRI V.1, which is statistical based approach toward stochastic simulation, that combined the estimates from statistics, feed into mathematical programming to find optimal solutions.

Decision makers cannot just make strategies based only on one option, but need to see results of different scenarios, before the final decisions are made.  Statistical based business analytics just gives what the optimal solution, given the past events that have occurred.  In other words, a data scientist makes inference based on past or historical data.  The question is what next?  A college decision maker can make strategic decision based on the results, assuming the “world” that produced the data did not change.  In reality the world changes every nanosecond. The environments where the organizations are operating, changing constantly.  For example, the CEOs of any companies who are exporting their products to the world market, need to anticipate what is the impact of stronger US dollars and what is going to happen when the administrators ignite the trade war?  Past data cannot answer this question in totality, because there is no data that have simultaneously capture these two events.  The impacts can be accessed with n possibilities using simulation–IRI V.2.

The quotes below are taken from the Adam Smith Institute on The Theory of Moral Sentiments, authored by Adam Smith–the Father of Capitalism.

Main themes of the book:

“The Theory Of Moral Sentiments was a real scientific breakthrough. It shows that our moral ideas and actions are a product of our very nature as social creatures. It argues that this social psychology is a better guide to moral action than is reason. It identifies the basic rules of prudence and justice that are needed for society to survive, and explains the additional, beneficent, actions that enable it to flourish.

Self-interest and sympathy. As individuals, we have a natural tendency to look after ourselves. That is merely prudence. And yet as social creatures, explains Smith, we are also endowed with a natural sympathy – today we would say empathy – towards others. When we see others distressed or happy, we feel for them – albeit less strongly. Likewise, others seek our empathy and feel for us. When their feelings are particularly strong, empathy prompts them to restrain their emotions so as to bring them into line with our, less intense reactions. Gradually, as we grow from childhood to adulthood, we each learn what is and is not acceptable to other people. Morality stems from our social nature”

Yesterday, the Association has posted a discussion on student loans, and why moral should be in the equation when decision makers apply a policy which will impact the general public.  Adam Smith which is considered as the Father of Capitalism, as quoted above, in the first paragraph, argued that without considering moral, the society will not survive (Read here how much pain the loans has inflicted the borrowers).  Unfortunately, when more economic schools, both Freshwater or Saltwater are leaning toward “rational expectation” type of approach, then the society may suffer.  The reason has been provided by Adam Smith on the third sentence in the first paragraph.  We are hopeful that all the players of which their decisions may impact student loans have a chance to read this post.

Student borrowers need to be morally responsible in their actions as well.  Taking the loans with a clear purpose, and not for supporting luxury life style or any thing that is less important and unrelated with their degree program.  Rather, to get through college and to graduate on time.  It is often heard the other side of the story, where student borrowers spent their loans for spring break vacations. This is not what the loans meant to be.  Of course, this group of students are the outliers.