Crypto for College

00:05 Paul Matzko: Welcome to Building Tomorrow, a show about how tech and innovation are changing our world for the better, if we let it. Today, we’re going to discuss attempts to disrupt higher education. Now, here’s the too long, didn’t listen version. When you were in college, were you bored in massive lecture classes? Do you hate the mountain of student loan debt you’re still paying off? There may be fixes for that. I mean, not fixes for you, dear listener, you’re screwed. But fixes for the next generation of college students. With us today in the studio is Aaron Powell, the Editor of lib​er​tar​i​an​ism​.org and special guest, Neal McCluskey, the Director of Cato’s Center for Educational Freedom. Welcome to the show, Neal.

00:45 Neal McCluskey: Thanks for having me.

00:45 Paul Matzko: Now, to start, I thought we would talk about MOOCs. So Neal, can you tell our audience just in case they don’t know, what is a MOOC?

00:55 Neal McCluskey: Well, that is a Massive Open Online Course. Probably you heard about MOOCs, or at least you encountered the term MOOC five or six years ago when these were gonna be the next big thing. So the idea was that some place like MIT, or Harvard, or Princeton, or any college really would put courses online, and anybody who wanted to could take those courses. And it sounded great, sounded revolutionary. But you don’t hear about MOOCs as much anymore. They’re still out there, Coursera, edX, operations like this, but they were really the hot thing about five years ago and they’ve cooled off a little since then.

01:39 Paul Matzko: Yeah, they were supposed to utterly transform higher-​ed. Everything was gonna be MOOCs or most students would be in MOOCs by now, but yeah, that hasn’t panned out. Why is that?

01:48 Neal McCluskey: Well, there’s probably a lot of reasons. For one thing, everything it seems to me when it first comes out, it gets a little overhyped, especially if it’s technological, and technology is great, it improves lots of things, but there’s always sort of, it strikes me some overenthusiasm for the newest thing. And so it’s not really surprising just regardless of the effect of MOOCs educationally, that people have backed off a little bit from them, or at least they’re not as celebrated as they were. And there are a lot of problems. One is that there’s still an open question whether or not the effectiveness of getting your instruction online is the same as if you’re in a course. Certainly, people sit in lecture classes and they’re bored. I think lots of people that will sit in front of the computer to watch a lecture still get bored and do other things.

02:41 Paul Matzko: Netflix and chill while you’re watching the lecture. Yeah. [chuckle]

02:45 Neal McCluskey: Yeah, yeah, among other things, the Internet’s full of stuff you can do to distract yourself. Even while you’re involved in your Massive Open Online Course. Maybe as bigger problem though, is that a lot of these courses you couldn’t get credit for or they weren’t in a degree granting program, and ultimately a big part of higher education is just about getting some sort of certification that you’ve not necessarily even learned something or can do something, but you’ve put in seat time to eventually get something called a degree. And so I think that was also part of it is, sure you could access these great lectures from really impressive professors, but what was really the substantial thing you got out of it that enabled you to in some concrete way, improve your life other than you’ve maybe gained some new knowledge or watched a great lecture.

03:39 Aaron Powell: Does that mean then that there’s two ways we can think about the question of, have MOOCs worked or do MOOCs work? In the sense that we can say, “Do they work from the perspective of are people who participating in them learning?” So, they work as an educational tool, and then as an educational tool that allows people who would not have had access to attending college to learn the kinds of things one would learn in college? But that that’s distinct from, “Do they work as a alternative to, or ultimately replacement of college?” Because the former, you can sit there and you can listen to the lectures, and you can learn, and there’s the distinguishing fact, the difference between sitting in front of a MOOC and sitting in front of a professor in a large lecture hall is, I guess, the lecture hall is higher resolution. And especially now that students seem to… I was shocked at the difference between when I was an undergrad, and then when I was in law school. Between those two is when people started bringing laptops to class. And so people goofed, people looked bored in lectures when I was an undergrad, but in law school people just surfed the web during lectures.

05:01 Aaron Powell: So they look even more like MOOCs because you’ve got the same distractions, are sitting right in front of you. But that’s different from then, it seems like the question of certification, if that’s the ultimate goal. And so they work as that, isn’t really a problem with MOOCs so much as it’s a problem with legal structures or institutional structures or so on. So do we know on the former, on MOOCs as a way to become educated, whether they work or don’t work compared to a university curriculum?

05:38 Neal McCluskey: Yeah, and that’s absolutely right, is when we talk about education, we’re often talking about two things that we think should be connected but are really separate, which is, “What are you learning versus what piece of paper do you get when you’re done?” And getting a degree often doesn’t really have much connection to, “Am I learning a lot that’s useful?” So, the question then is, let’s set aside the degree part and say, “Well, do we have evidence that people are learning more, less, equal amount if they’re in an online course versus in person?” And if we’re talking about online courses, it’s not necessarily MOOCs, I mean we should talk about just online delivery in general. I would say the first thing is, I don’t think we have a whole lot of really great in-​depth research that does the sort of thing you’d wanna do to decide, does the online course supply better education than in-​person? You’d wanna randomly assign people to an online course or an in-​person course. We don’t have a whole lot of that.

06:47 Neal McCluskey: Generally, what we see from the research that exists is, maybe the people who take a course online get the same outcomes. There’s some research that shows that, there’s some research that says, “Well, really, they don’t do quite as well.” But it’s really hard to make an apples-​to-​apples comparison of who’s the person who’s selecting into an online course versus who’s the person going to a traditional in-​person course. But the studies I’ve seen that come closest to an apples-​to-​apples comparison suggests there’s really not a big difference in the outcomes. I also think though that it would make a big difference of what kind of course it is. So you can’t do physics laboratory work at home. You can learn about The Canterbury Tales, probably as well if you’re at home as if you’re at school. So there’s a whole lot that makes this a not so simple question to answer.

07:48 Aaron Powell: I wonder too, if the, so the second part, the works as a accreditation thing, would factor into the first of works as an educational tool in the sense that the accreditation ultimately also works as an incentive. So, one of the reasons that you pay attention in class is ’cause you know there’s gonna be a test, and if you do poorly on the test, it’s gonna bring down your GPA, which is then going to go into your permanent record. And the MOOCs don’t have that. And so, even if the material is just as good, if not better, or more engaging, you’d still be like, “Oh, well, I’m gonna hop over and watch a YouTube video or I’m gonna surf Pinterest,” or whatever. That can hook you a little bit more because you don’t have the, “Oh, my god, I’m not gonna get a job or my parents are gonna get mad when they see my report card.”

08:37 Neal McCluskey: Yeah. This goes again to a much bigger higher education and K-12 education question, which is, “Does a degree or a certification actually represent that you’ve learned anything of value?” So even if you go to traditional, set aside online education, you go to a traditional class, you work really hard to get that A or A+ in the course, and then what we find is people immediately brain dump a lot of that. So, it appears that when employers, in many cases, ask for something called a degree, it in no way actually signifies, “Well, we know this person has learned skill X, Y and Z that we require to do this job.” It’s usually just a sort of basic screening or signaling device to say, “Well, we know this person kind of follows the rules ’cause they went to school. We know they at least have the stick-​to-​itiveness that they completed a program, and maybe depending on what school they go to, we can tell a little bit more about, are they pretty smart, are they not that smart? At this point you can’t really trust GPAs because different schools have different measures of your GPA.

09:49 Paul Matzko: And grade inflation.

09:51 Neal McCluskey: Grade inflate. Testing, we have lots of standardized tests, but a lot of how you do on a standardized test, you can game ’cause you take the strategy courses for SAT or ACT, or the school on the state test has said, “Well, we’re gonna teach you testing strategies.” So, there is a huge problem just generally of, you get a degree in something, there’s not a whole lot of evidence that that often means you now have concrete skills and knowledge that the employer wants. So it varies a lot by what you study. Engineers typically have learned stuff that’s very useful to employers. Many other people, doesn’t seem to be much connection.

10:31 Paul Matzko: So I’ll throw out my own experience teaching for online education at Penn State. It combines those two problems. One, which is, a course design which discourages really knowledge acquisition as an inferior product compared to in-​classroom instruction, but then also the signaling issues. So a lot of what you’ve been saying, Neal, reminds me of Bryan Caplan’s book, The Case Against Education: Why the Education System is a Waste of Time and Money. This education is social signaling, or even class signaling as opposed to skills acquisition per se. But it combined those two. So, at Penn State you could take online courses that were essentially dopplegangers for in-​person classes, but they were cookie cutter based on old taped courses from decades before. So as an individual instructor, you didn’t get to really design the course, you didn’t design lectures, you just delivered material that was prepared for you. So that doesn’t exactly make for a dynamic classroom experience, just delivering someone else’s words, someone else’s assignments, etcetera.

11:47 Paul Matzko: This meant a super high drop out rate. Students would just come and go, a very low engagement rate. The percentage of students who turned in material, who did their assignments was lower than the in-​classroom experience. It was just less engaging, less interesting, students got less out of it than if they had been in a real world class. And also, it was something you did through an alternate campus, they called it World Campus. You could get a degree through it. It was a degree granting program, so you could get a history… I forget what they called it, some kind of humanities degree through online education only basically, but it came with a World Campus of Penn State stamp. And everyone knows that the World Campus stamp doesn’t mean as much as the University Park stamp, let alone one of the branch campuses, Harrisburg or whatever. So it didn’t signal the same thing.

12:45 Paul Matzko: So, it neither fulfilled the function of education, which is to learn stuff, or the function of education which is to signal the kind of student you are, as well as an in-​person classroom. Now, I don’t see that as inherent to the model though, they set it up that way, arguably in part because most institutions of higher education have a successful model already. It is built around the residential experience, they don’t wanna disrupt what they’re currently doing. So these kind of courses are add-​ons, if I wanna be ungenerous, a cash grab. But they don’t want it to compete or truly replace the actual model that’s been very successful for them for a very long time. I saw that same kind of thing in person at Penn State. So, we’re talking about some of the problems with online-​ed in general, MOOCs specifically. Where do you see some areas of success, Neal?

13:42 Neal McCluskey: Well, I don’t know that I see a whole lot of ultimate success so far, largely for the reasons that you talk about is because I think that especially in higher education we see this problem of a stigma being attached anything that isn’t old. So the top universities, you can tend to draw a line between their age and how prestigious they are. There are a few that are a little younger to get in there. But age has a lot to do with it. Traditional models has a lot to do with it. And the real, it strikes me, value of online education is that it would be an inexpensive way to get education to non-​traditional students who don’t have a lot of time, who can’t go to a four-​year on-​campus experience, which often has a lot to do with partying and many things that have nothing to do with education, who wants the strip down, just give me the education, the knowledge, and the skills that I need. The problem is, that carries a huge stigma because the schools that do that best are for-​profit colleges.

14:57 Neal McCluskey: And they do it because they have the greatest incentive to try and reach as many people as they can. Now, yes, they want money but that desire to make sure they turn a profit has made them by far the most nimble sector of higher education to go out and produce programs that meet the needs of the people who use them. And by the needs, I mean, in particular, they go to where those people are. So it used to be they’d have “campuses” which were in strip malls, the nearest strip mall to wherever you live, they’d set up their courses at night so that people who work could go to them. And they are the schools that most quickly adopted online learning because the people they were working with, they had families, they had jobs, they didn’t have time to go to the local… It could be a community college, it could be a four-​year college, and spend a whole lot of time commuting, parking, sitting through lectures that they didn’t have any control over how fast they got through them.

16:00 Neal McCluskey: But the flip side is, those for-​profit schools have a terrible reputation. If you get a degree or credential from a for-​profit school, people often see that name and say, “Well, that’s a lesser school than the local… Even the community college, but especially some four-​year college people have heard of.” And so the power of online education, the value would be in particular, reaching people who don’t have time for that traditional model. But because it’s attached to for-​profits, and because those non-​traditional students, because they have so many obstacles, are gonna get probably the, in general, the worst academic outcomes. The whole idea of online education has been tarred.

16:45 Neal McCluskey: And it doesn’t help also that in the K-12 level, there’s been a move to online education. But in many cases there’s been very little accountability for how you make sure kids are actually attending those schools, and very little fairness, I think, in saying, “Yes, they get worst test scores and they have lower graduation rates.” But as we do in higher-​ed, people never looked to see, “Well, who are the students they’re working with and what are the obstacles they’re facing in their lives?” So, this bias towards what’s old and what’s always existed and what we accept as being the norm makes it very hard for online education to break in and be accepted.

17:29 Aaron Powell: It’s frustrating because, from our perspective and from the kind of perspective we take on the Building Tomorrow Podcast of, if we free things up and we allow innovators and technologists to do their thing, how can the world improve? If we step back, the goal of education is to produce learning, is we want people to know stuff, to develop skills, to be enriched in the way that education can deeply enrich your life. And in all those ways, the technology and the Internet have been a phenomenal boon to learning. I mean, the amount that if I wanna know about some… If some topic interests me, I routinely just search it on YouTube and find dazzlingly smart people who are putting together incredible content that can teach me a ton, and on everything from basic skills, like you wanna learn how to… The techniques of doing X to the humanities, to science education. It tends to be focused on coding because that’s the interest of a lot of the people who are building the technology, but these tools that gamify learning and give you interactive stuff that you can do online or in language learning, Duolingo and tools like that to just Wikipedia, which we don’t really think of as online education, but is maybe the best resource for online education that’s ever existed.

19:14 Aaron Powell: All of these things are incredible, but they’re detached from the model of education, as we think about it. Which is tied to credentialing and is tied to this education, as you listen to someone talk to you which has been the same model that we’ve had as long as we’ve had education. And so, I fear we end up getting pessimistic in the way that you’ve been expressing pessimism, or at least like this hasn’t worked out as well as we thought because we’re basically this perspective of education as a model has blinded us to all of the learning that actually happens and is now possible, and is only gonna get better.

19:57 Neal McCluskey: Yeah, the pessimism isn’t really about the technology though, the pessimism is about our education system. And I think there is a solution to this. And it’s the solution I always offer for education and so I sound like a broken record, but it’s because it’s true. Or should I, maybe I should say, a broken iPod or something ’cause it’s technology. Of course, that’s old too. I’m kind of a luddite. In any event…

20:22 Aaron Powell: Do they even make iPods anymore?

20:24 Paul Matzko: No, I don’t think so.

20:26 Neal McCluskey: What? No, I was gonna go get one, finally. In any event, the problem with the education system is, at least what would do a lot to change it, it’s not… I don’t think what I’m about to say is gonna cause everybody to think the four-​year residential college experience isn’t the ideal but the fact on the matter is, we massively subsidize people to go to four-​year colleges and to do a whole lot of things that have nothing to do with learning stuff, unless it’s how to have a good time and they’re socializing, and that had some benefits, a social network is good. But that’s not really what education is for. But if you think about it, we have, it’s about $80 billion a year that go directly to public colleges and universities, most of them four-​year colleges, just a fair amount is two-​year colleges, but a lot of it is four-​year colleges. And it’s almost always even framed as what we need to get more people to get degrees. Not that we need them to learn a whole lot more, we just need more people with degrees.

21:30 Neal McCluskey: And then we give a whole lot of subsidies, even more than that $80 billion to people to go to college directly through federal student loans and grant programs. And so essentially what we’re doing is we’re telling everyone, “Don’t follow the incentive to just get the skills and abilities or knowledge that you need or want. Get a whole package that has nothing to do with that.” The parties… I always have to mention that there’s been an explosion of on-​campus water parks and people always say, “Well, but that’s not what drives the cost,” and I agree, but sure is a symptom of how much of other people’s money people are using to go to college for things that have nothing to do with education. And you can see many studies have shown big decreases in the time people spend actually studying in college, big decreases in the literacy level of people with degrees, all of this shows that we’ve had massive government incentives propping up a system that has become less and less about actual learning. If we’ll phased out those sort of subsidies, people would be much more focused on, “You know, the reason I go to school is to learn stuff that people want.”

22:43 Neal McCluskey: Now, the one downside to that for people who value learning for learning’s sake is, I actually do think there’s something to be said for the small seminar where you get together and you just talk about things you’ve read and stuff like that. Which people might say, that’s not all that efficient and they’re right. I’d like to keep that ’cause it’s fun. But that means people should voluntarily, as we see them do, donate to a college university, their own money to say, “Let’s have that sort of thing.” But if we got rid of the government subsides, I think you’d see much more focus on getting skills and knowledge that people need efficiently and that’s when the technology would finally be allowed to really take off and do its thing.

23:26 Paul Matzko: Mm-​hmm. No. I like the idea of, so we as a society and as a subsidizing government treat the degree itself as essentially totemic in value. You have the degree and now you’re ready to be part of the middle class. It doesn’t matter what you have as long as you have the degree and that kind of fetishization of degrees can cut against the idea of education as acquiring skills or self-​improvement or even just knowledge, period.

23:53 Paul Matzko: Now, there are a few cool examples I want to talk about here of start-​ups that are attempting to… They’re not waiting for that change to happen. And notably, a lot of this innovation is not happening primarily in the United States, it’s happening abroad. They don’t have that kind of corrupting incentive, subsidy incentive model that we’re describing. One of the start-​ups I have down here is called BitDegree, it’s a Baltic start-​up, I think Lithuania or Latvia, launched last year, have a hundred thousand plus students and growing. What they do, in a sense, it’s like a MOOC, it’s not unlike Coursera, they have classes that are free that students can sign up and take. So, you would imagine they have some of the natural built-​in problems of a MOOC: Low student engagement, high student dropout rate, lack of credentialing. But they solved that, or they at least attempt to solve that in some interesting ways. One of the things they do with the issue of student engagement is they’ve built in a crypto-​currency earning function.

25:04 Paul Matzko: So if you’re a student and you participate in the class, you answer questions, you turn in assignments, you help other students, you’re engaged, you literally earn money in the course. So you can take a free course and earn money as you do it. So that helped solve some of the dropout rate issues, helps potentially solve the engagement issues. On the credentialing side, these courses are mostly sponsored by start-​ups. So let’s say you are a Silicon Valley start-​up or you’re probably not in Silicon Valley, you’re probably in the hot tech scene in Riga, or Helsinki, or wherever. You are looking for coders who can help you produce your product and you say, “Hey, we’ll fund. We’re looking for a hundred coders in the next year, we will fund the course that will attract thousands of students. We’ll fund the creation of that course, we’ll actually put money in so there are crypto-​currency rewards for student engagement, then the top students from that class we’ll offer to hire.”

26:09 Paul Matzko: It might not be credentialing in the sense of like, well, that’s a old storied degree from an Ivy League but it’s credentialing in the sense that you take these courses, it could turn into a job for you quite literally indirectly. It’s a pipeline for the student-​free course, skill acquisition, the potential of a job at the end that’s very tangible. So, I mean I think that’s really innovative, that’s a way of trying to solve those two related concerns. Some of the education side problems of MOOCs online education as well as some of the credentialing, “What does this mean for me on the marketplace once I’m done with my degree?” How does it sound to you, Neal?

26:50 Neal McCluskey: It sounds nice. A few things I’d say about it. I’m not an expert in every country’s education system. I would say though that it may be partially part of a way that higher education is delivered or education generally is delivered in other countries, which is that, there tends to be some pretty strict screening about who can go to a university in most countries because most countries the university is free for the people who use it, but you often have to pass an exam at a certain age, it could be eighth grade, it could be a little older, but you get put on a track of, you’re going to university or you’re going to trade school or something like that. So, part of this sounds like this is a way for people who didn’t get into a university to get skills that enable them to get a better job.

27:38 Neal McCluskey: And we’ve seen something like that here with the big boot camp movement, which again, really blew up. It’s probably come down to Earth a little bit, but the idea of you spend six really intensive months becoming a programmer. And I think that it’s particularly valuable that the employers are a part of this saying, “These are the skills we want people to get.” From what I’ve seen, I haven’t studied it systematically but we actually already have employers do kind of the same thing now. You come out with a degree, then you get hired by someone and then they spend several months teaching you how to do your actual job, which is another sort of bit of evidence that the bachelor’s degree and increasingly a master’s degree has just been a signal about your basic attributes.

28:26 Neal McCluskey: Even accountants, you would think… I’m an accounting major. There’s only so many ways you can account for stuff. That once I get out with a degree, an accounting firm would hire me and I go right to work. But it turns out accounting firms, they’ll train you after they hire you to say, “But this is how you’re gonna do your accounting.” So, our system has been, we subsidize all sorts of people to go and then the employers then pay for you to get trained the way they want you to do it anyway. It seems to me again the answer then is, we need to get rid of the subsidy. And the problem with bachelor’s degrees is we haven’t exactly totemized it because it actually is really important to get a degree, even though it doesn’t mean very much because at this point, if you don’t have a degree, you’re often looked at as there must be something wrong with you because it’s so relatively easy to get…

29:14 Paul Matzko: Baseline.

29:15 Neal McCluskey: Right. To get a degree. And as long as we keep pumping money into higher education saying, “Well, our goal is to get more degrees, regardless of what people learn.” We’re still gonna have that problem. Get rid of those subsidies. We don’t wanna go to a European model, where essentially we cut people off and say we’re gonna triage access to higher-​ed. If you don’t get a certain test score, you’re not going. We don’t wanna go to that, but we do wanna get more to a model where we say, “Look, a degree isn’t the goal. The goal is the education.” And we need to move away from a system that focuses only on the degree. And the best way to do that is not to subsidize higher education as opposed to where we’re just gonna cut certain people off and say, “You’re not allowed to access the university.”

30:05 Aaron Powell: Is there value to the non-​education stuff that you get at college? So outside of the signaling value of the piece of paper, which presumably would be the same if you could somehow forge that. You might get caught, there’s all the risks, but if it’s just the piece of paper, then you could have just the piece of paper with nothing that was required by it and it’d be the same. But that when we send people to college, yes, you party a lot but also there’s networking. There may be a maturation process because you’re taking baby steps out into the world where you’re now not under your parents’ roof, but you’re also not just out in a sink or swim environment. And we might say some schools are better at this sort of thing than others, and whatnot, but do we risk in the kind of rush to say, “Well, we should ideally cut off the signaling value of the credentialing if that’s all it is and replace it with… That the goal should be skill learning or strict knowledge acquisition.” Do we risk cutting off some of that other stuff that we think is beneficial to people from simply the whole of the college experience?

31:26 Neal McCluskey: Yeah, I think there’s a risk that there’s always gonna be unintended consequences of anything we do. The general, I think, belief that’s accurate is, if we value something though, the way we express it is we are willing to pay for it ourselves. And I do think that there’s clearly networking that goes on in higher education. The question is, could it have gone on outside of higher education? Sociologists love to talk about, “Are we just replicating and reinforcing class-​based networks that we already have?” So that the people who go to Harvard, are they really just sort of solidifying their network as, “We are part of elites who go to all the best prep schools and then go to Harvard?”

32:12 Paul Matzko: Georgetown Prep? [chuckle]

32:15 Neal McCluskey: Well, yes…

32:16 Paul Matzko: It’s in the news.

32:17 Neal McCluskey: We’re just trying to keep away from that. But yeah, you can see it in New York City and other big cities, where it starts in pre-​school where people bid tens of thousands dollars, basically it’s, “If I don’t get my child in this pre-​school they don’t go to Harvard and they’re not in the right social network.” So there’s certainly social networking goes on. The biggest problem though is how do we ever assign, especially centrally… Well, what’s the right amount that we should be paying to make sure people access those networks, especially if they were networks that people probably would have accessed other ways. And then there’s also the clear access that I don’t think… I think you’d be hard-​pressed to find many people who would say, “Yes, I wanna subsidize this of all the excess of the partying, of the water parks, of the college sports, of the time that’s just not spent studying.” And I would even suggest, I haven’t thought about this a whole lot so I’m not gonna argue it one way or the other. I’m not sure that your four years in a residential college is a good way to transition to adulthood, at least based on the behaviors we often see in college. And today, I’ll work a little technology into this, just ’cause it’s an interesting story and you have a Penn State connection.

33:32 Neal McCluskey: I just saw it today before the most recent, I think it was the Penn State-​Ohio State football game, there was a big party, of course, as there often is, and apparently it got so rowdy that the State Police were patrolling it in their helicopters and couldn’t get the rowdiness to stop. I don’t know what the danger was. This could be police excess, but it’s just reported today so it’s timely. It was so bad that they decided they had to fly their helicopter so close to the crowd that it knocked over all their tents, and their grills and all their other stuff because apparently, it had gotten so bad. Now, is this police misconduct? It could be. But it also may be sort of another symbol of, college isn’t necessarily where we train people to behave in the ways that we would hope they would when they become adults.

34:23 Aaron Powell: Another worry one might have about the ending subsidies, so you’re saying, “Look, if we value it, if we genuinely value it, we wanna pay for it ourselves.” Is one of the things the subsidies do, is they get people to attend college who would not attend college if they had to bear that burden themselves even if they… So, there’s certainly people who simply couldn’t afford to pay the full cost of tuition themselves, and so couldn’t go without the subsidies then that bracket the question of whether how much college costs would drop in the absence of the subsidies. But there’s also people who would simply, who could afford that burden, but would choose not to because they’d rather spend that money in other things. And education, it seems like… Or the kind of education one might get on a college campus, it feels like it might fit into the category of things, where you’re glad you paid for it, in retrospect.

35:24 Aaron Powell: If we put it on students to say, “Hey, do you wanna pay thousands of dollars to go get an education? Or do you want to as a 18, 19-​year-​old, or do you wanna go and get a job and move out of the house and do all that?” At the time, they’ll say, “No, it’s not worth it to me.” But in 20, 30, 40 years, if you say, “Are you glad that you paid for it?” They’ll say, “Yeah, I’m glad that… ” Or, “Are you glad that you went and would you in retrospect have paid for it?” They’d say “Yes,” or if they didn’t go, they’d say, “Yeah, I wish I had chosen differently.” And so does education fall into that category of things? And if it does, is there a way to solve that so we don’t get people making decisions to avoid education that they’re later going to regret?

36:09 Neal McCluskey: Yeah, I don’t like to bracket the really important understanding that if we don’t subsidize, the price will probably go down. But set that aside anyway, I think that the problem is, right now we are putting all the incentives of, “We really think people ought to partake of the residential four-​year model,” and who that helps are people who would already pay for on their own and prepare for the residential four-​year model. And who are hurting is actually the people we wanna help, which are people who don’t come from that sort of well-​to-​do background, who’ve had lots of struggles in their life, who probably had to get a job right away, and we want them to be able to be [36:55] ____ upwardly mobile by getting the skills and knowledge that they need to do a job that’s more advanced than what they qualify for now.

37:03 Neal McCluskey: And those are the people we’re hurting because the sector of higher education that is most going to provide what they need has this massive stigma put on it because it’s not that traditional four-​year college. And many of the people who are using for-​profit schools, they wouldn’t have gone to a four-​year college, they’re not looking for that sort of overall enjoyable experience. And they’re really behind the eight ball, and they’re at the point where… And for many people, it’s just totally unrealistic to say, “Well, we should do that four-​year model,” because they need money and they may have a family and they have a job and they can’t afford even if they could get the whole thing paid for, the opportunity cost of spending four years in a residential model where so much has nothing to do with actually getting skills and abilities. That said, I don’t see a good reason that somebody with an academic background that shows that they are prepared to do sort of four-​year college work, and maybe benefit from this whole model wouldn’t be able to get a loan from a private lender. Because that person who’s demonstrated that they can do college work especially in a field of demand stands to make a whole lot more money if they go to college, over their lifetime, which means they’re a good investment for a private lender.

38:34 Neal McCluskey: Right now one of the biggest problems with student lending is the federal government gives anybody almost any amount of money that they need regardless, they don’t do any meaningful assessment of, “Is this person really prepared and likely to succeed in college?” And so I actually think that if we went to a free market, those people who would really benefit from the four-​year college and would gain something from it, they’d still be able to access it. But we’re hurting so many people by making that the norm, that for the sake of those who are on the margins, we need to get away from the idea of subsidizing college, especially when that means a four-​year degree. And it’s worth noting that the average person in higher education now is not somebody doing the four-​year college degree. We tend to think of the kids who come right out of high school and go to college, but that’s not the norm anymore in post-​secondary education.

39:30 Paul Matzko: So Neal, you’ve touched on something that I’d like to expand on a bit. So anyone who has a student loan debt, which is I think the median student loan debt is in the… It’s like somewhere between $25,000-$35,000 per college attendee, it is $1.5 trillion total, that’s the latest figure I saw, that’s double national credit card debt, that’s more than auto debt. That’s a very large amount of debt that’s with you the rest of your life, you can’t discharge it in bankruptcy, you’re stuck with this debt. And it has a lot of ill-​consequences. I think, obviously, if you have it, you aren’t a big fan of all that student loan debt. I wanted to ask you about something you wrote a paper on, I think, quite a while ago now, but that’s become in vogue as an alternative to our student loan problem.

40:21 Neal McCluskey: Everything I did a long time ago eventually becomes in vogue, that’s what I’ve noticed, yeah.

40:24 Paul Matzko: That’s right. [chuckle] Really, you’re prophetic, what can we say?

40:26 Neal McCluskey: Yeah, even though I’m still looking for an iPod. Anyway.

40:30 Paul Matzko: Still looking for iPod, but back in 2002, when the iPods were hot, you wrote a white paper about income share agreements. And schools are starting to roll this out more and more. It’s now hot 15 years later. What is the income share agreement? How is that replacing loans?

40:44 Neal McCluskey: Yeah, I wish I could take credit for that paper, I didn’t actually write it. The Center for Educational Freedom, although it may not even be called that in 2002, released it. A guy named Miguel Palacios wrote it, and he’s been doing more work on that. But Cato education people were, of course, prophetic. And it was the very beginning of this idea of income share agreements. The first problem was, we were calling them human capital contracts at the time and people are like, “Oh, that sounds like slavery.”

41:12 Paul Matzko: Like slavery. Yeah, yeah. [chuckle]

41:13 Neal McCluskey: Right. Which is not what it is, but…

41:17 Paul Matzko: Indentureship contract. They’re just…

41:19 Neal McCluskey: Yeah, that we probably shouldn’t use that term.

41:21 Paul Matzko: No, that’s [41:22] ____…

41:22 Neal McCluskey: But I think the first thing we should say is that student debt sounds bad when you’re like, “Oh, it’s $26,000 and it’s more than credit card debt.” Education is complicated, again, mainly because we call stuff education, that’s really credentialing, but the fact of the matter is, it’s a good investment to get a degree, you may not learn very much but getting that degree in that signal, lots of debate about how much you gain from that, but it’s generally thought still that you make about a million more dollars over your lifetime if you get a degree than if you don’t, which makes that $26,000 in debt seemed kind of piddling. It’s still way more than the debt should be because higher education should cost a lot less, it costs a lot because it’s so heavily subsidized, but it’s not… I don’t like when people get the impression that it’s just a crushing burden that you should never take on, to take on debt for education, because education, even if it’s in the name of education, could still have a big payoff.

42:24 Paul Matzko: Though is it problematic? So we’re talking big picture meta level stuff here. It depends what kind of degree you’re in $26,000 of debt for. If you went to med school, and you now have a really large debt burden, that’s okay ’cause you’re gonna make a lot of money as a doctor over your career, but if you went and got a master’s in puppetry, and got into a lot of student loan debt, yeah, you’re in a bad situation.

42:49 Neal McCluskey: Absolutely. One of the reasons that it should be so upsetting to so many people, that the lender, there’s still a little bit of private lending, but not very much. The lender in higher education is the federal government and they will give you a lot of money to pursue that puppetry degree even though there’s very good reason to believe that it’s gonna be a huge burden for you even if you finish and many people won’t finish. So, absolutely, it’s important to know what people are studying, but this is something that’s surprising to people, but it’s not the person with that $26,000 of debt or even the person who goes to medical school and gets $80,000 or $100,000 who’s most likely to default, who’s most likely to default than somebody who has a relatively small amount of debt, $6000 or $7000 in debt who should not probably have pursued post-​secondary education, or at least a degree, but did because that’s what you’ve gotta do. They took on debt, they paid for classes, and they didn’t finish and so they don’t have that all important credential that helps to increase their earnings and they’re the ones then who are struggling to pay off their debt even though it’s relatively small, ’cause they haven’t gotten that payoff and these tend to be the people who would be best served by online courses.

44:09 Neal McCluskey: Again, these sort of non-​traditional students with jobs and families and all sorts of obstacles in their way that the 18-​year-​old from a well-​to-​do family in a good high school or whatever, they don’t face when they go to the four-​year college. So, for the human capital contract though, there’s only, I think, really one major benefit versus student loans. The human capital contract is essentially instead of you get a loan, somebody invests in you. So, it’s treated differently under the tax code. But basically, the arrangement is, this person says here, “I’ll give you, $30,000 and then you will agree to pay me X amount of your income for 10 years or whatever.”

44:56 Paul Matzko: Yeah, like 5% is a pretty normal number I see out there.

45:00 Neal McCluskey: Yeah. It doesn’t have to be, you could arrange it any way you want, I don’t think most people are like, “Sure, take 100%.” It would be relatively small. The main benefit is, if you have a loan, and even loans have changed, but the norm for a loan used to be as soon as you were out of college or you had a six-​month grace period, but you have to start paying that loan off. And it doesn’t matter what you’re earning, it doesn’t even matter whether you have a job. And that was a major reason we saw a lot of defaults. The human capital contract says, “Look, if you’re not making anything, you’re not paying anything back.” If you’re making $100,000, yeah, you’re paying that investor, not lender, that investor a fair amount of money. Again, it properly aligns the incentives of both the… I can’t say lender-​borrower, an investor and then the investment, I guess, is what the student is. But the real benefit versus the loan was that, people who aren’t earning much don’t get suddenly socked by these payments that they have trouble making ’cause they haven’t gotten a job that pays a lot, or any job.

46:03 Paul Matzko: Yeah. No, it removes some of the… It aligns the incentives… In a sense it acts as a bit a safety net for folks who it doesn’t work out for, who did a year and then didn’t end up finishing a degree. It prevents that kind of catastrophic situation.

46:19 Neal McCluskey: But for what it’s worth the student loan programs, federal student loans have now moved to a lot of income based and income contingent repayment where if you’re not earning a lot, you’re still not paying a whole lot back.

46:29 Paul Matzko: So trying to build that…

[overlapping conversation]

46:30 Neal McCluskey: Yeah, so they’re trying to work with this. And if the government, the federal government were to say, “Well, we’re gonna go to income share agreements.” But they gave it to anybody without any assessment of what that person was studying, and whether or not they seem likely to be able to complete college, it’s not gonna be any better than the system we have now. So, it’s better than a loan as a vehicle, but if the government starts providing it, it’s not gonna do much to deal with the underlying problem.

47:00 Paul Matzko: It still lacks the price signaling function of… I mean, when you go buy a house loan, your interest rate varies based on the quality of the house, based on your income, your career, the interest rate goes up and down to assess for risk. And if you’re too much risk, you don’t get the loan at all. There’s a signaling function built into the loan, but with federal student loans or with, if the federal government decide to switch over to income share agreements, they would remove that price signaling, right?

47:29 Neal McCluskey: Yeah.

47:30 Paul Matzko: So it would not adequately signal to supply or demand for those degrees, it wouldn’t adequately signal risk. You basically strip the market function…

47:36 Neal McCluskey: Any lender or investor who doesn’t assess whether their loan or investment is a good one that they’re likely to get repaid, if you don’t have that then it doesn’t really matter, you’re not getting that sort of filtering that you need to make sure that there’s a good vetting of the people who take on this money. And that is really a problem. And unfortunately, what we’ve seen at the federal level is, there’s something called a PLUS Loan, which a parent or a grad student can get and there’s some credit worthiness that’s involved in the assessment of somebody. And interestingly, they increased how stringent they were on your credit worthiness for a little while in the Obama administration, and then the Obama administration said, “We shouldn’t do this,” because there were some schools that were disproportionately, negatively impacted by it. And to me, I don’t want any of these loans, but if the function of the loan is to make sure that people who may not have the economic or financial ability to go to college, but have the academic ability to go to college, the purpose of the federal government being involved is to make sure the people with academic ability can access college, not the financial ability.

48:56 Neal McCluskey: And so at one point, we are saying, “Well, let’s assess on your credit worthiness.” And that’s not the point of these federal loans. And now, we’ve instead moved to this idea of, “Well, the way federal lending should work is we kick certain institutions out of federal lending.” Again, without ever assessing who those loans are going to or who the students are that are using those schools and those courses and again, that is disproportionately affecting for-​profit schools and online education because they’re saying, “Well, those schools are getting bad outcomes,” and it’s ignoring that the federal government said, “We’re gonna give money to people who are on the margins of being able to do college [49:40] ____ level work.”

49:41 Paul Matzko: Mm-​hmm. Well, and also just do a favor to those students who, they’re not receiving adequate signaling about what careers they should pursue. If it’s the same cost for you to get a degree in puppetry as an engineering, you’re not getting good signals about what is in demand. Right?

49:58 Neal McCluskey: Yeah.

49:58 Paul Matzko: And it discourages them from doing the thing that’s best for them in their own career prospects as well. It doesn’t do anyone a good…

50:06 Neal McCluskey: People should want private lenders who are involved and you do need to make it easier to discharge a student loan debt and bankruptcy so that the lender has the incentive to really scrutinize somebody. But you do that and we should want private lending because we should want people who think maybe they should go to a four-​year college or two-​year college or take on some sort of higher-​ed and take on deb, we should want them to have sort of somebody who is incentivized to really scrutinize them and say objectively, this is a good idea or this is not a good idea. Instead of having sort of the candy man, that the federal government is, just throwing whatever they ask for at them, even they know in the long run that’s gonna hurt those, however.

50:50 Paul Matzko: That’s good. That’s a good thought, Neal. Thanks for coming on. I think we’re getting pieces. If I had to construct a kind of fantasy higher education scenario, I’m not saying this is likely to happen but you can get the bits and pieces here, some kind of degree granting system, accredited. You’d have to have a completely different accreditation system where students could take courses that are very cheap, even free, provided by… I mean, they could do it from multiple providers. So you wanna learn coding, you get a BitDegree, take some courses, or in some crypto-​currency. You get an internship with a start-​up, you take some courses on Coursera, you take some courses from some of the MIT classes or Ivy League MOOCs. Together, you call that together into something that is both you’ve learned skills that you need and desire that you wanna take into interesting and innovative careers that we can’t even imagine right now. Let’s be honest, half of our jobs are gonna be automated over our lifetimes based on estimates about automation and artificial intelligence. So we can’t even imagine what some of these careers look like right now.

51:57 Paul Matzko: So you have this flexible student-​driven degree that’s accredited, that is cheap and then students are better prepared for a brave new world that we can’t predict at this moment. Folks are trying to develop alternatives to our current system, alternative ways of financing, alternative ways of acquiring skills and education. And I think that’s an encouraging thing even if there’s still obviously a lot to be done. So, Neal, thanks for coming on and talking to our audience. And until next week, be well.

52:31 Paul Matzko: Building Tomorrow is produced by Tess Terrible. If you enjoyed our show, please rate, review and subscribe to us on iTunes or wherever you get your podcasts. To learn about Building Tomorrow or to discover other great podcasts, visit us on the web at lib​er​tar​i​an​ism​.org.