Education is the primary source of class-mobility in America. And class mobility––along with the ability to comfortably absorb immigrants––is what has made the United States an economic world beater. Historically, the US education system was the epitome of meritocracy. Poor boy goes to college, leaves college to enter the middle class. My dad did it. Obama did it. It works.
But now the system is breaking down––tuition price growth is outpacing inflation. Why? Essentially, it's a supply and demand question. Easy credit terms and an opaque student loan market, where buyers suffer from a major information disadvantage (both with regards to the true cost of debt and alternative financing options), have led students to take on increasing and oftentimes unwise levels of debt. And colleges, at least in the short run, had no reason to complain. They have been the primary beneficiaries of this debt, allowing them to spend extravagantly and avoid fiscal discipline.
As Gretchen Morgenson of NYT reported:
“This is a very opaque market where established lenders want to win on brand name and not on price,” said Tim Ranzetta, the founder of Student Lending Analytics. “The Federal Reserve is looking to improve the transparency, but until it does, it is business as usual.”
For markets to function properly, there needs to lots of transparency and information about alternatives and substitutes. The student lending market fails on this front. And that's a bad thing. However, there's a Palo Alto-based hot startup out there called Student Lending Analytics that's on top of the problem. They created über useful lender ratings:
Man, I wish I knew about this when I was in college!
Now, this is my favorite kind of startup: a for profit company that's working on an important social problem. I put it in the same category as The Freelancer's Union, of which I am a member/client. It's efforts like this, more than any non-profit, that can really scale up and that can attract the sort of creative, young and hungry talent that really drive business growth (and that non-profits notoriously lack). I wish them luck!