Student Borrowing Is The Symptom. Legally Suspect Degree Requirements Are The Problem.

President Biden’s $400 billion student loan forgiveness plan highlights the mixed feelings that college borrowers have about the expensive credentials they’ve purchased. Whatever happens with Biden’s plan, all those unhappy borrowers are a symptom of a bigger problem that needs to be addressed.

Biden would have taxpayers spend hundreds of billions to subsidize borrowers that don’t think college was worth the cost. The presumption is that, for many, college was a bad investment, even in an economy with 3.5 percent unemployment and more than 10 million open jobs.

What’s going on? Well, many borrowers regard post-secondary degrees as a requirement for landing “good” jobs. That’s because thousands of employers routinely use college degrees as a convenient way to screen and hire job applicants, even when the credentials bear no obvious connection to job duties or performance.

Harvard Business School researchers have documented how “degree inflation” works, with employers demanding degrees for jobs that don’t obviously require one. Employers have increasingly demanded that candidates have degrees even for entry-level positions that don’t have much to do with the skills typically taught in college. Indeed, nearly two-thirds of employers say they’ve rejected applicants with the necessary skills and experience solely due to the lack of a college degree.

Fixating on unnecessary credentials wouldn’t seem to make a lot of sense for employers. Why on earth would they do it? Well, much of the blame can be attributed to the unintended consequences of federal anti-discrimination law and employer convenience.

You see, back in 1964, Title VII of the Civil Rights Act prohibited employers from discriminating against job applicants on the basis of “race, color, religion, sex, or national origin.” Title VII did, however, allow employers to use “professionally developed” hiring tests, so long as they were not “designed, intended or used to discriminate.” Seven years later, in Griggs v. Duke Power Company (1971), the Supreme Court held that, under Title VII, if a selection process has a “disparate impact” on minority groups, employers must demonstrate that requirements are directly job-related and accurately predict job performance.

This “disparate impact” standard, later codified by Congress, theoretically applies to all criteria used in making employment decisions. Employers using I.Q. tests to screen and hire applicants, for example, must use approved, professionally developed tests and justify I.Q. thresholds. If companies require applicants to possess an I.Q. of 114, they must be able to demonstrate why an I.Q. of 113 won’t cut it. It’s not hard to grasp why human-resource lawyers urge employers to eschew screening tests of that kind.

Even job-related employment tests that seem obviously relevant can run afoul of federal regulators. A few years ago, the Equal Employment Opportunity Commission (EEOC) sued the railroad company CSX Transportation because there was a significant difference in the rate at which male and female applicants were passing its physical-fitness test. Even though the test was clearly “job-related”, since employees had to lift heavy packages and parcels, the EEOC still required CSX to adopt “alternative practices that have less adverse impact.” If a strength test for a job that involves lifting heavy objects is problematic, it’s easy to see why employers might like the security of credentials.

Of course, despite the Supreme Court cautioning back in Griggs not to let it happen, the one employment test that’s gotten a free pass is the college degree requirement. Federal regulators haven’t challenged degree requirements, even when they have a disparate impact and employers offer no evidence that degrees are relevant. Degrees have come to serve as a convenient, all-purpose hiring screen for employers (if an expensive and time consuming one for students).

Given different rates of college-going across the population, it should be obvious that indiscriminate degree requirements carry obvious disparate-impact implications. Treating degrees as a de facto hiring test puts a heavy burden on reluctant college-goers of modest means, leaving many to feel like they’re being compelled to borrow.

In short, Washington has distorted the labor market by encouraging employers to turn college degrees into an all-purpose proxy for employability. This has fueled degree inflation, exaggerated the importance of a college degree, and inflated costs.

The bottom line is that degrees should be necessary when they signify knowledge or skills. In other words, degrees should be treated no differently than other credentials or professionally devised employment tests. Employers must demonstrate that a given employment test is relevant if it’s to pass legal muster: The same standard should be applied to degrees.

If President Biden wants to do something about the root cause of excessive student borrowing, he can do something about this. For starters, he should direct the Office of Personnel Management (OPM) to rewrite the rules regarding degree requirements for federal workers. OPM should stipulate that degrees may be required only when they are “job-related” and provide a “reasonable measure of job performance.” That same standard should extend to federal contractors. And Biden should do all he can to direct his appointees engaged in civil rights enforcement to ensure that legally suspect degree requirements are subjected to the same scrutiny as any other potentially suspect hiring test.

Meanwhile, Biden should urge Congress to revisit restrictions that stop federal student aid from being used for alternative credentials pursued through avenues such as apprenticeships, non-degree programs, and training partnerships.

If degrees ceased being a fast pass to good jobs, borrowers would feel freer to decide whether they need a college degree and colleges would feel more pressure to make sure prices don’t scare off students. That’d be a good thing for borrowers, colleges, and taxpayers.