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Cap And Frown
September 18, 2012 | 0 comments
Feature
Cap And Frown
Today’s university graduates are paying more for less, and cheap credit is partially to blame.
(Page 2 of 2)
The same Georgetown center that found a $1 million premium on a bachelor’s degree recently studied unemployment by major during the recession, using data from the American Community Survey. Unsurprisingly, it found that majors closely aligned with actual occupations fare better in a difficult economy than majors in the humanities or liberal arts. For Example, over 2009–2010, the unemployment rate for a recent graduate with a nursing degree was 4 percent.The unemployment rate for a recent graduate with a degree in “Area, Ethnic, and Civilization Studies” was 10. 1 percent. The same principle applies to expected earnings. A liberal arts graduate can expect to earn just $31,000 on average on entering the job market; a journalism (!) Major, just $33,000. Meanwhile, a computer science major can expect to earn $46,000; an engineering major, $55,000. It’s about employability and earning potential. If we’re really in the middle of a jobless recovery, and facing the prospect of persistent high unemployment, people thinking about college as an investment have to consider both. It might make sense for a nursing student to go into hock for a couple hundred grand, but the same move by a medievalist is dubious at best.
Looping this kind of information into the student loan process—be it run by the government or the private sector—is the key to an efficiently functioning market and to a safe deflation of the bubble. At National Review Online, where this author hangs his hat, Jay Hallen recently proposed that lenders replace the one-size-fits-all, statutory interest rate with a form of risk-based pricing. He writes:
The DOE should not price loans according to a student or his family’s financial circumstances, as that would undermine the cherished ideal of educational meritocracy. However, there are other options.
One is to employ risk-based pricing according to a student’s high-school GPA. Surely there are correlations between high school achievement and workplace success. Another option is to implement a sliding scale of loan rates that favors students committed to majoring in fields such as computer science or nursing, where the demand for new employees exceeds the supply. For fields where employment demand is weak, loans would be progressively more expensive. Granted, this policy would require students to declare a major at the beginning of their college career rather than during their sophomore or junior year. But solving a trillion-dollar crisis requires some changes to “business as usual,” and this may be one of them.
Hallen plausibly hypothesizes that such a system would push marginal college prospects into vocational schools and other career paths, reducing demand for higher education, and thus tuition inflation.Those individuals who do decide on college would be better credit risks on average, thus reducing the dangers of default.
Nor is forcing students to choose a major earlier, and with real financial consequence, too high a price to pay for such a reform. On the contrary, it would help undermine the quaint but pernicious idea that college can—or should—be about “finding yourself” instead of making an investment in your future. Perhaps this means refiguring the norm of going to college immediately after high school graduation, adopting an Americanized form of the European “gap year,” wherein teenagers take a year or two to work, save, and mature, so that they might be in a better position to make informed decisions about their futures.
This suggests the broader point that the solution to the higher-ed crisis is only partially political.It won’t be solved without changes in our cultural norms. We have to end the valorization of the four-year college degree to the exclusion of other career paths, and the dangerous fantasy of college as “supervised adulthood” that leads too many prospective undergraduates to choose their “dream school” based on amenities, the social scene, or any of a hundred other variables that have nothing to do with bang for the buck. Prospective borrowers should be aware that the vast majority of the lifetime earnings premium comes from going to college at all, and that gains from going to School X as opposed to School Y are marginal. Young people going into debt for their education simply can’t afford to play by the credential-mongering status games of the U.S. News & World Report rankings.Those are preoccupations best reserved to kids with trust funds.
The good news in all this, if you want to call it that, is that the higher education crisis will solve itself… eventually. It’s a straightforward application of Stein’s Law: If something cannot go on forever, it will stop.The increase in borrowing isn’t sustainable. Tuition inflation can’t continue at this pace. A tight labor market flooded with 25-year-olds with anthropology degrees will surely find its level. The higher-ed bubble will blow. The question is whether—with the right policies and a purposive realignment of our cultural orientation toward higher education—we still have time to make it a controlled demolition.
Appleby| 9.18.12 @ 7:06AM
Since babyhood now extends to age 26, we may consider the vast majority of "education" to be federally funded daycare that warehouses the tots with food, naps and games while Mom and Dad keep the wheels turning in the real world. When you notice what most of the toddlers are studying, you wonder if most of them will ever make back the money they would have earned if they'd gone right from high school to a job.
Bill Hussein O'Stalin| 9.18.12 @ 7:28AM
The student loan program is hardly to be considered with the term education.
It transfers borrowed wealth from students to financially successful and savvy institutes of learning.
In that sense, a trillion in wealth has been transferred up front to some of the wealthiest persons in America while impoverishing students for years, perhaps decades.
Wouldn't that make colleges representative of the 1% class? Surprisingly, the OWS crowd should be demonstrating on college campuses not on Wall Street. But to figure that out would take a good education.
I worked my way through college. Was it easy? No, but not overwhelmingly hard either. I learned many of life's valuable lessons in those jobs. I actually think I learned more about how to succeed in those jobs than I did in college.
Alan| 9.18.12 @ 7:57AM
"I actually think I learned more about how to succeed in those jobs than I did in college"
Bill, thats called learning from life and reality, something these sheltered 23 year old graduates learn the hard way when they hit reality like a brick wall with a useless degree in lawn watering.
John - The Mighty Fahvaag| 9.18.12 @ 8:16AM
Now hear this! Now hear this!
Stafford Loans, for most upper middle class people are NOT, REPEAT NOT subsidized! If you earn, as a family, more than the allotted pittance on the FAFSA calculation you as a student will be charged the FULL interest rate, because your Family's Expected Contribution does not account for any "subsidy".
The full interest rate is hovering around 8% which is more than double the current mortgage interest rate. The Feds as loan sharks cannot be understated here.
Add to that, the Stafford Loan much more often than not, DOES NOT COVER tuition, much less room, board, and the ghastly list of fees that eat away at the wallet.
Both of my sons attend state universities. There is a two year overlap in their college educations, courtesy of the educationist demand for five year programs to do what could, and used to be done in four.
There is no way to effectively save for college tuition. Yes, you have to try to put some money away; but at current rates of interest and possible savings, even in-state, tuition there is no interest rate in this economy that will grow enough money to pay for the costs.
r/John - TMF
Maxwell| 9.18.12 @ 9:28AM
last weekend i had the wonderful pleasure of attending one of those 'family gatherings'. also included were a few of the neighbors & their college age young adults. i pretty much keep my mouth shut at these gatherings as my frame of reference differs greatly from those held in a VERY LIBERAL section of the New York suburbs. sometimes i'll ask where are the bambi burgers or who has the squirrel dip?
a couple had both of their their children in attendance. one was an unemployed lawyer (of course living at home) and the other was majoring in outdoor personal management skills with a minor in photo & film documentation. neither of these fine young men had any real world life or work experience.
of course if i had stayed home my inter personal experience with the wife would not be a pleasant one come dinner or night time.
Occam's Tool| 9.19.12 @ 12:05AM
"Unemployed lawyer." Music, sweet music.
MDs are always in short supply. That's because you can't get a Medical degree in night school.
SGB | 9.18.12 @ 9:47AM
This article is what is wrong with so much establishmentism. It works from the premise that our society needs the solutions of a governing class. Our option as citizens is to choose which members of the governing class we want in control based on which group can convince us they have the most intelligent policies. As citizens we need to refuse the "clever" solutions of "experts."
We as a family are hardly poor, but we are not wealthy either. Our children were told very early that we as parents would help out with their higher education as we are able, but the responsiblity would be on them to get good grades so as to hopefully earn scholarships and to get a job so as to be able to save for university themselves.
If a young person sees the education as valuable, why is it such a hard thing to weigh the expense of taking on unsecured debt at market value and the cost and lost income vs. the expected increase in income. I switched careers as an adult and made the decision myself that the total cost of school was more that I was willing to bear and so moved into a new career that not require another three plus years of school. Perhaps if students had to pay market value for unsecured debt, the "education industrial complex" bubble would burst.
cicero| 9.18.12 @ 3:00PM
Cicero's first rule of economics" Debt expands to meet the money allotted to it." Students don't see the actual cost of their education while they are living on borrowed money. Reality only strikes when they have to start paying it back. If they had to pay as they went along, they would be much more jealous with their time, and the coureses they took. At that point, they would have to actually make a reasoned decision as to whether or not the expense was worth the result sought. However, that would also mean that at least one half of all of our bastions of higher learning would shut down, and the professoriate would have to find something worthwhile to do to earn a living.
The provision of government money for all forms of post k-12 education/training has so inflated the cost of schooling that the cost bears no relationship to the benefit. The schools are obviously being funded and maintainedd for the benefit of the profs and admins, and has no relationaship to benefit to the students (or the paying parents/taxpayers).
Occam's Tool| 9.19.12 @ 12:04AM
Bill---learning how to learn and filling your mind with classes you paid for is quite useful.
To keep my full tuition scholarship, I had to maintain a 3.5 average. I did, and got into two US med schools.
But I didn't take underwater basketweaving, either.