September 18, 2012 | 0 comments
Today’s university graduates are paying more for less, and cheap credit is partially to blame.
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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.