During the last several months, the political classes have come to the realization that the level of student debt in the United States is reaching crisis level. Many have suggested that the burst of the student loan bubble will be more far-reaching and more damaging than the housing bubble that precipitated the Great Recession. This week, the Huffington Post linked to a new study from the Federal Reserve Bank of New York that showcased just how deep the student loan problem reaches:
- Of the 241 million people in the United States who have a credit report with Equifax, approximately 15.4% — or 37 million — hold outstanding student loan debt.
- The average outstanding student loan balance per borrower is $23,300. About one-quarter of borrowers owe more than $28,000; about 10% of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1%, and 0.45% of borrowers, or 167,000 people, owe more than $200,000.
- Borrowers between the ages of thirty and thirty-nine have the highest average outstanding student loan balances, at $28,500, followed by borrowers between the ages of forty and forty-nine, whose average outstanding balance is $26,000.
- About 27% of the borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that are delinquent equals 21%.
Many have put the blame on ballooning costs of public and private universities across the country. Christian Science Monitor reported this week that “between 1999 and 2009, tuition at public four-year colleges rose 73 percent on average, and tuition at private nonprofit colleges jumped 34 percent. In the same period, median family income fell by about 7 percent.”
For graduating high school seniors, the allure of a college degree isn’t what it once was. Obtaining a degree, after falling tens of thousands of dollars in debt, no longer guarantees job placement upon graduation. Is there an alternative?
Yesterday, National Journal highlighted a recent study by the John J. Heldrich Center for Workforce Development at Rutgers University on the employment situation for high school graduates without any college background or plans. Some of their chilling findings:
Only three in 10 of these recent grads are employed full time, according to the study, which tracked the employment outcomes of 544 young people who graduated from high schools across the country between 2006 and 2011.
Only 16 percent of those who graduated during the recession (2009-2011) are employed full time, although nearly half are looking for work. A third are unemployed and 15 percent are working part time. One in six have left the labor market altogether.
Thirty-seven percent of students who graduated pre-recession (2006-2008) are employed full time, according to the report.
Nearly 90 percent of those surveyed said they were paid hourly. The average hourly wage was $7.50, only a quarter more than the federal minimum wage. Three quarters of the jobs reported were temporary.
Today, less than 24 hours after National Journal’s piece on youth unemployment was published, President Obama said during a press conference that “the private sector is doing fine.” This statement may come as a shock to Americans when unemployment was assessed at 8.2% by the Bureau of Labor Statistics, the stock market is down 7% since April, and there is still no good news on the horizon for jobs either.
During the last election, Obama garnered 61 percent of the youth vote, compared to McCain’s 31 percent – the results were almost identical for the college educated and not. America’s young people, whom the Obama campaign is trying to whip into a frenzy in order to produce the support he saw in 2008, won’t buy the hype this time around. Every morning they wake up unemployed and in debt, every conversation they have with a classmate and peer affirms that they aren’t “fine.” The Obama White House can turn Republicans into student debt boogeymen, send emails from Sarah Jessica Parker inviting recipients over for dinner, and issue statements about gay marriage every day from now until November. The only issue that matters to America’s youth this election isn’t looking any better for the Obama campaign – it’s the economy stupid.
Just like in health care, a laissez-faire approach of blithely watching as costs climb out of control is decidedly not the best approach. One could argue that some colleges should happily charge whatever they like w/o Mother Government stepping in but there has to be some rational basis for justifying ALL colleges outstripping the cost of living by a factor of 2:1 or 3:1 every single year for the last 35 years w/o interruption. And there isn't any rational justification for it. Regardless of whether we think that getting an MFA in paper-mache is worth an eighth of million dollars or that people should do their own risk return calculations on the relative merits of one kind of degree vs another does not go to the core of it. There will always and should always be people doing more or less whatever they like in college and costs be damned. But the problem is that the bar has been set absurdly high for everyone everywhere. Even in my state, NC with probably the best value in quality college educations in the country we're looking at the UNC Board who, without irony calls for and gets 8, 12, 20% rate hikes year after year after year. Is the quality of that education 40 or 80% 'better' in the fourth year compared to the first? I don't think so.
Agree with you that the yearly hikes by colleges do not, in any way, correlate to a hike in quality. n nBut we should all be able to figure out by now the reason for the College Bubble. It's all the free, federal money sloshing around. No matter how well-intentioned or sincere, giving federal financial aid for college educations has backfired miserably by completely defeating the usual market mechanisms that control quality and price. Colleges have only been able to raise their tuition each and every year because there has been no decline in student enrollments in response. And there has been on decline because families are generally able to get federal (and sometimes state) financial aid to offset the big tuition hikes. But just as with the Housing Bubble and the Public Employee Bubble, this can't last. As state governments are forced to cut back on the amount of subsidies to public colleges, the colleges must increasingly look to federal help to fill in the shortfall. Now we are finally getting to the point where even the Federal government can't come up with all the cash needed to prop up college costs. n nThere is an interesting parallel here between colleges and the U.S. auto industry. Like GM, Colleges are saddled with bloated administrations, huge pension costs and a labor force that cannot be easily fired. And like GM, colleges have alot of capital costs that cannot be easily shed— buildings, infrastructure and the like. And also like GM, colleges are facing increasingly attractive and nimble competition. As the internet has become ubiquitous, people and employers are figuring out ways to get an education without the time and costs of the traditional 4-year college. Even community colleges are now garnering an impressive number of students who take two years' worth of credits at a fraction of the cost and then transfer for the final, two years to get the 4 year degree. In short, the traditional, 4-year college business model is broken and outdated. It is an open question how much longer they can survive. The question for Americans is whether we want to (or can even afford to) bail out yet another fading industry with tax dollars.
I'm a highschool teacher, and the majority of my students say that they are going to attend college, even if they are struggling academically. Because education has mitigated the value of professions that don't require a degree and propagate the myth that "everyone should go to college", the demand for a college education has pushed the price of a degree beyond reach for most people unless they obtain loans. School districts have eliminated academic tracks that prepare students for jobs when they graduate from high school so students are not presented with any alternatives other than college. Even financial literacy classes present propaganda charts that show how much more a person with a college degree makes on average without explaining to students the impact that not working for four years while in college, and taking out large loans during those four years, will have on those greater earnings.