Headlines are proclaiming this week that student-loan debt is rapidly nearing a trillion dollars. Earlier this year, as financial expert Mark Kantrowitz has noted, another landmark was achieved: Student borrowing now exceeds all credit-card debt. While the data here are somewhat murky and questionable, under any accounting they add up to big bucks.
There are three worrisome trends. First, student debt is doubling every seven years or so, growing much faster than credit-card balances, home-mortgage obligations, or commercial loans. At some point, this will become unsustainable as debt burdens overwhelm borrowers’ ability to repay (sounds familiar, doesn’t it?) — particularly when incomes are growing only very slowly, if at all.
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Second, there is a disturbing rise in defaults on student-loan debt; the current rate exceeds 8 percent among the whole population of those who attended four-year schools, but is much higher among various subgroups. If a commercial bank had to write off 8 percent of its loans, it would typically wipe out most of its capital and cause panic among large depositors. Fortunately, even at a trillion dollars, this is only a relatively small portion of total borrowings, so the broader implications of such a high default rate are largely disguised, but this furthers America’s image as a debt-ridden country that cannot meet its obligations.
Third, related to the second point, a large portion of borrowers are in bad financial shape, and the number is growing and will continue to grow. There is no question the truly miserable nature of this “recovery” is a huge culprit, but by no means the only one.
The dirty little secret of higher education is that the nation is turning out vastly more graduates than there are jobs available in the high-paying sectors in which degree holders traditionally have worked: managerial, technical, and professional jobs. One estimate derived from U.S. Bureau of Labor Statistics data says that roughly one in three college graduates today has a job that the BLS classifies as requiring less than a college education.
Thus, we are probably the only nation in the world with nearly 19,000 parking-lot attendants, not to mention 80,000 bartenders and over 300,000 restaurant waiters and waitresses, with bachelor’s degrees. And while a bartender with a bachelor’s in chemistry might be able to make a marginally better Long Island Iced Tea than one with merely a high-school diploma, the financial rewards for that marginal expertise are likely pretty slim.
Here is the way it works in America: High-school guidance counselors, parents, and government officials from President Obama on down tell kids: “You must go to college. The future is in high-technology jobs that require a university degree. We will bribe you to go with low-interest government loans, and if you are fairly poor, you may even qualify for some outright gifts.”
The kids dutifully listen to their parents and mentors. In many cases, earning mediocre grades from less-than-mediocre public high schools makes the kids ill prepared, so 40 percent fail to graduate within six years. Those who persevere and graduate face a bad market (largely because of the poor public-policy decisions of politicians they did not select), but even if they graduated in a period of prosperity, they would be very likely to take a job that is quite different than the one they expected when beginning their higher-education journey.
This is economic and academic child abuse. We have too many people pursuing too many degrees for too little reward. Moreover, the story above ignores critical details — for example, while in college, students do little to enhance their critical thinking or writing skills (if Richard Arum and Josipa Roksa got it right in their groundbreaking book Academically Adrift).
Apart from the smarmy snickering, MikeB makes a reasonable point. We need more people in non-highly educated jobs than we are preparing with high schools and trade schools. As a result, such workers are likely to be either unhappy baccalaureates or imports, the latter often being illegal.
Does markenoff mis-spelling "there' as "their" imply that he is pulling the average down?
You're talking about such a monumental shift in cultural attitudes that I'm not sure it can be done (though I agree, it ought to be). Culturally, we have defined success as "going to college." How many parents would brag equally about the child who didn't go to college as the one who won a Fulbright?
Further, whether it's actually needed or not, employers are requiring college degrees as filters for their applicant pools. This needs to stop... but I have no great idea how, unless it's setting up certification exams, which is cheaper for the student, but more expensive for the licensing board. (I think it would be worth it, honestly, for a law to require professions to allow an alternate route to qualifications. Take the bar without law school (not that law school wouldn't make it exponentially more likely that you'll pass, but you should be able to take it on your own), take a teacher exam to qualify as a teacher rather than relying on the Masters, take a library science exam rather than an MLS course to qualify as a librarian, etc--things that people can study for on their own. The Masters degrees--or JD--would also qualify a person, so the ones who don't like tests can still go to grad school if they want to, but for everyone else, it could save vast amounts of money.) Cultural signals also need to change--instead of movies about the bright young kids who overcome the odds in their horrible high schools to go to college, stories about kids who educate themselves--not just on vocational matters, but on actual academic ones--and become better people who help out their struggling neighborhoods or whatever, not by getting more people into college, but by creating an atmosphere where more people are educating themselves and valuing it. I think I just gave myself a NaNo idea.
There is one problem with all of it, though--higher ed is a huge industry and a huge employer. If it shrinks, what's going to come in and fill the vacuum? It all comes back to people building businesses in their home towns and getting people back to work.
"Further, whether it's actually needed or not, employers are requiring college degrees as filters for their applicant pools."
It's my understanding that this shift was caused by laws that prevent employers from testing job applicants to determine whether they have the necessary skills to actually do the job.
Another example of well-intentioned laws with serious negative consequences.
My company was recently trying to hire for two entry level clerical/data entry positions. Job requirements included being able to type 50 wpm, write a professional business letter, and use Excel and Word proficiently. Honestly, it's very hard to find an applicant who can manage that, but it's nearly impossible among applicants with no college degree.
We can't rely on the high school diploma to indicate a basic level of literacy and numeracy, so we now only consider applicants with at least some college.
While I like your analysis of the situation I have a simpler solution to student-loan debt:
1. Don’t pay to go to school if you can’t afford it or are unwilling to do what it takes to pay off the loan.
2. If you do take a loan then pay it off and do that by working whether its picking fruit, sweeping floors, cleaning toilets, changing diapers or flipping burgers.
I learned more about life and people waiting tables then I ever did at school. While high school, college and graduate school eventually gave me the qualifications to pursue the career of my choice it was the trials and ordeals as a low skilled laborer that gave me the experience, drive, and skills to not only succeed but to be a better person. Also those ‘low’ wages paid for my food, shelter, tuition (which minimized loans), and modest entertainment as well.
So message to Occupy Wall Street slackers, get of your duff and work, live, learn something, and enjoy life and the fruits of your labor and stop complaining about what’s growing in someone else’s yard!
So let me understand you. You are seriously suggesting that any bill a person incurs he should pay because the bill is his? And, furthermore, that if he can not afford to pay that bill then he should not incur it in the first place?
I vote for RobL for any political office for which he chooses to stand.
Have we as a country sunk so low that we no longer manufacture anything? Do we really think that we, as a nation, can earn our living primarily by providing financial advice to the rest of the world and dreaming up new methods of shuffling money around, while at the same time remedying all of the social injustices inherited from the benighted decisions of our predecessors? Are there no jobs in engineering and applied science? Are the only jobs to be had for people with degrees in chemistry are those as bartenders? (Perhaps a degree in psychology might be more useful in that regard.) Are there no jobs for people with degrees in business administration? It seems to me that part of our current problem is that children go to college without thinking that they will need to have skills in some area of human endeavor which will allow them to make a living in their post-adolescent lives that pays well enough to repay the investment in their student loans and that prepares them to make a decent living in the adult world (if that exists anymore).. It is possible, while preparing for a career in a marketable profession, to obtain enough of a liberal arts education to be able to continue to learn and think as an educated person for the rest of their lives while also earning a decent living in the process. This mode of thinking about post-secondary-school education was dominant in the long ago 1950s when I was growing up; it may perforce return to prominence after the debacle of the early 21st century involving student loans and pseudo-education.
While I agree with almost everything in the article, the bartender was more likely to have a degree in Sociology than Chemistry. There are lots of jobs out there for people with technical degrees and too few people to fill them. But technical degrees are hard. There is a disconnect between having a degree and having a marketable skill.
I agree that not everyone is cut out for college. I attended for one year in the 60's and dropped out. I did two years in the service, came out, got an entry level job and worked my way up to middle management. It took years and some struggle but I always lived within my means. I own my own home, have two wonderful children, a wonderful wife (married 37 years) and a fairly comfortable life. I don't regret dropping out of college. Sure, I probably would have made a lot more money and made it sooner. I am not materially wealthy but as far as quality of life and satisfaction I feel as if I am a millionaire. I feel badly for all the kids who are overwhelmed with college loans they cannot keep up with. I blame the system for telling them a degree was a necessity. Many of them will never recover from the financial hole they are in and that;s a shame.While on the subject of college I can't help but mention the liberal slant and bias of a lot of (highly paid - rich?) professors. These people, who never worked in the real world are filling our kid's heads with all of their leftist, Marxist ideas. I made sure my girls heard both sides of an argument. I let them think it through and come to their own conclusion. I have a relative who is a college professor . . . nice guy, but not a clue about how the real world works. I have several relatives who did not go to college and are doing quite well. A couple plumbers, auto repair man, and carpenter who will never be able to buy a condo on the French Riveria but are happy in their life. Money isn't everything. I feel the elementary and high schools should be teaching our children how to balance a checkbook, save some money (no matter what their income level) and use logic and common sense when evaluatiing what you really need as to what you want. Many a time over my life I saved up for expensive things over time rather than pulling out a credit card. In many cases (electronics), by the time I did make the purchase the item had come down in price or had better features. We have to get back to living within our means. We have to get past this idea that everyone should go to college, Some of the happiest people I know never attended college.
Did the author mention bankruptcy? Becuase that's an obvious solution. When the student loan laws were drafted way back when, some idiot inserted a provision disallowing student loans to be discharged in bankruptcy (save some huge hardship). Such a clause is stupid and cruel. Since most college graduates are young (early 20s) and would not be purchasing big ticket items like homes (mortgage) or new cars (car loan), bankruptcy would not be an undue burden for them. By the time they're 30 or so, and in a position to afford a mortgage or big car loan, the record of bankruptcy would disappear from the credit ratings.
By "way back when," you mean "1998." It wasn't that long ago.
Message to the House Republicans: Get out ahead of this by repealing the student loan nondischargeability provision. It's absurd, heartless, and a massive subsidy to Big Education. Why in God's good name would a conservative support it?
Are you kidding? If student loan becomes part of bankruptcy the most of the graduates will soon learn how to play this system. Then of course, those of us who is stupid enough to keep paying their loan will do this with much higher interest rate. Government should stop throwing money into college education. It will eventually bring tuition and other fees to reasonable level. And, colleges will sure find ways to cut expenses by getting rid of the bunch of political offices and schools. Most of their staff has nothing to do with teaching / research anyway.
Are you kidding? If student loan becomes part of bankruptcy the most of the graduates will soon learn how to play this system. Then of course, those of us who is stupid enough to keep paying their loan will do this with much higher interest rate. Government should stop throwing money into college education. It will eventually bring tuition and other fees to reasonable level. And, colleges will sure find ways to cut expenses by getting rid of the bunch of political offices and schools. Most of their staff has nothing to do with teaching / research anyway.
"Then of course, those of us who is stupid enough to keep paying their loan will do this with much higher interest rate."
No, the loans are federally guaranteed. Besides if other debts are able to be discharged in bankrupty, there is --now read this carefully-- NO, I repeat NO reason for student loans to be treated differently. After all, it is the young, who are just "starting out", who may be the least able to pay them back, especially in a bad economy. That's just realism.
