A new survey takes a look at the critical state of today’s recent college graduates. The survey questioned a nationally-representative sample of 444 recent college graduates between the ages of 22 and 29, about their employment situation and experiences. The questions also lightly touched upon these graduates’ financial condition. I’ve included a link to the full survey at the bottom of this article.
The necessity of choosing a major in college can put quite a bit of pressure on any student, particularly those who have either a wide variety of interests and talents as well as those who may not feel themselves pulled in any particular direction. There’s always the hope or the expectation that the bachelor’s degree will define a career path for the rest of one’s life, and that career path will follow a straight line or an exponential curve.
An economist’s opinion is that students, who often go into debt to obtain their degrees, should simply look at the expected rate of return. I can’t tell you how many times I’ve heard or read that students should choose majors like engineering, physics, computer science, or applied mathematics to guarantee high salaries and easy job placement. Not everyone is interested or talented in these areas, and the pure financial approach says that those who aren’t shouldn’t bother spending money for a college education. The return on investment for an education is about more than just money, but that opinion doesn’t exactly make me popular in certain communities.
The financial reality is dire according to this survey. And as much as a college education has value beyond the expected return in the form of salary, no one can ignore the money-related part of the equation. Many decades ago, a college degree was a sign of differentiation, and gave holders the ability to market themselves well and qualify for the best jobs. At the same time, culture put such an emphasis on higher education that as it became available to more people — through grants and loans, not through lowered costs — it’s become less of a distinction. Colleges are basically unchecked in their tuition increases because they know that students will keep coming and the government will continue providing opportunities.
In good economic times, that can be ignored. With a low level of unemployment among graduates, former students can receive jobs, healthy incomes, and can pay down their student loan debt. In difficult times — when Baby Boomers aren’t retiring and there aren’t opportunities for younger workers, for example — the buy-now-pay-later model of education begins to fail. And it always fails for those with degrees in fields that take longer to recover their costs, like the arts and humanities.
Mark Cuban offered an apt analogy. College education is similar to the practice of flipping real estate. In the heyday of oversized, abnormal growth in the real estate market, any fool could make
money by buying a house relying heavily on debt, selling it to a bigger fool, and using the proceeds to repeat the process. There was a promise of success, and it worked well for a while — until the real estate market meltdown, followed by the Great Recession and credit crunch. A similar experience is happening today with the investment in a college education. Cuban argues that it used to be able to “flip” a college degree for a good starting salary and a solid opening to a life-long career, but the investment no longer performs so well.
With the run-up in real estate prices, it became very easy to access credit. Banks would give loans to as many customers as possible, with the knowledge the banks could repackage and sell those loans to reduce their apparent risk. The credit crunch required banks to tighten up their lending standards to the point where credit wasn’t available anywhere. Cuban believes this is where we are heading with student loans.
Years ago, policies were designed to ensure that everyone who wanted to become a homeowner could afford to do so. Taxpayers subsidized a great expansion in homeownership, and the real estate industry thrived. Education for all has been just as much a part of the American Dream, and taxpayers are subsidizing college educations for those who can’t afford it on their own. When it’s so easy to get an education for little money down, and everyone is taking advantage of free-flowing credit, we should have expected that making a return on that investment has become more difficult.
There is more student loan debt in aggregate in the United States than credit card debt, and Mark’s conclusion is that the economy won’t improve until this student loan bubble bursts. He promotes non-traditional universities — though not diploma mills, as he later warns — as the answer, because they can provide a better deal.
While colleges and universities are building new buildings for the English, social sciences and business schools, new high end, un-accredited, branded schools are popping up that will offer better educations for far, far less and create better job opportunities. As an employer I want the best prepared and qualified employees. I could care less if the source of their education was accredited by a bunch of old men and women who think they know what is best for the world. I want people who can do the job. I want the best and brightest. Not a piece of paper.
The competition from new forms of education is starting to appear… You would think traditional university educators would take notice. Beyond allowing some of their classes to be offered online, they haven’t. They won’t. Its the ultimate Innovators Dilemma. They don’t believe they should change and they won’t. Until its too late. Just as CEOs push for that one more penny per share in EPS, University Presidents care about nothing but getting their endowments and revenues up. If it means saddling an entire generation with obscene amounts of school debt, they could care less. This is how they get their long term contracts and raises.
It’s just a matter o[f] time until we see the same meltdown in traditional college education. Like the real estate industry, prices will rise until the market revolts. Then it will be too late. Students will stop taking out the loans traditional Universities expect them to. And when they do tuition will come down. And when prices come down universities will have to cut costs beyond what they are able to. They will have so many legacy costs, from tenured professors to construction projects to research they will be saddled with legacy costs and debt in much the same way the newspaper industry was. Which will all lead to a de-levering and a de-stabilization of the university system as we know it.
Just over half of recent college graduates have jobs. Many of those who do have jobs settled for a position for which their four-year degree was not necessary. 40 percent of recent graduates haven’t even begun paying off their student loan debt. Most recent graduates, while happy with their time in college, would have chosen a major after more consideration, taken different courses, or sought out more working or internship opportunities.
Photo: NazarethCollege
Blog Maverick, John J. Heldrich Center for Workforce Development
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The issue of poverty, affecting this number of individuals, is bigger than poverty itself. The government tallies 46 million Americans living in poverty according to the 2010 census and the government’s own definitions of poverty. Many more individuals are affected by poverty because they are living dangerously close. Many middle class households, particularly those already 
Thanks to the Consumerism Commentary Community
This article was written by Flexo in Administration. 13 comments.
In just a short period of time, Consumerism Commentary will be entering its tenth year of existence. The site’s ninth anniversary is approaching, and I’ve been involved with the website longer than I’ve been involved with any other commitment in my life. Jobs and relationships have come and gone, but Consumerism Commentary remains.
I started the website in an effort to track my personal finances at a time when I was struggling financially, though I had already started a new path towards financial independence. Thanks to the readers early on who believed the website offered something unique, the growth of the community has been nothing short of amazing. Consumerism Commentary has changed character a little bit from those early years, when a blog was more about short, quick chronological updates and about sharing links to other interesting things found online. Last year, I solidified the website’s vision, mission, and purpose. While the owner of the site is now different, not much else has changed, and there are no plans to change anything in the near future, except for perhaps a more professional-looking logo and site design.
Thanks to all the readers who have continued to visit this website since 2003, our fans and friends on Facebook, and particularly those who continue to participate in discussions today. Thanks also to all the colleagues who have offered their advice and encouragement, and a big thanks to Jay Frosting (also known as Bryan J Busch) and Tom Dziubek who have held down the podcast fort for several years.
And if you’ve encountered any technical issues with the website recently, please continue to bear with me as the technical team continues to work out the bugs.
Last week, my article about The Rich and the Rest of Us by Dr. Cornel West and Tavis Smiley attracted the attention of the two men, and I’m working on scheduling an interview with the pair later this week. They are crusading across the country to elevate the issue of poverty and potential actions to move the United States is a better direction towards resolution. Do you have any questions for Smiley and West?
There are five types of purchases — well, more than five but these five are big — you should never put on your credit card. Every purchase you make is tracked by your credit card issuers and can be used against you if the companies decide you’re a higher risk than they originally thought. And they can change your risk profile based solely on the types of stores you visit.
The Carnival of Personal Finance hosted by Musings of an Abstract Aucklander last week included my article about Sprint’s $300 million tax fraud lawsuit.
Adrian from 7 Million 7 Years talks about how it may be hard to believe that someone in New York struggles on an income of $350,000 a year, but he understands the perspective. Andrew Schiff, who works for a brokerage firm, earns this salary but “feels stuck” according to an article in the Wall Street Journal.
Mike, the Oblivious Investor, argues that even an individual with a reduced life expectancy should wait as long as possible before collecting payments from Social Security. There are some specific circumstances in which it might be beneficial to claim Social Security benefits early, however. Mike explains within the article.
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