I graduated from college with a degree in political science. I never regretted that degree because I got it from a top-notch state school and left with only $12k in debt that I paid off in three years. But even though I am an avid student of art, history, economics, politics and the sciences, I will never step foot in academia again. Why? Because with few exceptions higher education is a waste of money.
This is an argument that I first ran up against many years ago while running the ITPAA. A common complaint made by those supportive of importing skilled labor – people like congressman David Dreier (R-CA), former New York senator Hillary Clinton, and Bill Gates – was that there weren’t enough highly educated workers in the American workforce. Their solution? Import skilled workers and fix America’s education system by throwing large gobs of money at it.
But as someone with 12 years of experience in the information technology field, what I saw were highly educated Americans being replaced by highly educated but lower paid foreigners. This LA Times article from 2006 notes the problems faced by educated Americans in the increasingly globalized labor market.
Most studies suggest that beyond the manufacturing sector, the “offshoring” of jobs has been comparatively modest. But some analysts say the ground has been laid for a substantial pickup. In a recent paper, Blinder offered a rough estimate that suggested that as many as 42 million jobs, or nearly one-third of the nation’s total, were susceptible to offshoring.
These analysts warn that more education alone will do little to stop the flow of jobs to other countries.
“What’s missing here from both parties is a global economic strategy and a worker adjustment strategy,” said Anthony P. Carnevale, a scholar at the National Center on Education and the Economy who was appointed to major commissions by Presidents Reagan and Clinton.
“When they don’t know what else to do,” he remarked, “there’s a tendency among politicians to stand up and say ‘education.’ “
As Carnevale noted, politicians love to cite their commitment to education and offer their program to fix it. Bush promised
to expand Pell Grants for college students. As well as expanding Pell Grants further than Bush, Barak Obama promises
to “make college affordable to all Americans.” In 1997 President Clinton promised to
“open the doors of college to all who work hard and make the grade.” Education has become some magical fairy dust for politicians to sprinkle over the electorate to make them prosperous.
Unfortunately it hasn’t worked. The education has not provided everyone with the high paying jobs promised by the pols, and worse it has left them with mountains of debt.
How big are those mountains? Figures found vary from as little as $10,000 to $26,000 with the average being somewhere between $19,000-$21,000. A fiscally sound rule of thumb is for a new graduate entering the workforce to avoid paying more than 10% of his or her monthly gross income to student loan repayments. A loan of $20,000 at 6.8% for 1o years results in a payment of $230/month. To comfortably support this debt load requires a starting salary of $27,600. The National Association of Colleges and Employers publishes an annual survey of starting salaries for college grads, and the lowly Public Relations major wins the honor of lowest starting salary in June 2008 at $30,667 – beating out Journalists ($32,250) and Liberal Arts majors ($33,258). Granted college graduates expect to do earn more as they gain experience in their chosen fields, but they also tend to buy cars, homes and have children, increasing their financial responsibilities.
A recent article in Forbes article (hattip: Half Sigma) referred to the education as economic solution panacea as the “Great College Hoax” and noted:
For an indication of how out of touch the degree factories are with economic reality there’s no need to pick on UCLA’s course in queer musicology or Edith Cowan University’s degree in “surf science.” U.S. universities also minted 37,000 history degrees in 2006, including 852 Ph.D.s. That for a field with fewer than 500 job openings and average pay of $48,500. Plumbers, by contrast, enjoyed 16,000 new jobs that year and earned only $6,000 less than historians, census figures show.
The problem is that college tuition has been fueled by cheap student loans. As long as students could finance their education, and the government backed their loans with federal funds, banks were willing to loan them the funds needed. Consequently colleges and universities felt no pressure to lower their fees – resulting in tuition increases that outpace inflation. This lead to students needing even more loans and finishing their schooling deeper in debt – resulting in an ”Education Bubble”.
But the bad economy has exposed the truth about these loans. The tight job market is making it difficult for students to land the jobs with salaries required to keep up their student loan payments. With many former students now underemployed or unemployed, default rates are expected to rise. But thanks to changes made to the bankruptcy laws in 2005 bought and paid for by lending institutions, it’s almost impossible for student loans to be completely discharged during bankruptcy. Newly minted grads are faced with the double whammy of huge mountains of debt coupled with the worst job market in over a generation.
During the Education Bubble student loans became a substitute for parental contribution since most parents were indebted themselves. As loans dry up the bubble will deflate since students will not be able to afford the rising cost of tuition.
More students will be forced to make adult choices earlier than they would have during the inflation period of the bubble. Some may avoid a four year college altogether and choose either a community college, a trade, or the military. Others will pay closer attention to the value of their education, avoiding expensive private schools in exchange for public schools, or pursuing degrees that have been proven more lucrative after graduation.
In the end the price of education will fall as demand dries up. Schools will have to make decisions and cutbacks to adjust to a reality where students focus more on the value of their educations. Only then will students receive an education that prepares them for the “real world.”