I was a janitor while I attended in college, so I have nothing against that line of work. Still, this report by John Leo can’t be encouraging to college grads:
Students are paying a bigger share of their college bills, parents are paying less, and families are beginning to turn away from well-known and expensive colleges in favor of cheaper ones, including community colleges or anything near home. So says the 2012 version of Sallie Mae’s annual report, “How America Pays for College,” a collection of dry statistics that nevertheless reflect the rapidly rising anxiety about higher education and whether the cost is worth it.
The anxiety seems justified amid the growing number of students who, after running up $100,000 in student loans, take $25,000-a-year jobs after graduation—placing them in a position akin to the postcrash debtors whose homes are now worth less than what they owe on them.
Glenn Reynolds, the professor and pundit who runs the influential site Instapundit, has popularized the term “higher education bubble,” Some dark scenarios see several hundred colleges disappearing as students turn to online education or skip higher education altogether. Pundits like George Will have embraced the bubble theory (“Many parents and the children they send to college are paying rapidly rising prices for something of declining quality”) and billionaire Peter Thiel, who spotted the housing bubble early, is now paying selected students not to go to college.
Sallie Mae’s report offers a brighter view. It says students and parents strongly agree that higher education is a worthwhile investment in the future and 70 percent think college is needed more than ever. That’s comforting, but several arrows point in the other direction. Almost 54 percent of recent college graduates are underemployed or unemployed, even in scientific and technical fields, according to a studyconducted for the Associated Press by Northeastern University researchers. The study said college grads under the age of 25 were more likely to work at Starbucks or a local restaurant than as engineers, scientists, or mathematicians.
Bureau of Labor Statistics data show that as many as one out of three college graduates today are in jobs that previously or historically have been filled by people with lesser educations or none. The U.S. now has 115,000 janitors with college degrees, along with 83,000 bartenders, 80,000 heavy-duty truck drivers, and 323,000 waiters and waitresses.
Employers, because they realize that many college graduates aren’t really educated, now routinely quiz job seekers on what they majored in and what courses they took, a practice virtually unknown a generation ago. Good luck if you majored in gender studies, communications, art history, pop culture, or (really) the history of dancing in Montana in the 1850s.
Current and former collegians now owe more than $1 trillion in student loans—and only 26 percent of the debtors are currently paying anything back, down from 38 percent five years ago. (These loans cannot be discharged in bankruptcy, a reform imposed to stymie borrowers who would graduate and promptly file for bankruptcy.)
The cost of college rose 440 percent between 1982 and 2007, compared with cost of living increases of 106 percent and family income growth of 147 percent over the same period. The Sallie Mae report indicates that even students from high-income families are taking out student loans—27 percent used federal loans in 2012, up from 19 percent last year.
Can someone please explain why the cost of college rose 440 percent during the same period that cost of living rose only 106 percent? Could it be, ahem, the involvement of the federal government? James R. Harrigan thinks so:
The anatomy of the student loan crisis is similar. Having decided that the path to prosperity is a college education, and that the free market was not providing “enough” college education, the federal government created Sallie Mae (and later, used the Department of Education) to take lending risk away from banks and place it on the backs of taxpayers. The tax code provided modest tax incentives for students to take on more loans, and lately, the Federal Reserve has continued to make borrowing cheap by holding interest rates low. Sound familiar?
As with housing, the price of college education has skyrocketed over the last 30 years (see charticle). Just as homebuyers borrowed to speculate on houses they could not afford, students now borrow to speculate on educations that many will not complete, and which others may find to be of little value.
The impending burst of the education bubble will be far more damaging than the housing bubble. When homeowners got behind on their mortgages, they can declare bankruptcy to free themselves of crippling debt. Either they or their bank can offset some of what they owed by selling the collateral — the house. Students cannot rely on either of these things. Bankruptcy does not wipe out student loans, and an education cannot serve as collateral.
In both housing and higher education, government failed to seek out the reasons why there was not “enough” lending going on. Many people were in no position to afford the loans, and the banks couldn’t afford the risk. With unbounded hubris and dogged myopia, politicians decided to “fix” the market by forcing people and banks to do what each had determined was imprudent.
Just as the government sought to engineer an increase in homeownership, it now seeks to engineer an increase in higher education. This is the stuff of which bubbles are made.