By Erin Lale
Higher education is touted as the sure road to a good job, but today’s graduates are finding themselves competing for entry level jobs against older, experienced workers. Mid-career unemployed are going back to school to retrain in different fields, not to fulfill a dream, but merely because they are unable to find work. Tuition prices keep going up. By definition, loaning a lot of money to a jobless person is a high risk loan. Since school loans are considered a social good, government ‘solved’ that issue for private loan issuers by making it illegal to discharge student debt in bankruptcy. That does not make it any easier for a new graduate who went back to school due to unemployment and is still unemployed on graduation to repay the loans, however, and being unable to discharge them just means student loans are turning toxic, like bad mortgage-backed securities.
I asked a variety of people, “Is education the next bubble?” In this first part of the series, students, educators, and experts define the problem. In part two, a diverse group of people will present some innovative solutions.
Jim Schultz, CEO of Applied Educational Systems, aeseducation.com, said, “It depends. Typically, regions will differ in their labor needs. Think Columbia, SCversus San Francisco, CA. Very different needs for the unemployed and underemployed.
In my experience, some workforce or career training programs are set up because of national or state political agendas and not necessarily based on the labor needs. Examples are Solar and Alternative Energy training programs that have appeared in the last 2 years with the backing of federal funding. I’m not sure statistics support the funding investment based on the labor needs for these programs. When this happens, you have a bubble, with too few jobs available for the graduates.
However, one of the biggest demands in the labor market is in health care. At this point, CTE and community colleges do not produce enough qualified candidates to keep up with the demand. It’s tough to call investments in health care training a bubble based on demand and future demographics.”
Naresh Vissa is a recent Master’s degree graduate who has written on student loads for USA Today. He said, “It’s really the fact that the government supports student loans that leads to higher tuition. Government encourages students to go to more expensive schools, such as out of state schools. They say, go to a school that costs $50,000 a year and you’ll be set for life. There was a girl who sued her college and the government because she was misled that they told her to come here, get a degree, and you’ll get a good job, but she didn’t get a good job. Without loans, we’d see lower prices. When people keep borrowing, tuition will keep rising. It will probably reach $100,000 a year.”
John Ulzheimer is the President of Consumer Education at SmartCredit.com. He said, “While we were focused almost exclusively on how to get out of credit-card debt we now face an almost unbelievable amount of student loan debt, over one trillion dollars. Given the nature of student loan debt most of the debtors will either pay it, or die with it. Thanks to the CARD Act a student under the age of 21 can’t get a credit card on their own but can easily obligate themselves to 6 figures of student loan debt. This, of course, makes no sense. And while the interest is normally tax deductible and the rates are very low paying off a student loan is almost like paying off a small home loan. “Student loan debt is fairly benign to credit scores because it’s an installment debt. Installment debts are much less damaging to your FICO scores than revolving credit card debt. The problem is if you pay late or even default on student loan debt it has the same negative impact as defaulting on any other consumer loan.”
Marcia LaReau is President of Forward Motion. She said, “As a Career Strategist working with early and mid-career jobseekers, I believe that education, especially higher education, certifications, etc is still extremely important to an unemployed jobseeker.
“Today, without a degree, it is next to impossible to get a job that pays a living wage. A terrible trick has been played on jobseekers who did not get a degree years ago when it wasn’t a “rite of passage” to find viable work. Now, they are being told, “Too bad. You should have finished that degree 25 years ago…too bad you didn’t have that insight.”
“This phenomenon is hurting jobseekers in a different way. They see the requirement for a degree – any degree – and these people who have so much skill and knowledge, begin to feel like second-class citizens. If there was a way for them to complete a degree it would do a ton for their self-esteem.
“Going back to school as a mid-career adult is hard. I did it. It was hard. It felt like I was taking 10 steps back. However, as I watch mid-career people who go back for certifications, etc. It does something wonderful for them. It gets them doing some hard thinking, problem solving. It keeps their mind moving and not pondering possible negative outcomes of their unemployment. The tangible success of passing a class if gives them confidence. Helps the to feel viable, and confirms to them that they have value to offer employers.”
Ian McKenzie works in the education industry. He said, “In Great Britain, since 1997 the Government aimed for 50%+ of all 18 year olds to go to university.Job hunting was difficult then, and many opted to take out huge loans for courses of spurious valuewhich had been invented to meet the increased demand.Property prices in popular university towns skyrocketted and in the decades since the uni degree has become devalued, forcing those students seeking jobs take on additional post graduate qualifications to stand out in the job market, only to provide those hiring for low-level jobs an overqualified pool of desperate graduates who are now being told they do not have any real life experience which makes them suitable for the world of work, lumbered with qualifications beyond their college degree which they will never use.”
Mark Kantrowitz, Publisher of Fastweb.com and FinAid.org and author of Secrets to Winning a Scholarship, is the original source of the statistics that there are $1 trillion in student loans and that student loan debt exceeds credit card debt. He said, “About 10% of college graduates have more debt than their annual income, but we would have to have 25% to have a bubble burst. We are in a period of sharp decline of affordability. Grants have been declining. Federal and state budgets have both cut their education grant money. Students graduate with too much debt, students shift from private to public and from 4 year to junior colleges. Or don’t go to college at all. College degree attainment by low income students has been declining. It will be probably at least 2 decades before we see an ed bubble burst. On average, ed pays off, but that’s an average. Some students have lower incomes after college. Someone who is studying religion education or art should not borrow as much as students studying nursing or petroleum engineering. The best way to save costs and still get a great education is to go to an in state public college. There are about 6 dozen elite colleges that have no loans in their financial aid packages, it’s all grants and student work. Finaid.com/noloans has a list of them. Students graduating fromPrinceton usually graduate with only $6,000 of debt. If your debt at graduation exceeds your annual income you’ll at least have to stretch out your repayment to 20 or 30 years. More students that graduate from nonprofit colleges struggle to repay their loans than students from private for-profit colleges. You have to go into with your eyes wide open. Most people talking about a bubble either are trying to convince investors that the bubble will pop so they can short the stock, or protestors who want a greater education bubble. In subprime mortgages you had a disconnect between the price and the value, but you can’t flip an education. For the bubble to burst, you have to have a liquidity that is suddenly withdrawn. These days you can’t get a private student loan if you’re a subprime borrower, and with the federal loans, if the federal government runs out of money to make loans we will have a much greater problem than an education bubble. The fed govt will not stop funding student loans because they are profitable to the fed govt. Cutting federal student loans will cost the government money. The most you can borrow from aStafford loan as an individual is $31,000 aggregate, but annual limits for a 4 year degree only reach a $27,000 limit. Average student loan debt at graduation for a BA is $27,000. Two thirds of BA recipients graduate with student loan debt. Students who drop out are 4 times more likely to default on their loans, but also have less debt.”
Dina Gusovsky is a producer at Bloomberg TV, which reports financial news. She says, “College costs are skyrocketing and research shows that students and their families are burdened with more and more debt. Parents now expect students to help with those costs as well.
“Colleges have now hired marketing officers to try to sell their message/identity. So while higher education costs soar, students are saddled with more debt and if they fail to pay off that debt, taxpayers are forced to shoulder those costs.
“The student loan bubble could, in many ways, be even worse than the mortgage crisis because when it comes to housing, homeowners had options, albeit unappealing, to get out of their financial holes. They could sell their house to pay down their debt or they could declare bankruptcy—neither of which students can do. Students can’t get rid of student debt just by declaring bankruptcy.
“The other big difference between the student loan bubble and the housing bubble is the fact that the student loans are owned mostly by the government. This also means that if the bubble were to pop, the taxpayer would bear more of the burden.
“Another interesting note to keep in mind: Rising college costs are taking the biggest toll on a surprising group: upper-middle-income families. And it seems like it’s only getting worse.” Mario Almonte is a PR specialist who works with clients in the educational field. He is also a blogger for the Huffington Post. He said, “A fundamental change is coming to education in America, with many Americans beginning to reconsider whether they really get a better quality education if they pay more for it. There was some truth to it in the old days, when ‘knowledge’ was exclusively in the hands of a privileged few. Today, however, technology has made ‘knowledge’ a commodity easily obtainable by anyone with a cheap computer. People are realizing that a Yale education offers nothing that you can’t get in most community colleges, and therefore provides little advantage over anyone who attended a cheaper local school. “In a very true sense, Ivy League colleges are much like fat, bloated companies that have become so big and so profitable that they can’t change with the time. They believe so much in their own hype about the exclusive and superior nature of the education they provide students that they basically scoff at any person or any social trend that indicates otherwise. As a result, they follow an archaic philosophy about education that is no longer relevant in the modern world. “Even now, educators at places like Yale and Harvard probably dismiss any criticism about the price of their education with the same sense of superiority that an expensive, fashionable boutique scoffs at any customer who asks the price of their merchandize. Their response is: If you must ask the price, you can’t afford, so just move along. “Of course, there is still plenty of old money from alumni pouring into many upscale Alma maters, so they don’t see any reason to change with the time or discount their services. But within several generations, we will see a vastly different educational landscape, and the Yales and Harvards of today will be distant memories.”
Andrew Schrage of moneycrashers.com said, “People are going back to school in the hopes of finding better opportunities, but the reality is that what many are actually finding is a new job that pays nowhere near enough to pay off their student loan debt. Sooner or later, this will make people realize that going back to school is not the best answer, and universities will be left with large numbers of teachers and staff with no one to teach.
“Another statistic which seems to point that there already is a bubble waiting to burst is student loan default rates. They’ve increased from 7% in 2008 to almost 9% in 2009, the latest year in which data is available. So if this trend continues, the bubble will also eventually burst. This is also why many say that President Obama stepping in and preventing federal student loan rates from doubling, which he did in July, was one of the worst things that could have been done, as this will simply allow the bubble to continue to expand, which will eventually result in a larger collapse.
“An article recently published in The Washington Post stated that studies done by the Department of Education and other government agencies across three presidencies showed absolutely no correlation between the availability of student loans and tuition hikes. The article goes on to say that any such claim is urban myth and nothing more.
“On the other hand, 47% of the American public think that it’s true, and according to the College Board’s Trends in Higher Education report, both tuition and the total amount of financial aid used by each student have increased by roughly 50% since 2000. But even with this information, many experts also point out that it very well could be that rising tuition costs are what’s spurring the increased availability of federal aid and not the other way around.
“But there have been studies that apparently bear out the hypothesis that more student loans equals higher tuition. A mathematically complex report published in February of this year by the Center for College Affordability and Productivity concluded that the pricing strategies of colleges and universities are intertwined with the level of federal aid available. Those on this side of the argument also point to the Department of Education’s own 90-10 rule, which precludes for-profit colleges from receiving more than 90% of their funding from federal financial aid programs. The result? Colleges boost tuition to satisfy this rule.
“Although many experts and pundits do claim that higher education is the next economic bubble to burst, a closer look shows that this is just one of a number of bubbles which could literally burst at any time in the near future. Among others, there is the credit and debt bubble, the bond market bubble, and the green technology bubble. And for the latter, some say it’s already bursting, citing the bankruptcies of numerous green tech companies in the recent past, including Solyndra, Abound Solar, and others.
“Which will burst first? I would argue that the next tell-tale benchmark for the higher education bubble will be next July, when student loan rates are set to double again. If they are allowed to, that could be the turning point. Will any of these other markets bust before then? It remains to be seen.” Denise Beeson said, “I teach at a large community college in CA. The bubble has burst! We serve about 60k students annually and are only reimbursed by the state for just over 30k. We cannot offer the number of section or variety of classes that we once did but cannot deny admissions to any qualified applicant so we limit the class offerings.The student may consider 4 years to just graduate from a community college because of these limitations. In addition, the student will need to identify a career path upon entering the JR college. This may be an excellent idea for some, however many entry level students do not have any idea what career is in their future. We do not have any universal criteria that would assist the student start in a general education pathway. Each Cal State and UC campus has their own undergrad criteria for transfer which makes this a very confusing and frustrating system. If a student starts in one direction and then changes their mind, they may have to consider other classes for transfer to the institution of choice.”
In Part 2, coming soon, students, education professionals, and experts offer solutions to the student debt crisis.