In the latest episode of "Congress Comes Together to Screw Millennials," we get news that, unless the Senate acts soon, Stafford Loan interest rates will automatically double this coming Monday. I doubt anyone is particularly surprised, given the state of our national politics; our traditional 3.4% interest rate will just become the most recent casualty of the crippling stasis that defines American politics in 2013.
And yet, if this higher interest rate convinces even a few 18-year-olds not to take on huge debt for that Musical Theater degree, maybe it's not so bad. As college tuition costs rise and students' debt levels follow, a chorus of voices has come to defend the noble bachelor's degree against those willing to question the laughable notion that college is a good investment, period -- regardless of out-of-control tuition costs, stagnating wages or ominous federal jobs reports.
Since 2002, The Census Bureau, The Brookings Institute and Georgetown University have each attempted to present quantifiable data supporting the economic value of attaining a college education. These studies suggest that a generic undergraduate degree is worth at least $700,000 over the span of one's lifetime (Georgetown's study puts the figure at $2.7 million), while Dylan Matthews of the Washington Post's Wonkblog takes this a step further, suggesting that going to college is worth it even if you drop out. He blithely asks,
[...]what happens to people who go to college and don’t graduate? Do they make any more than their peers who didn’t go on to college at all?
Actually, yes. Michael Greenstone and Adam Looney, who’ve done some of the most comprehensive work on the returns to college, have estimated the returns on going to college without getting a degree. They’re very high!
Putting aside the fact that Mr. Greenstone & Mr. Looney's work is far from comprehensive, these wildly optimistic estimates don't stand up to scrutiny. Mary Pilon of the Wall St. Journal details research conducted by Dr. Mark Schneider of the Heritage Foundation, who wanted to explore the lifetime earnings figures that undergird these claims about college's economic value, particularly as presented by a frequently-cited 2002 Census Bureau report titled "The Big Payoff."
One problem [Dr. Schneider] sees with the estimates: They don't take into account deductions from income taxes or breaks in employment. Nor do they factor in debt, particularly student debt loads, which have ballooned for both public and private colleges in recent years.
Unfortunately, the Census Bureau report and the study mentioned by Wonkblog employ the same flawed methodology, simplistic techniques that were originally used as far back as the mid-'70s. Essentially, the study's authors look at the average income of individuals aged 18 through 64 who hold college degrees versus those with only high school diplomas, and compare each year separately. Simply subtract the high school earners' income from the college graduates', add up the remainders, and voilà, you now have the future earnings of anyone graduating college today... assuming, I suppose, that college graduates plan on living their entire lives in 2013, Phil Connors-style.
In the real world, the earnings profiles of 64-year-olds today aren't going to accurately reflect what recent graduates might hope to make in similar fields 45 years from now. Consider just a few of the professions where recent graduates are reasonable to worry about their career prospects: journalists, university professors, state employees, factory workers, recording industry flaks and lawyers, (just to name a few) are all looking to the future with great unease. The career paths of retiring middle-class professionals simply don't paint a realistic picture of what young workers should expect when they enter the job market. In her Wall St. Journal piece, Ms. Pilon notes that the projected earnings of many recent graduates didn't match up to reality:
Dr. Schneider estimated the actual lifetime-earnings advantage for college graduates is a mere $279,893 in a report he wrote last year. He included tuition payments and discounted earning streams, putting them into present value. He also used actual salary data for graduates 10 years after they completed their degrees to measure incomes. [Emphasis added.]
Incredibly, not a single major study of lifetime earnings even bothered to examine historic salary data in the process of building their estimates.
Yet even Dr. Schneider's figure is likely too optimistic: In a comprehensive working paper published last March, economists Paul Beaudry, David Green and Benjamin Sand assert that the aggregate demand for jobs requiring "cognitive tasks" (the type of work that traditionally necessitates a college degree) reached its apogee in the year 2000. According to Beaudry et al., the supply for cognitive work has steadily decreased ever since, even as the percentage of students aged 18-24 enrolled in degree-granting institutions continues to rise to record heights:
This is clearly a recipe for disaster, regardless of whether you've gone (or plan to go) to college. When faced with a shrinking middle-class job market, the reckless creation of millions of new degrees, many contingent upon the repayment of unprecedented loan debt, poses a clear threat to the stability of the economy at large.
It shouldn't be overlooked that the burden of student loan debt falls disproportionately on the young, who face ballooning tuition costs. The Project on Student Debt estimates the average loan debt for the Class of 2011 to be over $26,000, a 5% increase from 2010, while The College Board reports that nearly 40% of the 37 million Americans with student loan debt are under the age of 30. In the shadow of these onerous fiscal obligations, finding and keeping relevant work in one's field can become an anxious, terrifying endeavor, even as the benefits of attaining a degree only grow more uncertain.
As new technology "disrupts" more disciplines and fields, the lean, efficient firms that will dominate the marketplace of the future are likely to employ shockingly small staffs by modern standards. According to a report from U. Penn's Wharton School of Business, Apple, Facebook, Google and Amazon, the four largest tech firms in America, with a combined market capitalization of over $1 trillion,
employ about 190,000 people, fewer than the number of jobs the U.S. economy needs to add approximately every six weeks to just keep pace with population growth.
This is why Millennials should be deeply suspicious of any starry-eyed estimates of the future of job security or growth; the reality is that in far too many instances, when Boomers retire, their quality jobs go with them, only to be replaced by temp work, part-timers or simply reassigned to a workforce already the most productive in history. For those lucky few Millennials working full time, increased responsibilities haven't translated into increased pay. According to the New York Times,
From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount [...] And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.
Still, better to be overworked with a stable paycheck and meager benefits than forced to live day to day; temp agencies are robbing young Americans of necessary insurance coverage, unemployment benefits, stability and, most crucially, the opportunity for career advancement. But they're great for the bottom line, and in a nation with unemployment stubbornly stuck above 7%, they're incredibly attractive to corporations, the majority of which are legally required to act like amoral sociopaths. Christian Science Monitor Business Editor Laurent Belsie notes,
The ranks of on-call receptionists, customer service representatives, nurses, and others swelled to a new record in May, beating the pre-recession peak in 2006.
Even retail and service jobs increasingly prefer to hire college graduates desperate for any work, as Beaudry's study clearly showed:
...while this demand for cognitive tasks directly affects mainly high skilled workers, [Beaudry and his colleagues] have provided evidence that it has indirectly affected lower skill workers by pushing them out of jobs that have been taken up by higher skilled workers displaced from cognitive occupations.
This is the Catch-22 many young Americans face: Either take on enormous debt to attain a degree in a field with little guarantee of relevant, gainful employment, or stay out of school entirely and try your luck competing for minimum wage, service sector work with the hordes of recent graduates bearing résumés printed on card stock and donning neatly-pressed suits.
Neither option is ideal, and finding an effective solution won't be easy -- there are simply too many special interest groups profiting off our broken system. If we want to fix higher education, a number of relevant policy goals need to be demanded by Millennials and their advocates, and they need to be more realistic than the debt forgiveness the Occupy Wall St. crowd demanded. One easy first step would be returning bankruptcy laws to where they stood before 1998, before Congress handed an enormous bailout to big banks and creditors.
Prior to 1998, student loans were dischargeable through bankruptcy, with the caveat that a former student had to wait seven years before she was eligible to use bankruptcy. This waiting period was meant to prevent students with high-earning jobs and hefty loan debt (i.e., med students) from abusing the system to free themselves of their enormous fiscal obligations immediately after graduating (the "moral hazard" argument). Interestingly, a similar rationale has been presented to argue against Obama's call to expand the Income-Based Repayment system.
When Congress reformed bankruptcy law in 1998, all student loan debt issued by the government became nondischargeable, in practically all cases and in perpetuity. Then, in 2005, they took this a step further with the Bankruptcy Abuse Prevention and Consumer Protection Act, which protected even private student loans from bankruptcy dischargement. Not surprisingly, since then the delinquency rate of student loans has almost doubled to 22 percent. It's patently absurd to expect 18-year-olds to fully apprise the risks associated with taking on six-figure loans. The conservative notion that allowing student loan debt to be discharged through bankruptcy creates a "moral hazard" for borrowers is even worse.
In a sense, the conservative voices that have worried about moral hazards were prescient, though probably not as they expected. After the new bankruptcy laws were enacted (and subsequently strengthened), loan originators lost any incentive to deny money to borrowers, and a culture was created where unscrupulous colleges and universities were able to raise tuition costs aggressively, safe in their knowledge that the banks would provide any loans to any students pursuing any degree programs for any reason, without regard to cost, future job prospects or even (in many cases) the realistic expectation that the loan might be repaid. A moral hazard, indeed. And while this is by no means the only cause of the ballooning costs of college, it reveals a broken incentive structure that benefits powerful, moneyed groups at the expense of 76 million Millennials who lack effective advocates in Washington.
Progressives might not enjoy these criticisms, in that they challenge the idyllic view that liberal arts degrees hold intrinsic value and should be protected from the "consumer" college experience. Truth can be a bitter pill to swallow. When caught between limited opportunities for low-wage work and the prospect of enormous debt, Americans are consistently and dishonestly encouraged to make bad decisions that serve to enrich wealthy, powerful special interests (and their investors) at the expense of the broader economy.
It doesn't have to be this way. But if we really want to see a departure from these disastrous policies, Millennials need to put real pressure on politicians from both sides of the aisle to reform our student loan laws. And we must use the tools we have at our disposal to encourage the rest of this Largest Generation to head to the ballot box in 2014 and punish those who would dare ignore us.
Most importantly, we must look to ourselves, and that means occasionally making boring, unsexy decisions when it really counts. Millennials should go to college, yes, but we must be careful to avoid hefty loans at all cost. If you can afford it, there's nothing inherently wrong with spending four years at a private institution learning skills that lack real-world application -- though I wouldn't recommend it. For the rest of us, those unlucky masses not born into independent wealth or blessed with a 95-mile-an-hour fastball, going to college under the burden of deep debt often seems like the only way out of a life of constant struggle -- while, in reality, teenagers are gambling with five- or six-figure loans for an earnings increase that, according to optimistic estimates, only equates to a $5,000-a-year raise. If going to school means risking a lifetime of nondischargeable debt for the dubious privilege of gaining access to low-wage work, Millennials need to ask themselves: Is it worth it?