The results of the Network’s study lead us to ask what may seem like a politically incorrect question: Should a four-year college degree really be for everyone?17 College graduates are clearly vital for a vibrant economy and for the future of our nation—but so are many other positions that do not require degrees from four-year institutions. The goal of higher education isn’t only getting a better job. But at the end of the day, that’s probably what matters most. “Students are ultimately here to get a better job,” says Winter. “I mean, some of them are here to learn. But the bottom line: They know they have to get a degree to get a good job.”
For young people who don’t have the skills for, or even the interest in, a four-year degree, we can strengthen pathways that align with their talents. In today’s world, students must get some education or training after high school, and the schools should make visible real options for students who are not bound for four-year institutions. Students should be taught that there are feasible alternatives to four-year institutions and degrees, and that there is value in them. We must ask ourselves: When did becoming nurse practitioners, police officers, child care workers, or landscapers take on the taint of the “also-ran” in life? Not going to college should not mean failure. No students should hate themselves because they repeatedly try but fail.
For those young people who just don’t know what they want to do yet, a gap year might be the solution. Britain offers students the choice of deferring their college acceptance for a year. They can use this time to road-test a profession or head overseas to volunteer or backpack in Europe before jumping into college life. Nearly a quarter of a million British students opt for this gap year annually. For students who are well prepared for college and have clear visions of their futures, in contrast, three years of undergraduate work may be enough. For example, students who have taken college courses or gained many Advanced Placement credits in high school may not need four years to complete an undergraduate degree. Similarly, students in specialized programs, such as pre-law or medicine, may not need four full years of undergraduate work before they begin their professional training. All of these options involve breaking up the lockstep way we think about education with the hope of offering more possibilities for students with different desires and needs, which we take up in the final chapter.
More elite parents, too, have a role to play at this critical juncture. That role is simple: Stand down. There is no need to abandon your children’s academic career. There is no need to stop wanting the best for them. But the arms race of higher education cannot continue without threatening to rip the country in two. The recession may have been the outside intervention that forced a long-overdue reassessment. We should consider it a golden opportunity to demand more equality for all kids, including those in the solid, but increasingly anxious, middle class. In the United States, we take the approach that it is, for better or worse, up to individuals and their families to find their way into adulthood. A free and open market may serve the country well and drive innovation and excellence. But the extreme emphasis on self-reliance can also backfire. Those with the means can muster the extra funds for tutoring and volunteering in Guatemala and pre-college counselors without feeling the pinch. For the majority, however, it is a much larger sacrifice. Commutes get longer, parents work longer, tensions snap, health suffers. Smart for one, smart for all—that’s what we should demand. That means demanding, for a start, education reform that ensures an equal start for all. It means not pulling children out of the public school system but instead demanding better results from public schools and state universities. When all parents put their weight and voice into improvements, they cannot be ignored. It means demanding that more and better counselors be hired. It means creating a network of well-trained and qualified mentors. It may even mean demanding an end to the need for senseless credentialing when on-the-job training or apprenticeships might be a better option. It means a collective agreement that the reality is truly all-for-one and one-for-all. Without it, we will guarantee one thing: a stark future. In a country that increasingly demands education to get ahead, not getting an education locks in disadvantage for generations. In 2009, the largest group of high school seniors in the nation’s history, 3.2 million students, graduated. There is no time to lose.
2
Financing a Future
After two decades on Easy Street, young adults awoke in 2009 to a new nickname: Generation R, for “recession.” All too suddenly, the party was over and only the hangover lay ahead. While not the creators of the current mess, they will certainly be shaped by it. A recent study shows that people who enter adulthood during recessions more often develop an enduring belief that success in life depends more on luck than on effort. Other studies have found that those who are laid off during recessions earn 20 percent lower wages over their lifetimes than those who are able to hang on to their jobs.1 This generation’s expectations for high starting salaries and fast money were shattered as Wall Street melted down over the course of three months in the fall of 2008. Parents’ once-open checkbooks were emptied by falling 401(k)s. The value of the condos they set their children up in tanked. The price of that Ivy League degree floated out of reach for many. Overnight the banks called in the note and far too many people, of all ages, found themselves going under as years of living on borrowed dimes came home to roost.
As the 2008–2009 economic crisis exposed, Americans had been living beyond their means. While debt was once a four-letter word in America, adults—young and old alike—had in recent years become too comfortable with red ink. Savings were at historic lows. Families had fed their spending habits by refinancing their mortgages on the assumption that the value of their homes would continue its amazing climb, only to find themselves underwater when the value of those homes dropped dramatically. Personal bankruptcies crept up, and the number of home foreclosures doubled and even tripled in some areas. Very few people were left unscathed. Debt was fast becoming a universal bond.
The crisis momentarily turned the spotlight away from young adults. Before then, the media had singled out this generation for their spendthrift ways, and others had attributed their “failure to launch” to their crushing student loans and credit card debt. In one of many examples, a lead article in USA Today in August 2007 trumpeted: “Students suffocate under tens of thousands in loans,” arguing that the “weight of debt is forcing many to put off saving for retirement, getting married, buying homes and putting aside money for their own children’s educations.” In the less sympathetic version of the story, young people were just spoiled; they expected and needed too much, too soon, in life. They wanted the $1,000 handbag, the plasma-screen TV, and the high-end condo. They gallivanted about the town using Daddy’s credit card, enjoyed bottle service at the clubs and designer clothes in their closets, and lived rent-free in expensive condos their parents paid for. After all, they deserved it—they’ve been told so all their lives. They were, according to these accounts, overindulged and coddled.
The media sensationalism over this “strapped” generation may sell newspapers, but it does little to uncover the real story. As we’ll show here, certain young people are indeed in very fragile circumstances, often just one step away from financial disaster. But they are in this position not because of college debt or lavish spending. One of the key reasons they skate so precariously close to financial ruin seems almost heresy in this age of contraction: They are afraid to take on debt. That is, they are unwilling, and in some cases unable, to take on the kind of debt that helps to secure a more stable future: debt from a college degree. Given the headlines about the young people who are starting out in life saddled with $60,000, $70,000, or even higher amounts of college loan debt, this proposition seems preposterous. But as we will show, these news stories are often overblown. College costs have definitely risen, but the headlines that claim that kids are suffocating under college debt, burdened by it for decades, are selective at best and damaging at worst.
Much of t
he debt that young people carry today is not college debt. It is the high cost of not investing in college. Indeed, it is usually those who have minimal education or training who become caught in a vicious cycle of debt. Their problems begin when they don’t invest in college and, ironically, when they embrace the responsibilities of adulthood too soon. Without solid earnings, they cannot save. Without savings, the simplest setback—a fender bender, a burst pipe, or an unexpected doctor’s visit—can force them to pull out a credit card, the bill for which is added to the growing pile at month’s end. Making a minimum payment barely makes a dent because the interest on the outstanding balance tacks on about the same amount the minimum payment took off. Add in a late fee or a steep overdraft charge, and it quickly becomes a deep hole of debt. These young people find themselves sinking into the money pit as the bills pile up and their incomes slide. The job market that once supported those with minimal education in relatively well-paid and secure jobs with benefits no longer does so. Most of these jobs have disappeared; to get ahead today, education is no longer a luxury but a necessity.
While this group of young people has underinvested in their futures, there is another group that may have done just the opposite. They may have actually overinvested in their degrees. This is the group that we most often hear about in the headlines. Often from middle-class families, these young people have succumbed to the pressure to buy the best education possible, even when they cannot afford it. Their parents have worked relentlessly to ensure the good life for their children and want those children to do even better than they did. To do that, they’ve been told, means getting their child into elite private schools, the all-but-guaranteed road to success—no matter how great the cost. And the consequences are only now being reckoned with. The money parents spent on gold-plated degrees may have been more easily absorbed when jobs were plentiful, housing values were on the rise, and stock portfolios were expanding. But today, the story is suddenly different.
For the Cost of a Car Loan
To read the headlines today, you would think every college graduate was saddled with $60,000 or more in debt. Robyn’s complaint on the website of the Project on Student Debt in 2008 is typical. Living in Syracuse and working as an art teacher, she is feeling the pinch of college debt:
My point of view is that colleges/universities and lenders are out to get as much money from students as possible. My personal experience has been one of struggle and frustration … Every penny of my 6 years of school came from federal and private loans, including a semester abroad. Naive and uninformed, my parents and I took out loan after loan. Now I am an educator with $70,000 in debt. I work at a private school, and my income barely covers my meager cost of living.
Hundreds more of these stories appear on this website and others. Of course, these websites are designed for the Robyns of the world. Very few happy graduates without debt, or with manageable debt, write in to sites such as the Project on Student Debt. In the bigger picture, Robyn is in fact the exception and not the rule.
There is no doubt that the cost of going to college has risen. The class of 1968 could expect to pay roughly $1,500 in tuition and fees for a bachelor’s degree at Arkansas State, a typical state school, or about $8,800 in today’s dollars. At Harvard or Princeton, they could expect to pay approximately $8,000, which translates into $47,000 in today’s dollars. Graduates today may swoon over these figures. The price tag for tuition and fees in 2008 at Arkansas State was approximately $20,212 for a bachelor’s degree. A degree from Harvard topped out at $130,000 in 2008. None of these figures includes room and board, books, and other expenses. Indeed, the average price tag for tuition, room, and board at a public four-year college rose 67 percent between 1987 and 2008.
With the rising costs, though, came new ways to pay for them. In the late 1960s and early 1970s, college-goers had fewer options to subsidize tuition and fees. There were no education tax breaks, which account for 6 percent of financial aid today. Federal subsidized loans were available, but the eligibility criteria were frequently left up to universities themselves. Today, federal loans constitute nearly half of the financial aid pie. State grants were in their infancy back in the 1960s, as were Pell Grants, which help low-income students foot the bill, although Pell Grants have in no way kept pace with inflation. As a result of the rapid rise in college costs and available financial aid, both public and private, college students are now more likely to rely on loans. MacArthur Research Network member Cecilia Rouse and her colleague at Princeton, Jesse Rothstein, find that two-thirds of full-time students held a student loan in 2004, up from just over one-half a decade earlier.2 Some of this increase stems from supply—there are more loan options available. Some of it is also spurred by demand—there are both more students and higher costs.
The media stories are right in pointing to the rapidly rising costs of college, and we should be worried about these costs for certain groups, such as low-income families and students of color, as we’ll show later. But one point that’s overlooked in these sensationalized accounts is that while college does cost more and more students have loans today, that debt is rarely debilitating. Sure, students perceive it as an albatross around their neck—no one likes a monthly bill stretched out over ten or fifteen years, regardless of what it is for—but for the most part, it is still manageable.
Today, the typical college graduate with debt from a public university leaves school owing $20,000. For a loan this size, monthly payments are approximately $250—the equivalent of a car loan. Few complain about a loan for a car, which, unlike a college degree, loses value the minute it is driven off the lot. Due to the higher earning potential of college graduates, the Network finds, the average student has paid back all but $7,000 of his or her debt just three years out of college. An even more surprising statistic is that only three in ten young adult households ages twenty-five through thirty-four have student debt.3
Grousing aside, relatively few graduates experience financial straits because of their student debt. The rule of thumb is that graduates should not devote more than 10 percent of their salaries to paying off their student loans. The typical student in 2000 was devoting about 6 percent of his or her salary to student loans one year after graduating.4 This debt burden has likely risen since then because interest rates on loans have gone up slightly and the job market has tightened. When the 2000 study on debt burden was done, the job market was robust, unemployment was at record lows, and interest rates on student debt were in the 3 percent neighborhood. All of these factors affect the debt burden, which is based on salary, loan repayment terms, and total debt. Nevertheless, it is still likely manageable for the average college graduate.
The key, however, is to graduate. Those who drop out of college with student debt are not reaping the full payoff from a college degree, and yet they still have a college tuition bill to pay. Also, students whose parents are in financial straits themselves, and who cannot help cover the costs if their child runs into trouble, are more likely to feel the pain of burdensome debt, as are students whose academic success is questionable or whose choice of career does not match the cost of their degree. The job market is where the return pays off and if a graduate cannot land a job or has a gold-plated teaching, social work, or creative writing degree, the pain of debt will be felt more acutely. That is why, as we show later, being strategic about college choices is imperative, and even more so as unemployment hovers at 10 percent and the competition for jobs is stiff.
Viewing College as an Investment, Not an Expense
So why all the hoopla over college costs, such as these recent headlines: “Going Broke by Degree,” “Rising College Costs Saddle Generation Debt,” “Parents of Preschoolers Confront Future College Costs”? College costs have certainly risen, but David Shulenburger, vice president for academic affairs of the Association of Public and Land-Grant Universities, sees it from another angle. For one thing, he says, “We view college as a consumer expenditure rather than an investment.” Many c
onversations about affordability hinge on a family’s current income. Is college affordable when it costs 7 percent of a family’s annual income to put their kid through school? Ten percent? Yet this question focuses on the immediate year’s income rather than on long-term earnings. “If you look at college as an investment,” says Shulenburger, “then you’re thinking less about the amount and whether you can afford it within your current income versus your earnings stream.” When viewed that way, college debt represents just over 1 percent of lifetime earnings for the typical college graduate.5 It also offers a return on investment of between 6 and 8 percent, which is better than the stock market these days. The same shortsighted view is true of paying back the debt for college students themselves. They tend to look at the payment this month, but not how their degree will affect their earnings down the road. The difference in perspective is one of immediate gratification versus later payoff, or investment.
What Robyn and many like her do not realize is this: Her master’s degree will more than double her lifetime earnings over those of a woman who does not go to college. Network economist Sheldon Danziger finds that a woman in 2002 with some master’s training (assuming Robyn didn’t finish her degree) earned $44,000 on average, while a woman with only a high school degree averaged $20,000. Even if Robyn had only earned a bachelor’s degree, she would have earned approximately $300,000 more in her lifetime relative to a high school friend who did not go to college—even after subtracting the original cost of college, the earnings she missed while she was going to school, and other “sunk” costs. The earnings gains from even a two-year degree, Danziger finds, are about $3,000 a year. Earning $23,000 a year versus $20,000 might not seem like much, but that extra $250 a month can mean the difference between living in a dangerous neighborhood and a decent one. Furthermore, this “return” to college—the doors that it opens and the pay premium that it leads to—has doubled since 1975, as the job market has demanded higher-skilled workers and as the wages of the lowest-skilled workers have plummeted.6
Not Quite Adults: Why 20-Somethings Are Choosing a Slower Path to Adulthood, and Why It’s Good for Everyone Page 6
