Student Debt Crisis: Is College Still Worthwhile?

The America’s Future Foundation (AFF), a D.C.-based conservative and libertarian group of young 20 and 30-somethings, took a stab yesterday at resolving the ballooning student debt crisis with a panel titled "Are We Borrowing Away Our Future?" The group proposed a number of conservative solutions to what many are calling an alarmingly growing problem that is breaking the banks of both institutions and students.

The numbers are staggering. Student debt for graduating seniors with loans now exceeds $26,000, up 40% from what it was seven years ago (not adjusted for inflation). According to the Federal Reserve Bank of New York, 13% of student-loan borrowers owe more than $50,000, and 4% owe over $100,000. Forty-three% of 25-yea-olds had student debt at the end of 2012, an increase from 27% in 2004.

Average tuition, room and board at four-year colleges in America notches in at just below $22,000 a year — an increase from just under $9,000 (adjusted for inflation) between 1980-81. The median family income in that same period, adjusted for inflation, rose only modestly from $46,000 to $55,000. Low income students continue to face disadvantages, experiencing lower application rates and higher drop-out rates than their more privileged peers from middle and high-income families.

But what’s most astonishing is the scale. Total outstanding student debt in this country tipped over $1 trillion, just a few months ago, surpassing credit cards as the leading source of household debt outside of mortgages. (Yes … that’s trillion. With a T.)


 

If this sounds unsustainable, it is. Higher education is a bubble plagued by soaring costs, decreasing quality, and a general inflation not just in cost of the degree, but in its worth in the job market. Yet even so, college still has its advantages. A new study from Brookings confirms that “college graduates make significantly more money over their lifetimes than those with only a high school education.”

The problem is a large increase in the amount of highly-skilled laborers on the job market, combined with a decade-long plateau of high-skilled jobs. In a new paper released this year, researchers at the University of British Columbia use this phenomenon to explain the relatively low employment rate in the United States, tracing current job prospects back to the tech bubble burst of the late 1990s:

“…we document a decline in that demand [for highly-skilled workers] in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.”

What does this all mean? A graduate’s prospects may be down from what they were in the early 2000s, but they’re still higher than a non-graduate’s. Meanwhile, the cost of that degree continues to grow, with more and more undergraduates finding themselves in competition with masters and Ph.D candidates for entry-level positions.

Some have referred to this as the “Batista effect,” as those with bachelor's degrees are taking entry and low-skilled service jobs, gradually filling up the bottom rungs of the labor market and forcing out entirely those who don’t hold diplomas at all. 

(Disclaimer: I work at a coffee shop). 

College administrators are equally frustrated, frequently citing heavy competition among other schools as reason for increasing tuition rates. There seems to be something of an arms race for the nicest amenities — pools, gyms, nice dorms, great food, small classes, etc. — a necessary factor in wooing top applicants.

The panelists addressed these and more issues, debating a number of different potential solutions, including the breaking-down the stigma around artisan and trade-school programs, and supporting manual kinds of labor as an option for those who don't need college for their ideal career path.

“Some people are cut out for pluming and woodworking,” explained Gabriella Hoffman, a regional field coordinator for the Leadership Institute. Hoffman holds a degree from the University of California, San Diego. 

None of the panelists discussed collegiate achievement gaps across socio-economic lines.

Most compelling were a few ideas put forth by Bill Gonch, of the American Council of Trustees and Alumni (ACTA). He cited the college and university accreditation system a broken link in the chain, accounting for a cripplingly strict set of parameters that new colleges must meet before they can be accredited for federal funding or support. Gonch described this as a process that at once discourages students from investing in new programs and new schools, and prevents entrepreneurial educators from testing new modes of teaching. 

“ACTA has proposed … that the federal government de-link federal student aid from accreditation. Allow the market to determine what models will be successful…unleash the kind of entrepreneurial spirit that drives most markets, and can drive higher education as well.”

Deregulation and privatization of insurance were prominent themes of the evening, with many panelists citing unlimited federal aid as the reason for unlimited tuition costs. Whether or not the AFF or ACTA will come up with the solutions to the industry remains to be seen, though, it's safe to say the only option off the table is doing nothing at all. And, at the least, this is a conversation people have started to have.

I, meanwhile, will be making lattes.