44% underemployment for new grads is OK

44% of Young College Grads Are Underemployed (and That’s Good News), writes Jordan Weissmann in The Atlantic.  In a weak economy, many new graduates have to take jobs that don’t require a college degree, argues Weissmann. It’s worse now “because the economy got fed through a wood chipper during the recession and we still haven’t picked up all the pieces,” not because a bachelor’s degree has lost value.

The unemployment rate among recent college graduates tends to move “in step with unemployment among all working age adults,” he writes. New graduates are having problems because everybody is.
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College graduates during the 80s and early 90s were as likely to be overqualified for their jobs as young graduates today, according to New York Fed President William Dudley. Most graduates then eventually found professional jobs.

The obvious difference between higher education today and in 1990 is the cost of a degree, and the amount of debt students take on to finance it. So while failing to land a college-level job straight out of school might have been tolerable in the past, today it might mean severe financial hardship, especially if students aren’t savvy about how to handle their student debt (three words: Income. Based. Repayment).

There’s evidence that young people who graduate into a recession and start lower on the job ladder never recover completely.

I’d like to see a good survey asking whether collegebound students understand their likely future earnings and loan payments. Do they know the risks? If they did, second- and third-tier private colleges would have to slash tuition or go out of business.

Be deeply suspicious of promises that a bachelor’s degree will raise earnings significantly, warns Tim Donovan on Salon. If the “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,” he writes.

No compromise on student loans

Interest rates on federally subsidized student loans double today from 3.4 percent to 6.8 percent. The Democratic Senate leadership blew it by rejecting a sensible bipartisan compromise, writes Matthew Chingos of the Brookings Institution.

The new proposal, from a group of senators including three Republicans, two Democrats, and one Independent, offers a permanent fix to the now-annual problem of Congressional meddling with interest rates by instead tying rates to the market.

The bipartisan compromise would fix the interest rate for the life of the loan, so there’d be no surprises for borrowers. It also cuts rates on unsubsidized loans used by students from middle-class families. “By charging higher rates to graduate students and on the PLUS loan program for parents, the overall plan is close to budget-neutral according to the Congressional Budget Office,” Chingos writes.

Massachusetts Sen. Elizabeth Warren has proposed letting students pay 0.75 percent interest,  ”the same ultra-low rate that banks currently get on short-term loans from the Federal Reserve,” notes Glenn Harlan Reynolds in the Wall Street Journal. Linking interest rates to the market rate is “immoral,” Warren said, rejecting an earlier Republican proposal. What’s Really ‘Immoral’ About Student Loans is not “the still historically low interest rates, but in the principal of the thing,” writes Reynolds, a University of Tennessee law professor who blogs as Instapundit.

Student debt, which recently surpassed the trillion-dollar level in the U.S., is now a major burden on graduates, a burden that is often not offset by increased earnings from a college degree in say, race and gender issues, rather than engineering.

According to an extensive 2012 analysis by the Associated Press of college graduates 25 and younger, 50% are either unemployed or in jobs that don’t require a college degree. Then there are the large numbers who don’t graduate at all. According to the National Student Clearinghouse Research Center, more than 40% of full-time students at four-year institutions fail to graduate within six years.

. . . According to a recent study by the New York Federal Reserve, “the share of twenty-five-year-olds with student debt has increased from just 25 percent in 2003 to 43 percent in 2012″ and “student loan delinquencies have also been growing.”

Colleges have continued to raise tuition — and add administrators — because subsidized student loans have made it possible to get away with it, writes Reynolds, author of The Higher Education Bubble. They can accept students with little chance of earning a degree or finding “gainful employment” and collect the loan money up front. “If students are unable to pay the loans back, the burden falls on taxpayers (if the loan was “guaranteed” by the federal government), and the students themselves, while the schools get off scot-free.”

A serious student-loan fix would change this incentive. First, federal aid could be capped, perhaps at a national average, or simply indexed to the consumer-price index, making it harder for schools to raise tuition willy-nilly. Second, schools that receive subsidized loan money could be left on the hook for a percentage of the loan balance if students default. I would favor allowing students who can’t pay to discharge their loan balances in bankruptcy after a reasonable time—say, five to seven years, maybe even 10—with the institutions that got the money being liable to the guarantors (i.e., the taxpayers) for, say, 10% or 20% of the balance.

“Universities would be much more careful about encouraging students to take on significant debt unless they are fully committed first to graduating, and second to a realistic career path that would enable them to service that debt over time,” Reynolds predicts.

But this goes against federal policy, which calls for all students — including those with little chance of earning a degree — to try college.

Getting poor kids to good colleges — for $6 per student

Informing low-income, high-achieving students about college options and financial aid is a very cost-effective way to encourage more low-income students to attend top colleges, where they’re more likely to earn a degree, make valuable connections and move up the social and economic ladder. An information program cost $6 per student, financial aid assistance cost $100 per additional student enrolled and increasing Stafford loans costs $20,000 per additional student, estimates Brookings researchers.

4-year degree is ‘ticket to nowhere’

Underemployed four-year graduates are enrolling in two-year colleges to earn job credentials. A business graduate with $60,000 in student loans calls her bachelor’s degree “just like a ticket to nowhere.” She’s now training for a certificate in paralegal studies.

“Some college” is better than a high school diploma in the workforce. If “some” means a vocational certificate in a technical field, it can lead to higher pay than a non-technical bachelor’s degree.

Men at work

The U.S. Education Department’s annual Condition of Education report is out.

Educational attainment correlates with employment and women are more likely to earn college degrees. However, men are more likely to be employed at every age and education level.

Employment to population ratios, by age group, educational attainment, and sex: 2012

Figure 2. Employment to population ratios, by age group, educational attainment, and sex: 2012

Outstanding student loan debt more than tripled in nine years from $304 million in 2003 to $956 million in 2012.

Does college pay?

Does college pay? A new web site called College Risk Report asks the collegebound to enter their prospective college or university and their major, then estimates how long it would take a graduate to pay for a bachelor’s degree and graphs lifetime earnings for a bachelor’s, associate degree and a high school diploma.

A proposed New University of California would award credits and degrees to people who prove their mastery of subject matter by passing exams, regardless of whether they attended a class, studied online, learned on the job or read a bunch of books.

Financial ed doesn’t work

“Financial literacy” training doesn’t help people make better decisions, reports The Economist.

Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102? And would an investor who received 1% interest when inflation was 2% see his spending power rise, fall or stay the same?

Only half of Americans aged over 50 gave the correct answers. In another study, 21 percent of those surveyed said their best retirement strategy was winning the lottery.

Financial education doesn’t help, the Federal Reserve Bank of Cleveland concludes.  “Unfortunately, we do not find conclusive evidence that, in general, financial education programs do lead to greater financial knowledge and ultimately to better financial behaviour.”

U.S. students who’d taken personal finance or money management courses weren’t more financially savvy than those who hadn’t, according to a study by the Jump$tart Coalition for Personal Financial Literacy.

In another study, students “who had not taken a financial course were more likely to pay their credit card in full every month (avoiding fees and charges)” than those who’d studied the subject, reports The Economist.

Cleveland Fed researchers recommended teaching financial literacy to adults trying to buy a house or pay of credit card debts.

But . . . consumer enthusiasm for learning about finance is limited. When a free online financial-literacy course was offered to struggling credit-card borrowers, only 0.4% logged on to the website and just 0.03% completed the course. Those who choose to be educated about finance may be those who are already interested and relatively well-informed about it.

Nearly every proposal for rethinking student aid calls for doing a better job of informing students and parents about what they’re getting into when they take out college loans. But it’s not easy. Is college tuition an investment in productivity? A lifestyle expense? It depends on the student.

Obama plan uncaps student loan rates

Student groups aren’t happy with President Obama’s proposed change to student loan interest rates. Linking the rate to the government’s cost of borrowing means today’s college students would pay very little, but future students could pay much higher rates. That’s assuming the economy improves.

It takes a degree to be a file clerk

“The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job,” reports the New York Times.

At an Atlanta law firm, all the support staff are four-year graduates from paralegals, admins and file clerks to the $10-an-hour courier.

“College graduates are just more career-oriented,” said Adam Slipakoff, the firm’s managing partner. “Going to college means they are making a real commitment to their futures. They’re not just looking for a paycheck.”

Maybe they’re looking for a miracle. The law firm’s receptionist, who earns $37,000 a year, graduated from the Art Institute of Atlanta in 2011 with a degree in fashion and retail management. “I am over $100,000 in student loan debt right now,” said Megan Parker.

“Degree inflation” is increasing, reports the Times. Many “jobs that didn’t used to require a diploma — positions like dental hygienists, cargo agents, clerks and claims adjusters — are increasingly requiring one,” according to Burning Glass, a company that analyzes job ads.

Requiring a bachelor’s degree is a handy way to cut down on the huge pile of applications for every job, a recruiter tells the Times.

Redesigning college aid — without spending more

A “more understandable effective and fair” student aid system doesn’t need to cost taxpayers more money, concludes a new report that calls for shifting funding and incentives to help needy students and encourage speedy completion of degrees.

Federal grants to college students should be replaced with grants to states, which would have to match the money, recommends another report.