I wish that more people understood the point highlighted in this Wall Street Journal article by By Rachel Louise Ensign and Shane Shifflett. College degrees were supposed to be a way out of poverty for Americans and for blacks and other minorities in particular. That hasn’t happened:
Black millennials thought college would help them get ahead. Instead, it is setting them back.
The median net worth of households with Black college graduates in their 30s has plunged over the past three decades to less than one-tenth the net worth of their white counterparts, according to a Wall Street Journal analysis of Federal Reserve data. The drop is driven by skyrocketing student debt and sluggish income growth, which combine to make it difficult to build savings or buy a home. Now, the generation that hoped to close the racial wealth gap is finding it is only growing wider.
More than 84% of college-educated Black households in their 30s have student debt, up from 35% three decades ago, when many baby boomers were at the same age. The younger generation owes a median of $44,000, up from less than $6,000. By comparison, 53% of white college-educated households in their 30s have debt, up from 27% three decades earlier. The median amount rose to $35,000 from $8,000. All figures are adjusted for inflation.
Meanwhile, Black graduates’ household incomes have grown more slowly than those of college graduates in general, according to a Journal analysis of census data. Median income for Black college-educated households in their 30s increased 7% from the early 1990s to late 2010s to about $76,000. Income for their white counterparts rose 13% to about $114,000.
All of this is unfolding exactly as I have predicted over the last several decades. Our problem is not and has never been that not enough people have college educations. It is that we are not creating jobs that people with college educations want to take and that pay enough for them to pay off their educational loans.
There are ways to change that but we need to recognize the reality. We can’t export jobs and import workers at the rate we have for the last 30 years without its depressing wages. We need to start producing more of what we consume here and putting American workers to work producing them. That is true even if it raises retail prices by a couple of percentage points—that’s what the Walton family among others are pocketing by our massive importation of consumer goods from China. That is true even it it reduces our rate of economic growth by a percentage point or two.
Some of those numbers are odd to me. The figure that is often given is that students today graduate with a median debt of about $30,000. The government subsidizes $27,000 in student loans for four years of college. The interest rate on the guaranteed loans is 3.73%, which amounts to $269.91 per month for ten years. The WSJ is looking at a later time period, but I think its worth pointing out that the typical student is borrowing only what the feds subsidize, and that in a typical situation in which the person goes to college from high school and pays the loan-off for ten years, they will have no college debt around the age 33.
I assume the main point is that many pay off their student loans and thus are no longer calculated among those with student loans — those that have survived are those that took out more to begin with than the norm and/or have paid nothing off on their students loans, and interest continues to accrue. These numbers don’t quite make sense to me, but one point of comparison with student loans three decades ago was the interest rate. My undergrad loans were at 8%; my post-undergrad loans were up to 12%. Maybe high interest rates focus the mind.
Ultimately, though I am skeptical that a college degree cannot produce a wage premium of at least $269.91 per month. There are other factors here.
PD –
I’m no student loan expert. But I think the general contours of the issue are:
Post graduation, people basically can (or will) only service their unsubsidized loans. The subsidized loans may accrue and capitalize their interest for quite some time. Back of the envelope its not a bad assumption that the principal doubles before subsidized debt service even starts. ($350/mo x 12mo == appx $4K/yr x 10yr = $40K + original principal of $30K. Call it a $70K liability.)
Now we get to real trouble. Grad schools loans can really crank up the bill. How much does a Social Sciences Grad degree pay? These unintended consequences shouldn’t surprise. Its just like affordable housing.
Dave –
Wal-Mart’s general price points are not just 2% below others. If that was all you would never have heard of Wal-Mart.
You are making the assumption that students finish with a degree at all instead of only the debt and two party years under their belt.
And then there are plenty of college degrees that will lead to teaching positions such as the arts or theatre, or nothing at all.
Let the buyer beware but if the buyer is uninformed and so is their family support group you can be sure that they will drown academically before the college itself gives them any real world guidance.
On the other hand, repayment plans for subsidized loans are so lenient,
I think I read 10% of disposable income, that if the borrower is paying attention at all they should be able to stay current.
It may be the student will miss the wasted time more than the money.
This government program is IMO simply a shill to funnel minority kids into college debt programs they are not prepared to master.
https://www2.ed.gov/about/offices/list/ope/trio/index.html
I think that’s a key point. Higher education is evolving into a self-licking lollipop. Nationalizing student loans was the first step in that process. Postponement of repayment was the second step. Debt forgiveness will put the final nail in the coffin.
Back in 1`961, when I enrolled in Northeastern University in Boston, the tuition and fees were something like $300 per quarter. NU was a coop school, so we worked at assigned jobs 6 months out of each year. And I was living at home in Dorchester and commuting to school by bus/train each day. After 5 years, I have a BSCE degree and about $350 in debt in a National Defense Student Loan. The loan was ultimately forgiven, because I got a PhD and a job teaching. Northeastern of old helped thousands of working class kids get substantial educations that allowed them into the middle class.
No more. Northeastern is now a residential college. NU’s tuition and fees are about $240,000 for four years full time, and the total cost of attendance is about $320,000. There was an ugly story a few years ago about a Social Work major from a working class family that had amassed something like $250,000 in student loans. She couldn’t find a job that paid anything, and her parents had co-signed the loans. They were looking at bankruptcy and the loss of their home.
I think Northeastern University can best be described as predatory, exploitive, and dishonest. They are typical of the great majority, in not all, American colleges and universities.
Now there is not any Social Work job that would pay enough to pay off that loan, and an honest loan officer would have denied the girl the money.
As to job creation, we are still exporting manufacturing jobs, e. g., the Lordstown, Ohio, GM plant, now in Mexico. As long as we have open borders and free trade, US prices and wages will be driven to the world averages. The world average wage is about $5 per hour, and the current US average is about $15 per hour. Our globalist Masters have their work cut out for them. Can we project a date when the Chinese average wage will cross the US average wage?
According to the BLS, the median wage for a Social Worker is $51,760 and about 700,000 people working in the field. According to the CSWE, every year about 50,000 people graduate with bachelors in social work and about 30,000 with masters.
That’s actually a lot better than some fields. Every year more people graduate with journalism degrees than there are jobs working as journalists. Obviously, there’s something wrong with that.
When I was an undergraduate the physics department at my alma mater had a policy: since there weren’t a lot of new jobs opening up for physicists, they didn’t accept anyone with a physics major whom they did not believe was up to par. Their method for doing that was harsh but sure. There was one course required for all undergraduate physics majors. About 3/4s of all those who took the course failed.
I presume the solution that will be proposed for the social worker problem you have called out is to hire more social workers—nearly all work for government or education at one level or another.
social worker :
I suppose that’s what they would call the hustlers at TRIO.
100% Brown and Black motivational speakers shilling their own for the colleges.
There’s a big difference between guidance counseling and making an unrealistic sales pitch with no money up front to 17-18 year olds with only a vague idea of what people with college degrees actually do.
We need more info here. Income increased 7% for blacks with college. How about those who did not go to college? This may be the better of two bad choices. Also, IIRC back people are almost twice as likely to go to a for profit college. They have higher default rates and people are less likely to find good jobs going to one of those. Seems like there ought to be some concern about the $40k difference in incomes.
Steve
“There was one course required for all undergraduate physics majors. About 3/4s of all those who took the course failed.”
Absolutely correct. At Purdue they did it early for engineers – second semester. A physics prof named Dr Schlueter flunked out those for whom engineering was not going to be a proper degree. Even further, some (like me) needed to self select. After 1 semester I hightailed it out of EE, which baffled me, and headed towards physical chemistry, which was easy as pie.