Sunday, March 25, 2012

Idea #3 for Fixing the Economy: Invest in Higher Education

With the scourge of unemployment from the Great Recession afflicting even the middle class and college-educated, higher education skeptics are again arguing that college is no longer worth the time and expense--young people may be better off skipping college altogether.  In a campaign speech in February, GOP contender Rick Santorum played the class resentment card, declaring to a crowd of apparently delighted conservatives that President Obama was a “snob” for publicly stating that all young people should have the opportunity to go to college. 

Conservative bullcrap notwithstanding, going to college remains the single strongest predictor of upward mobility and economic success.  According to the Project on Student Debt, the unemployment rate was 9.1 percent for young college grads; the comparable figure for high school grads aged 20-24 was twice as high, at 20.4 percent.  In 2009, the overall rate of unemployment in the U.S. was 7.9 percent; however, it was only 5.2 percent for college graduates and almost 10 percent for those with only a high school degree. 

Over the last several decades, post-secondary education has become an increasingly powerful predictor of income.  From the mid-1970s to 2005, the gap between those with a four-year degree versus high school diploma has widened substantially, with college graduates earning on average almost twice as much as those with only a high school diploma. 

What is a college degree worth?  A college graduate can expect to earn 66 percent more than a high school graduate over his or her lifetime; a person with a professional degree will earn on average nearly three times as much as the high school graduate.  This means that a college education is worth roughly 1 million dollars over a lifetime. In short, the numbers are fairly clear about the value of a college education in the new digital economy.  

The value of education extends beyond mere income: college graduates are far more likely to have comprehensive employer-provided health insurance; they are less likely to smoke, be obese, have unhealthy children, and lead a sedentary life.  On average, college degrees add five years to a person’s life. 

Having a college-educated citizenry also benefits society, as college-educated people are more likely to vote than those with only a high school diploma.  They are also more likely to volunteer for their communities, bring in more tax revenue, and be independent from welfare programs. 

The problem is that a four-year degree is increasingly out of reach for children from the lower and middle classes.  College tuition and fees have increased by over 400 percent since the early 1980s; net college costs (tuition, fees, room and board minus financial aid) of four-year public universities has increased from 39 percent of the income of the lowest quintile of American families in 1999-2000 to 55 percent of their income in 2007-8.

With poorer Americans increasingly priced out of four-year degrees, income and attainment gaps are sure to widen even further, exacerbating the problem of poverty, increasing racial and class tensions, and increasing the overall burden on the welfare system as a whole. 

The U.S. will also be less able to compete internationally.  Allocating education on the basis of wealth rather than merit means that our universities are increasingly made up of privileged children, who are not necessarily the best and the brightest.  Our unmeritocratic system is consigning millions of bright and talented young people to underemployment--a dead-weight loss to the economy and society as a whole.

In fact, a 2008 report by The Education Trust noted that the U.S. is falling behind all the other rich countries in promoting education among their youth.  What is worse, America of today is falling behind America of the past—even at the high school level.  

Among industrialized nations, the United States is the only country in which today’s young people are less likely than their parents to have earned a high school diploma. Reversing this trend could hardly be more urgent.

The only way that many poor and middle class households can send their children to college is by taking out sometimes crippling student loans.  According to the Project on Student Debt, two-thirds of U.S. college seniors graduating in 2010 carried student debt that would follow them into their post-college life; the average amount totaled $25,250--a five percent increase from the previous year.   

Under U.S. law, student loans follow you to the grave and beyond.  Unlike home mortgages, car loans, credit cards and other types of consumer debts, student loans cannot be discharged in bankruptcy, and survivors are often compelled to repay the loans in the event that the student dies.  The government has a range of instruments to ensure collection, including garnishing wages or social security, seizing tax refunds, suing the borrower, and place liens on bank accounts and property; there is also no statute of limitations, so the government can pursue the borrower for the balance of the loans throughout their lives.

The problem has implications for the stability of the economy as well.  At nearly one trillion dollars, the nation’s outstanding student debt is due to exceed the nation’s total credit card debt.  With many of these loans effectively sub-prime, massive default (which wrecked the global financial system in 2008), starts to become a possibility.  

According to a recent report by the National Association of Consumer Bankruptcy Attorneys

"Just as the housing bubble created a mortgage debt "overhand" that absorbs the income of consumers and renders them unable to afford to engage in the consumer spending that sustains a growing economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future." industrialized nations, the United States is the only country in which today’s young people are less likely than their parents to have earned a high school diploma. Reversing this trend could hardly be more urgent.

The Chronicle of Education estimates an overall default rate on federal student loans of 20 percent. The parents of students are also shouldering a college debt burden, with ever more parents taking out loans to cover their children’s expenses; the average loan costs 50,000 dollars to pay off over the typical scheduled 10 years (with an original principal of 34,000 dollars), thus cutting into their own retirement savings 

What can be done to fix these problems?  Clearly, the answer is not to discourage people from going to university when they cannot afford to pay up-front.  Neither should people struggling to build up their careers, families and retirement savings be saddled with unreasonable debt or punitive payment schedule.

To find solutions to this crisis requires first understanding its causes: (1) a greater percentage of student aid now comes from loans not grants, which means a soaring debt that comes due upon graduation--usually the most financially vulnerable period of a person's life, and (2) state budgetary crises in the middle of the Great Recession, which has meant that universities have had to pass more of the costs directly onto the enrolled students in the form of tuition and fees.  

These problems might be addressed through a three-pronged approach.

First, through the back end, the federal government could make earmarked block grants to the states to fund higher education, tying this aid to a proven record of job placement (using variable benchmarks based on health and unemployment levels of the local and national economy).  To enhance universities' job placement levels, more work might be done to boost career and education consulting from the start, assisting students to choose majors that suit their skills and interests and with good job prospects (education, engineering, math/computer sciences, and health) as opposed to poor job prospects (communication, humanities and area studies). 

Second, from the front end, the federal government could build up new and existing grant programs to enrolled students so that they do not have to take out as much in loans.  They could work with public high schools to make students aware of the grant opportunities already out there and assist them in selecting and applying for good universities that will minimize the amount of debt that they graduate with.  

Third, the existing level of student debt must be addressed.  There are a number of suggested solutions to this, ranging from wholesale debt forgiveness to modified loan repayment plans.  Writing off the nation's student debt as a whole is unlikely to be the answer, as this would be incredibly expensive with questionable stimulative effect on the economy. 

However, debt reduction and cancellation opportunities could be expanded from what it is at present.

Currently, there are loan forgiveness and cancellation programs that apply to Stafford, Perkins, and Federal Family Education Loans (FFELP).  For example, a portion of full-time teachers' loans may be forgiven for teaching in low-income schools or in areas that suffer teacher shortages, including math, science, and foreign languages.  There is also loan forgiveness or reduction available for those who work as volunteers (Peace Corps, VISTA, AmeriCorps) or in non-profits or public sector jobs where there are labor shortages (including law, veterinary care, and medical care). 

Under the Serve America Act of 2009, volunteer positions in Americorps and Senior Corp were greatly expanded--the plan being to increase positions in Americorps from 75,000 to 250,000 by 2017.  What could be done is to tie more generous loan forgiveness packages to participation in such programs.  

The government could also institute a new Civilian Conservation Corp (CCC), which was created in 1933 to cope with the catastrophic unemployment crisis; the program gave young men and boys three square meals a day and 15$ a month, most of which was sent back to their ailing families:

"By 1941 when it was disbanded, the CCC had employed almost 3.5 million men. Some estimates are that they planted 2.5 billion trees, protected 40 million acres of farmland from erosion, drained 248,000 acres of swamp land, replanted almost a million acres of grazing land, built 125,000 miles of roads, fought fires, and created 800 state parks and 52,000 acres of campgrounds. But the biggest legacy of the CCC may have been the hope it provided both the young men and their families."

A new CCC could be used to fix the nation's ailing infrastructure (bridges, roads, dams and the like) and build up a new national energy grid to deal with our growing energy crisis.  The program could be placed under the Corporation for National and Community Service, which  oversees AmeriCorps, Senior Corps, and other volunteer programs that together employ over 5 million Americans. Expand each of these programs and link them to generous terms of student debt forgiveness.

By pursuing each of these three approaches, we might increase education employment opportunities, enhance the spirit of community-service and volunteerism, and address the mismatch between educational skills of recent graduates and labor market demands.  Doing so will help not only consolidate our recent economic gains, but also shore up America's economic competitiveness at the global level.