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The latest recession will probably be seen as a turning point for college and university financing.
Indeed, the initial reaction by many youths to soaring unemployment was to stay in or return to college to wait out the bad times and get better prepared to face a tough job market. For-profit and community colleges have been especially attractive, and in the fall of 2011, there were 22 percent more students enrolled in the nation’s 1,200 community colleges than in the fall of 2007. Nevertheless, less than half graduate.
Also, those now leaving college are finding few jobs. Only 54 percent of those age 18 to 24 are employed, the lowest share since data began to be collected in 1948, and the unemployment- rate gap between this demographic group and all working-age adults is the widest on record. Only 49 percent of graduates from the classes of 2009 to 2011 found jobs within their first year out of school, compared with 73 percent of those who graduated three years earlier. About 54 percent of bachelor’s- degree holders under 25, or about 1.5 million people, were jobless or underemployed last year.
In addition, there is now research challenging the economic value of a college education. Data comparing the average earnings of college graduates at each age with those of workers with only a high-school diploma indicate that the first group has an advantage of $1 million or more for full-time work from age 25 to 64. But college-bound students usually have better abilities, better grades, more maturity, better support from home, higher test scores and better job prospects than those who enter the workforce out of high school.
Lifetime IncomeFurthermore, the raw lifetime-income differences don’t account for tuition costs, interest on student loans, lost wages while in college, and the discounting of future earnings.
Various studies that take these things into account indicate that each year of college adds 6 percent to 10 percent to annual incomes, so lifetime earnings increase by a range of $300,000 to $600,000, not $1 million or more. The College Board calculates that using 2008 data, a student entering college in 2010 at age 18 who borrows his way to a degree earns enough by age 33 to make up the cost, including wages forgone and loan interest. That’s a 5 percent to 6 percent return on investment - — meaningful but not huge. These results partly reflect the 184 percent increase in real tuition costs in the past 20 years, which has occurred as the real pay of college graduates has risen only 9 percent.
The cost of college certainly makes raising children more expensive. The Agriculture Department reports that a family with $59,410 to $102,870 in pretax income will spend almost $300,000 to raise a child for the first 17 years. But that doesn’t take into account the unpaid time spent on parenting, including income forgone by parents who stay at home or work less in order to care for their offspring. It also doesn’t consider the opportunity costs of not investing the money spent on the child, or college costs. There are estimates that raising a child to age 22, including college, would about triple the cost, to about $900,000.
With few job prospects and high levels of student loans — 55 percent of the 2010 graduates of four-year public institutions left school with debt averaging $22,000 — many young people are disillusioned. The average real debt for new graduates rose 24 percent from 2000 through 2010. And about a third of those who are employed take jobs that don’t require a four-year degree.
Liberal ArtsMost thought that a bachelor’s degree was the ticket to a well-paid job, and that the heavy student loans were worth it and manageable. And many thought that majors such as social science, education, criminal justice or humanities would still get them jobs. They didn’t realize that the jobs that could be obtained with such credentials were the nice-to-have but nonessential positions of the boom years that would disappear when times got tough and businesses slashed costs.
Some of those recent graduates probably didn’t want to do, or were intellectually incapable of doing, the hard work required to major in science and engineering. After all, afternoon labs cut into athletic pursuits and social time. Yet that’s where the jobs are now. Many U.S.-based companies are moving their research-and-development operations offshore because of the lack of scientists and engineers in this country, either native or foreign-born.
For 34- to 49-year-olds, student debt has leaped 40 percent in the past three years, more than for any other age group. Many of those debtors were unemployed and succumbed to for-profit school ads that promised high-paying jobs for graduates. But those jobs seldom materialized, while the student debt remained.
Moreover, many college graduates are ill-prepared for almost any job. A study by the Pew Charitable Trusts examined the abilities of U.S. college graduates in three areas: analyzing news stories, understanding documents and possessing the math proficiency to handle tasks such as balancing a checkbook or tipping in a restaurant.
The results were deplorable. Half the graduates of four- year colleges and three-quarters of those from two-year institutions lacked the skills to understand credit-card offers. They also couldn’t interpret tables relating exercise to blood pressure or understand newspaper-editorial arguments.
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