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College – Worth it or worth less?

Posted on March 26, 2014September 18, 2024 by The Progressive Policy Institute

College has never been worth so much – or so little.

New research from the Pew Center shows the wage gap between those with a college degree and those without is at an all-time high. Moreover, the college wage premium has actually been widening. Yet at the same time, real average earnings for young college graduates are at historic lows – down 6 percent from 2007 levels, even as the labor market recovers. Average student debt per borrower has climbed to a staggering $29,400.

Does this double-sided truth about the “value” of college mean that today’s four-year model is sustainable, or is it a sign that change is coming?

At first blush, one might conclude that going to college – specifically a four-year college – is a necessity. But that misses the point of what’s actually driving the wage gap between college and non-college grads, something that young college graduates already know – that not all of this boost is because of a lift-off in the bachelor’s degree job market.

In reality, a college degree is worth “more” in large part because a high school diploma is worth so much less. My research shows college graduates, particularly recent graduates, are increasingly taking lower-skill jobs at the expense of their less educated peers. Because many new jobs being created are low-skill instead of middle-skill, college graduates are getting first dibs, squeezing those with less education from the workforce.

Even worse, the price to compete for these lower-skill jobs is getting higher. As college becomes less affordable, and the labor market less generous, fewer people are able to buy the seemingly only ticket in town for success. New Fed data shows outstanding student debt increased $53 billion in the last 3 months of 2013 alone, with student loans dominating all new borrowing by young Americans under 30 in 2013. Succeeding in today’s higher education model allows for little margin of error: either you make the sacrifice and get the four year degree, or it’s game over.

No group epitomizes the failings of the current college system more than those who enrolled in college but failed to graduate – college drop-outs. Though often left out of the conversation, the latest figures show that the average four-year completion rate for those entering four-year colleges was 38.6 percent and that the six-year completion rate is still just 58.8 percent (rates are lower for two-year schools, but many transfer to other institutions). Minorities and low-income Americans are even less likely to complete college, exacerbating already growing inequality.

College drop-outs face the worst struggle of all. On average, they make little more than those with a high school diploma but are still saddled with thousands in student debt. They are at the highest risk of defaulting on their student loans, by some estimates up to four times more likely than graduates. They are the most vulnerable in terms of financial security, from slipping into a hole they cannot climb out of.
The large share of college drop-outs is evidence that the current structure of postsecondary education as the main vehicle for workforce preparation isn’t working.

Their fate is also an indication that the future of college may – and should – look very different. The ongoing revolution of low-cost, high speed broadband makes education more accessible, affordable, and customizable. This, coupled with decreasing returns on the four-year college model, should lead to more post-secondary pathways into the workforce (such as German-style “apprenticeships”). These alternative pathways have the potential to be just as effective at preparing people for the world of work, except at a lower cost. The nature of today’s innovative data-driven economy means preparing for tomorrow’s high-skill, high-wage jobs will naturally include digitally-oriented training and a dynamic curriculum.

The ideal post-secondary system of the future should correct some of the biggest workforce challenges facing Americans today. These are Americans who are unable to afford college, or who don’t want to take on thousands in student debt to succeed.

One way this could happen is if the current four-year model of college becomes one of several options after high school. Instead, what we could see is employers becoming better integrated into the workforce preparation process, as current workforce demands are unmet and training becomes a lower cost proposition that can be virtually administered. We may also see a renaissance in vocational training, which can cost-effectively prepare workers for well-paid technical and even computer and data-driven jobs. Industry certifications could take the place of a degree. It may be that only a few will pursue a four-year degree, much like a doctorate-level credential is pursued today, in specialty fields.

Still, wholesale change is unlikely to happen quickly, so long as the generous federal student aid system in place prolongs the current college model. The federal government administers more than 90 percent of new student aid – to the tune of more than $100 billion annually – but demands little accountability on the part of institutions and borrowers in terms of graduation rates and employment success.

For the millions of young Americans who’ve already been left behind, reform can’t come soon enough. That’s why the conversation to rethink college must begin now.

This piece is cross-posted from Republic 3.0.

Cuomo schools De Blasio

Posted on March 10, 2014 by The Progressive Policy Institute

“We will save charter schools,” New York Gov. Andrew Cuomo (D) assured thousands of students and their families at a recent rally in Albany. Save them from whom, you wonder? From another Democrat, New York Mayor Bill de Blasio.

The rift between these bull elephants of New York politics isn’t personal. Rather, it illuminates simmering tensions between the Democratic Party’s reform and “populist” camps.

De Blasio thrilled the latter by campaigning last year against the Big Apple’s growing inequality, and vowing to tax the rich to pay for pre-school for low-income kids. Many on the Democratic left see him as just what they’ve been waiting for — an unapologetic champion for a new politics of economic and racial justice.
When it comes to charter schools, however, de Blasio sounds more like the paleoliberals of the 1970s and 1980s, whose distaste for reforming broken public sector systems — urban schools, welfare, public housing – did much to discredit Democrats in the voters’ eyes.

The flap began last week when the de Blasio administration withdrew permission (granted by its predecessor, Michael Bloomberg) for three charter schools to share space with schools run by the school district. The target of this eviction notice is Success Academy, a nonprofit network of charter schools, all of which are co-located with district schools. It’s run by Eva Moskowitz, a sharp-elbowed former city councilwoman who has opened 22 schools in mostly poor neighborhoods over fierce resistance from the city’s education establishment and its political allies.

De Blasio objects to co-location because he sees charters as free riders on the traditional school system. During the campaign, he said Moscowitz’s schools must “stop being tolerated, enabled, supported” by the city’s Education Department. And it’s not just space; the mayor also has shifted $210 million from a charter school expansion fund he inherited to other purposes.

De Blasio’s visceral aversion to the city’s charters is strange on several levels. First, it ignores the fact that, far from being invasive parasites on the district schools, charters are public schools too, even if they aren’t controlled by the central bureaucracy. They must take all comers (space permitting) and they receive significantly less in public money per each student ($13,527) than the district schools ($19,000). The mayor apparently believes that because charters solicit funds from private foundations and philanthropists, they aren’t truly public schools, and they are rolling in dough. Most aren’t, but in any case what’s so terrible about using private donations to improve urban schools?

Second, whereas the city provides buildings to all of its traditional schools, charters must find and pay rent on their own space. The facilities challenge, in fact, has been a major constraint on charter growth nationally. Take Washington, D.C., where nearly half the students are enrolled in charters. As a D.C. charter school authorizer, I was struck by how much time and energy school leaders spend on trying to find suitable and affordable space — even though the city is awash with vacant school buildings.

Third and most important, many charters are giving impoverished minority students what they’ve been denied too long — a quality education. Success Academy Harlem, one of the charters de Blasio wants to expel, had the highest-performing 5th graders in New York’s state math assessment last year. At the district school it shares space with, only five percent of the students passed the test.

So why do self-proclaimed “progressives” want to punish schools that are doing a good job of educating disadvantaged kids? The conventional answer is that they are carrying water for the adults in the traditional system — especially teachers unions. That’s often true, but there’s another explanation: Populists have a genuine ideological bone to pick with charters, because they inject market concepts of choice and competition into public education.

Progressive education reformers are more pragmatic. What matters to them is closing achievement gaps, not preserving the centralized, one-size-fits all model for school governance. For them, the “public” nature of public education lies not in a uniform school system, but in a commitment to uniformly high standards for all students. What charters offer, reformers say, is room for innovation and diversity within public education. Above all, they offer accountability for results. When charters don’t succeed, they can and should have their charters yanked. De Blasio, on the other hand, wants a moratorium on closing failing district schools.

The progressive reform camp, fortunately, has some formidable assets: Bill Clinton, who first put charters on the national agenda two decades ago; President Obama and Education Secretary Arne Duncan; lots of Democratic mayors, governors and legislators in the 42 states that have charter schools; and, legions of black and Hispanic parents who are demanding better schools for this kids.

Oh yes, and Andrew Cuomo, who vowed to make sure the city’s charters have “the financial capacity and physical space and government support to thrive and grow.” Thus did the governor school the new mayor in what it really means to be a progressive.

This article originally appeared in The Hill, you can read it on their website here.

Financial Times: Barack Obama battles a sense of drift on State of the Union goals

Posted on January 28, 2014 by The Progressive Policy Institute

Barney Jopson writing for Financial Times quoted Michael Mandel, PPI’s Chief Economic Strategist, this morning. Jopson’s article reflected on the President Obama’s accomplishments of 2013 in an effort to project the substance of tonight’s State of the Union address. The article discusses the President’s successes and failures at passing legislation since his last address, Mandel comments that:

Michael Mandel, chief economic strategist at the centrist Progressive Policy Institute, says the president should get credit for the result regardless of how it was achieved.

Read the entire Financial Times article here.

How Young People are Being Left Out of the Economic Recovery

Posted on January 27, 2014 by The Progressive Policy Institute

The latest unemployment figures seem promising for the young, but peeling back the numbers reveals that those without college degrees are being left out of the job market.

From the looks of it, young Americans are finally on their way to economic recovery. The latest jobs figures show unemployment for young Americans—those age 16-34—fell to 10.5 percent in December, down from a high of 15.1 percent in November 2009 and by a full 2 percent since last summer.A closer look, however, reveals not all young Americans are sharing equally in the labor market recovery. In fact, some young Americans are hardly experiencing a recovery at all. And many that are seeing a rebound in their economic fortunes still have a long way to go.Happily it doesn’t have to be all doom and gloom. There are ways policymakers can help struggling young Americans reclaim their future, starting with making their plight a bigger priority in 2014.As it has been for years, young Americans with a college degree are much better off than those without one. The stark contrast is evident when looking at labor force participation rates, which is the share of the population that is counted as employed or unemployed. For young Americans with a post-secondary degree, labor force participation rates have been stable since 2010, but for those with some college or only a high school diploma, rates continue to fall. For young Americans without a college degree, it appears unemployment is falling at the expense of labor force participation.Still, as young college graduates are all too aware, a four-year college degree is no longer a guaranteed ticket to financial success. It turns out that those with a college degree are finding jobs, but increasingly ones that are lower-skill. The result is a rise in underemployment and historically low real earnings. In 2012, young Americans age 18-34 working full-time with a bachelor’s degree earned about $54,300, in real terms. This is only slightly higher than the 16-year record low set in 2011, and in annual terms remains $3,300 below where it was pre-crisis in 2007.

Adding insult to injury is the rising student debt burden, about 90 percent of which comes from a decades old federal aid system that needs reform. Under the current system, college students are essentially stuck in the middle of a game of chicken between generous federal aid and rising college tuition. For example, the “historically low” increase in college tuition last year was still three times the average increase in real earnings for young college graduates in 2012. With average debt levels now at a staggering $29,400 per borrower, many young Americans and their parents are understandably rethinking the value of a college education.

As tough as young college graduates have it, this is still far better than the reality of young Americans without a degree. New PPI research finds that the unemployment rate for young Americans age 16-34 with only a high school diploma, though falling, remains over 14 percent, compared to 5 percent for young college graduates. Worse, real average annual earnings for young Americans with only a college degree were just $32,900 in 2012, still about 4 percent lower than real earnings in 2007.

Fortunately, opportunities exist for policymakers to help. With a concerted effort, we can design policies that directly target young Americans in and out of school and encourage better alignment of the skills of young Americans have with the needs of employers. This may include comprehensive education reform, redefining post-secondary education and training, addressing the rising cost of college and student debt, and promoting investment and asset building activities.

For example, over the next year, the Higher Education Act (HEA) is coming up for reauthorization. HEA could provide policymakers with an opportunity to reaffirm the value of college, by using the administration of federal student aid to encourage alternative forms of higher education. Going to a four-year college is so ingrained in society it seems to be the only acceptable option after high school; there is now almost one four-year college for every U.S. county. As a result, poor performing colleges get a free pass that doesn’t do anyone any favors—especially their graduates.

The first step to helping young Americans in 2014 is to convince policymakers to take their economic struggles seriously. If policymakers use the start of a new year as a new start for young Americans, 2014 could be a better year for all 80 million young Americans. Moreover, it could lay the groundwork for economic growth and prosperity in America for years to come.

This piece was originally published by The Daily Beast, you can read it on their website here.

Young Americans: Is Recovery Coming?

Posted on January 16, 2014 by The Progressive Policy Institute

Young Americans – the 80 million Americans age 16-34 – have had a rough recession and an almost non-existent recovery. This is reinforced by the latest jobs report, which shows unemployment falling at the expense of labor force participation, now a historically low 70.9 percent. For young Americans age 16-24, labor force participation is just 54.8 percent. Looking ahead, is recovery ever coming?

Four telling facts about jobs and wages for young Americans suggest a labor market recovery is coming, although it will be gradual and uneven by educational attainment. Specifically, young Americans with a postsecondary degree are more likely to be employed, but the nature of their employment suggests they are taking lower-skill jobs at the expense of their less educated peers. These facts also suggest there is more that policymakers could be doing to boost young Americans’ long-term economic and financial well-being.

Read the full brief, including three charts and a table on young Americans in the recovery, here.

Is PAYE Paying for the Wrong Higher-Ed Model?

Posted on November 1, 2013September 18, 2024 by The Progressive Policy Institute

Universal adoption of today’s high-speed, low-cost broadband could move the current higher education model into the 21^st century. But are federal student aid programs like Pay As You Earn (PAYE) – a student loan repayment plan based on borrowers’ annual incomes – delaying the industry’s transition?

Quite possibly. One potential consequence of Pay as You Earn (PAYE) is that it enables colleges to transfer the cost of less effective industrial organization to taxpayers, allowing them to maintain status quo practices. The result of less effective higher-ed administration, during a time of rising enrollment, is higher costs. As I explain in my new FAQ sheet, PAYE gives colleges and universities no incentive to curb excessive increases in tuition, because there is no accountability.

Instead of managing tuition, through harnessing the power of broadband to provide mass education and workforce training at lower cost, more colleges are relying on federal aid and debt repayment programs like PAYE. That’s why we are starting to see more schools like GW admitting to “need-aware” admissions policies, and schools like Georgetown taking obvious advantage of the current federal student aid system and income-based repayment plans. And that’s why we are seeing the dramatic rise in outstanding student debt, along with reports of the long-term financial strain it is placing on young Americans.

This week, I spoke on a panel at the Urban Ideas Forum 2013 on “Advancing a Broadband Agenda for Urban America,” that covered the importance of broadband in spurring economic growth and innovation. The key takeaway was that the power of broadband, and the tremendous potential economic and social benefits it can facilitate, will only be possible if adoption is universal.

But realizing the full potential of broadband means the post-secondary education industry must buy-in through systemic adoption. The post-secondary education industry is fast approaching a fork in the road: either it can maintain its role as the premier workforce preparation vehicle, or it can lose competitiveness to alternative sources of post-secondary training provided at lower cost. The first requires the industry to realign itself more closely with the needs of employers, and to cut costs by integrating the power of broadband into its education model. The second is inevitable if the industry maintains its status quo practices, most predominately at second and third tier four-year institutions.

Decision-making time for U.S. colleges and universities is coming, in spite of federal student aid and programs like PAYE. The latest report from the College Board shows average tuition at four-year public universities for this academic year rose at twice the current rate of general inflation, and the difference was even greater at four-year private universities. With rates like this, how long will it be before another provider of workforce training swoops in at lower cost, or before consumers – students – look elsewhere?

Real Earnings for Young College Grads Rose in 2012

Posted on September 18, 2013September 18, 2024 by The Progressive Policy Institute

Finally some good news for young college grads – in 2012 their real average annual earnings increased for the first time in six years. New data reveals average annual earnings for college graduates age 25-34 working full-time increased 0.9 percent in 2012, in constant dollars.

The turnaround could represent a major shift in the fortunes of young grads, who have seen their real average annual earnings fall by 15 percent since 2000. A bottoming out of this precipitous decline is welcome news to current and recent college graduates struggling to balance paying off student loans with gaining financial independence.

However, this good news should be met with cautious optimism. The same data also shows that real average annual earnings of all college graduates continued to fall in 2012. As shown in the chart below, real average annual earnings for people age 18 and over working full-time with a Bachelor’s degree only fell 2 percent last year, now almost 10 percent below 2000 levels. The fact remains that people with a college degree (and only a college degree) continue to have a tough time in today’s labor market.

That real earnings for all college graduates continued to fall suggests young college graduates aren’t yet in the clear. Young college graduates epitomize the today’s middle-class – they typically work in middle-skill jobs that pay average wages. It follows that young college grads were one of the groups worst affected by the financial crisis and the decade-long hollowing out of middle-skill jobs. Since their wages have fallen significantly more than their older college graduate peers, the turnaround could be an early indicator of labor market recovery for the middle-class or it could simply reflect they have much further to climb. Continued downward pressure on earnings of all college graduates won’t help sustain this momentum.

That means many challenges remain for young college graduates, in spite of this turnaround in earnings. The most recent figures show over half of recent college graduates are underemployed or unemployed, a historical high. The downward pressure on earnings from “The Great Squeeze” – the economic reality that college graduates are increasingly forced to take lower skill jobs for less pay – was exacerbated by the recession but started well before. Once a college graduate starts on a slow-growth career trajectory, it can be very hard to catch up financially.

The economic obstacles afflicting young college graduates will be difficult to truly reverse unless there are fundamental changes in how we prepare and train our workforce. Given how much lost ground real earnings for young graduates still have to recapture, and the importance of investing in a college education in today’s economy, that means policymakers would be well-served to make such reforms a bigger priority.

Can Obama Redefine the Role of College?

Posted on August 23, 2013September 18, 2024 by The Progressive Policy Institute

President Obama’s speech in Buffalo yesterday launched a new conversation on the role of higher education as a platform for social and economic mobility. The speech represents a major policy shift on higher education policy toward a performance-based funding approach that holds colleges accountable for how graduates do in the job market. Though it is true such a formula for assessing college performance may be imperfect, changing how colleges think about their role in workforce preparation is essential. For young Americans to succeed in today’s global economy we must smartly invest in higher education that will enhance our competitiveness.

In the speech, President Obama finally acknowledged the current structure of the federal student aid program – a structure that now doles out over $100 billion in new loans annually while asking few questions – is unsustainable. In this context he unveiled a new proposed strategy for federal student aid distribution that holds both colleges more accountable by creating a new ranking that rewards schools for low student debt levels and high job placement rates. Students will also be held more accountable by having to show good grades from the year before to get next year’s loans.

President Obama is right to propose drastic changes to the federal student aid program. Federal aid for higher education has quadrupled in size over the last decade, yet the program itself remains essentially unchanged from its establishment in 1965. And now is the right time: the Higher Education Act, the legislation that determines eligibility criteria for federal student aid programs, is set for reauthorization at the end of this year. Hopefully this new proposal sets the tone for a serious review of current programs.

The current federal student aid party cannot go on forever. Doling out essentially unlimited federal aid to colleges will only delay an industry reorganization and consolidation that is both necessary and inevitable, especially at second and third tier schools. In its current form federal student aid subsidizes ineffective schools and transfers those costs to its graduates, who likely will struggle most to repay the average $26,000 per borrower student debt. The fact that President Obama reckoned the government would end up footing the bill for these schools shows he probably agrees. It’s time for higher ed to fully embrace the cost-saving education technology revolution that is finally gaining traction.

Early dissenters of the proposed changes to federal aid distribution, including the American Council on Higher Education, a major higher ed lobbying group, are concerned the ranking will overemphasize college’s role in job preparation. But isn’t that exactly what college’s major role is, and what colleges should be held accountable for? Perhaps such dissenters should explain their view to the 50 percent of young college graduates who are currently underemployed or unemployed and try again.

Can US Hold Its Lead on 3D Printing?

Posted on August 23, 2013September 18, 2024 by The Progressive Policy Institute

Everyone is abuzz about 3D printing. President Obama gave it a shout out in his most recent State of the Union address. The Economist hailed it as a harbinger of a “3rd industrial revolution.” UPS is putting 3D printers in its retail stores. Some analysts think it’s the key to reviving advanced manufacturing in America.

With 60% of the global market, there’s no doubt that U.S. firms dominate the fledgling market for 3D printers. But as with other breakthrough technologies hatched in America, there’s no guarantee that our competitors – yes, especially China – won’t catch up and eventually surpass us. After all, China is a manufacturing powerhouse that desperately wants to move up the value chain, and has few scruples about filching U.S. technology.

Although 3D printing is still in its infancy, Washington needs a strategy for maintaining U.S. leadership as other countries strive to catch up. Its key elements should include robust public investment in 3D research, and beefed up safeguards against intellectual property theft. Continue reading “Can US Hold Its Lead on 3D Printing?” →

Unpaid Internships Aren’t so Black and White

Posted on August 8, 2013September 18, 2024 by The Progressive Policy Institute

Does having a paid internship make the difference between getting a job and sitting home after college? It depends.

Unpaid internships have been criticized as a waste of students’ time, effort, and money. Now it appears holding an unpaid internship won’t even help a student on the job market. An upcoming study from the National Association of Colleges and Employers (NACE) on the graduating class of 2013 found 63.1% of graduating college students who had paid internships received a job offer, compared with 37.0% of those who took only unpaid internships and 35.2% of students who had taken no internships.

However, although job offers may seem like a straightforward measure of an internship’s impact, but the reality is not so black and white. There are many factors that influence whether a college graduate has a job offer at graduation, of which internships are just one. Moreover, there is also a wide variety of internships, and an equally diverse number of reasons students chose to take them.

Certainly not all internships are created equal. For some employers, internships are explicitly used as a screening process for new hires. These employers may invest more time and effort to see which interns would make good employees, and so provide interns with substantive tasks and compensation.

Such ‘screening’ internship programs make the most sense for employers who continually need new hires with a technical skill set. So it is little surprise that the majority of paid internships are for majors who are typically hired in large numbers at entry-level. As the chart below shows, engineering majors, computer science majors, engineering technology majors, and business- related majors were far more likely to have a paid internships- with comparatively high wages- than other majors. The data is from Intern Bridge’s 2012 survey of college students.

But by itself this chart can be misleading. Some majors’ career paths are inherently different than others, and this is not reflected in either the Intern Bridge or NACE data. For example, neither one reports the percent of students who intend to go straight to graduate school rather than enter the workforce. For some students, the primary purpose of an internship is not to receive an immediate job offer, but rather to build a professional network or explore a particular field of work.

The reality is the payoff for participating in an internship – whether paid or unpaid – varies from student to student. The greatest benefit of an internship is not measurable in wages, but by how much it furthers a student’s career aspirations. It would be a mistake for college students to use the NACE and Intern Bridge survey results as an excuse to sit home and do nothing. That will almost assuredly hurt their job prospects.

No Recovery for Young People?

Posted on August 5, 2013September 18, 2024 by The Progressive Policy Institute

In July 2013, just 36 percent of Americans age 16-24 not enrolled in school worked full-time, 10 percent less than in July 2007. It’s no secret that young people are struggling economically, but my analysis of Friday’s BLS release sheds light to what extent. The fact that so many young people are not realizing their true earnings potential in these formative years could have serious long-term consequences.

Friday’s numbers are the latest sign the recovery is passing young Americans by. The below chart shows the share of young Americans not enrolled in school working full-time fell with the recession and have yet to return to 2007 levels. This is true even if we divide it by age – that is, for both young Americans age 16-19 and age 20-24 not enrolled in school in July.

While the initial drop in full-time employment is not surprising, what is startling is that is that either age group is showing much, if any, improvement since the recovery began four years ago. The same trend holds even if we look at months where more students are enrolled in school (i.e., January). The non-recovery is also true if we look at total employment and overall labor force participation.

What’s more, education matters in how likely young people are to work full-time. As shown in the next chart, for those with less than a high school diploma, 14 percent worked full-time, compared to 66 percent with a Bachelor’s degree or higher. This re-emphasizes the importance of higher education in successfully finding full-time work in today’s economy.

Of the 17 million Americans age 16-24 not enrolled in school or working full-time in July 2013, 5.6 million were working part-time, 3.2 million were unemployed – a 17.1 percent unemployment rate – and another 8.4 million were not in the labor force altogether.

Together, these charts suggest the problem facing young Americans is structural. If worsening labor market conditions were a temporary effect of the recession, we would have expected to see improvement with the recovery. Instead, young Americans appear stuck in their post-recessionary state.

What could be behind the stubborn labor market for young Americans? One explanation is the Great Squeeze, which I’ve written about before. The dearth of middle-skill jobs is forcing workers unqualified for today’s high-skill, high-wage jobs to take lower skill jobs for less pay, squeezing those with less education and experience down and out of the workforce.

The struggles facing young Americans should not be ignored. It’s clear the policies in place now to prepare and integrate young Americans into the workforce are not sufficient. If we are serious about moving from a slow-growth economy to a high-growth economy, it’s something policymakers will have to address.

Note: For those interested in the effect of rising college enrollment on overall labor force participation of young people, there are several points to consider. One, in July most college students are not enrolled, and would be counted here. Second, the number of young Americans age 16-24 not enrolled in school and not working continues to rise. In July 2007 labor force participation for this group was 73.3 percent; in July 2013 it was 68.8 percent. Third, college enrollment has actually been falling for the last two years, with the decline actually accelerating. Finally, many college students also work. According to the same BLS data 42 percent of people age 16-24 enrolled in school also were in the labor force in July 2013.

A Grand Bargain on Student Debt?

Posted on July 19, 2013September 18, 2024 by The Progressive Policy Institute

Yesterday a coalition of eight Senators finally announced a deal on federal student loan interest rates. The compromise, which takes cues from previous proposals from the White House and House Republicans, will peg interest rates on all new federal student loans to the rate on 10-year Treasuries plus a margin. The deal, several months in the works, will retroactively replace the doubling of interest rates that took effect July 1.

Senate Democrats, who had wanted more generous terms for students, are calling the deal more of a grand rip-off than a grand bargain for students pursuing college. Although the deal calls for capping interest rates, they argue that even with the caps borrowers will still pay higher rates than before, especially as the economy improves and interest rates rise. Moreover, according to CBO estimates, the deal will increase federal student loan profits by additional $700 million over the next decade – all on the backs of innocent parents and students.

This deal should be seen as a reasonable compromise. As I’ve written before, interest rates are only a small part of the actual problem facing student debt. Whether interest rates are 6.8 percent or 8.25 percent (the deal’s new cap for unsubsidized Stafford loans, which most undergraduates get) makes little difference in an economy where half of recent college graduates are underemployed or unemployed, and where real earnings for young college graduates are falling. It does little to address what’s really bloating the amount students owe – ever-rising principal from higher tuition – and it does nothing to address the existing $1.2 trillion mountain of outstanding student loans.

Moreover, it’s not clear pegging long-term student debt to short-term debt borrowing costs, like the federal funds rate or 1-month Treasuries, is the best approach. Such term mismatching – borrowing on short-terms and lending on longer-terms – can be risky, especially for student loans, which are uncollateralized and dependent on future earnings.

If Senate Democrats are unhappy with the deal, they should take the rising burden student debt seriously when they review federal student loan programs for the reauthorization of the Higher Education Act (HEA) later this year. That will be a great opportunity to address one of the biggest issues of our time: helping young people succeed in today’s economy.

New Fed Data Highlights the “Great Squeeze”

Posted on June 29, 2013September 18, 2024 by The Progressive Policy Institute

Yesterday’s New York Fed release on recent college graduates concluded that “young college workers have been struggling more in recent years.” The study found that almost half of recent college grads were underemployed in 2012, a figure which has continued to rise since the start of the recession. In fact, last year underemployment of young grads was the highest it’s been since the early 1990’s.

High underemployment for young college grads exactly encompasses what I call the “Great Squeeze.” The continuing disappearance of middle-wage jobs, coupled with a lack of preparedness for today’s high-wage, high-skill jobs, means more educated young people are taking lower skill jobs for less pay. This is squeezing those with less education and experience down and out of the labor force, having a disproportionate effect on the youngest segment of the working population.

To be sure, a college degree is still worth it. In spite of their economic struggles, those with a degree are still more likely to find a job and have higher earnings than those without a college degree.

And not all college graduates are feeling the squeeze. The New York Fed presentation also showed, not surprisingly, that those who studied more technical fields that were in high-growth sectors of the economy are enjoying significantly less underemployment and higher earnings than those in other fields of study.

But that doesn’t negate the clear majority of recent college graduates that are feeling the squeeze. Adding in the share of recent college grads that were unemployed in 2012, and we see a picture where at least half of young college grads were either underemployed or unemployed last year. Student debt, now over $1 trillion and climbing, is exacerbating the problem.

This is not by any means a hopeless scenario, but it does call for action. The slow-growth recovery we are stuck in is not enough to get today’s young graduates back on track to buy a home or save for a secure retirement. Instead we need policies that prioritize investment over consumption, and move us into a high-growth economy. A key part of that is having an educated workforce which is able to realize its full potential.

Why Student Debt Proposals in Congress are only a Band-Aid

Posted on June 21, 2013September 18, 2024 by The Progressive Policy Institute

The student debt debate is heating up just in time for summer. With less than a month to go before a key federal student loan interest rate is set to double, a multitude of legislation calling for more government intervention is popping up in Congress.

The cover on the various proposals may be different – some call for extending the low fixed interest rate on subsidized Stafford loans while others call for pegging all direct loan interest rates to borrowing costs – but the approach is the same: they all tackle the growing student debt burden through targeting interest rates. Proponents of lower interest rates point to the sizeable profit the government makes from student debt, arguing that the government can afford to cut costs for students.

However, an interest rate approach and the accompanying rationale miss the mark. As I recently pointed out, the issue of rising student debt is larger than interest rates. It is a complicated issue with multiple parts that require different responses. And it turns out student loans, especially at subsidized interest rates, may not be as profitable as we think over the long-term.

A new CBO report that proponents of increasing government support for student loans use shows the federal student loan portfolio will turn a $184 billion profit over the next decade. But this commonly cited method of cost accounting, based on the Federal Credit Reform Act, does not include the risk to taxpayers from economic volatility. Fair value accounting, the alternative measure CBO estimates, does. It turns out that under fair value accounting, the CBO estimates the government will incur a $95 billion loss over the next ten years at current interest rates. Moreover, under both accounting measures, the CBO study found that permanently extending the reduced interest rate on subsidized Stafford loans results in a net cost. It turns out the profitability of federal student loans is all in the accounting.

College access and affordability must continue to be the main priority to encourage investment in higher education. Going to college remains the best way to increase one’s economic prospects, and an educated workforce is necessary for a high-growth economy. But we must acknowledge that addressing the rising burden on students through interest rate reduction is only a temporary Band-Aid. Any long-term solution to the student debt burden must address the larger issues: a slow-growth economy and excessive increases in tuition.