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  • What College Graduates Really Need: A Job

    Today, the Senate is once again slated to take up the issue of college loan interest rates. President Obama has made this issue a big deal, touring college campuses to herald the absolute necessity of keeping student loan rates artificially low instead of letting what was supposed to be a temporary reduction expire.

    In reality, the debate around student loan interest rates is a distraction from what really troubles new college grads: an anemic economy that is hindering students’ ability to find jobs and reach their earning potential. As AEI scholar Andrew Biggs wrote in the Wall Street Journal earlier this month:

    Lower payments on college loans after graduation won’t come close to repairing the long-term economic damage that new graduates will suffer as a result of entering the workforce during a downturn.…

    Lisa Kahn of the Yale School of Management found…that a one percentage point increase in the national unemployment rate correlated with wage losses of 6% to 7% per year for new college graduates. Recovery is excruciatingly slow: Even 15 years following graduation, their pay was 2.5% below normal.”

    Biggs notes that, assuming “unemployment today is one percentage point higher than it could have been given more effective policies—such as a stimulus that actually stimulated, and spending and entitlement reforms to generate confidence in the economy—today’s new college graduates on average will lose around $40,000 in inflation-adjusted income over the next 15 years. That money wouldn’t simply have helped graduates meet their loan payments; it’s more than enough to repay the average college graduate’s entire $25,000 loan balance.”

    Not only does keeping loan rates low do nothing for current borrowers and recent grads—only individuals who apply for federally subsidized Stafford loans this year would be affected by the loan rates—but it would save loan recipients on average just $7 a month. On the other hand, it will cost taxpayers—the majority of whom do not have college degrees—a hefty $6 billion.

    George Will puts this in perspective in Wednesday’s Washington Post:

    Taxpayers, most of whom are not college graduates (the unemployment rate for high school graduates with no college education: 7.9 percent), will pay $6 billion a year to make it slightly easier for some fortunate students to acquire college degrees (the unemployment rate for college graduates: 4 percent).

    As he adds, this will be $6 billion the government will “pretend to ‘pay for’…while borrowing $1 trillion this year.”

    Continuing to increase federal subsidies for higher education (which includes subsidizing interest rates) while further burdening taxpayers will not mitigate ever-increasing college costs. In fact, looking to government to pop the higher ed bubble is a highly unlikely solution.

    Dramatic reductions in college costs will come through innovations in the market, including the game-changing potential of online learning. Yale, Stanford, and MIT are already moving toward greater accessibility to online courses that are more cost efficient.

    It’s a transformation that has the potential to save students far more than the paltry $7 per month that the Obama Administration has promised recent grads.

    Posted in Education [slideshow_deploy]

    2 Responses to What College Graduates Really Need: A Job

    1. Bobbie says:

      this man is unscrupulous and promotes it…
      He can't be a 3rd world leader if people have minds above his…
      That's what nationalized head start is for…
      So the minds are only educated with restraint and below his 3rd world mentality…
      For the good of the people, the country, the world, this man must be removed.

    2. Ed C says:

      The larger problem is the increasing disconnect between the stuff people need to learn in order to be employable and the stuff they are being taught. This is exacerbated by a combination of increased faculty salaries and decreased faculty workload — the old "4&4" — four classes each semester for a total of 8 per year, has now become "2&2" (or less) so twice the number of professors are needed to teach the same number of courses.

      All of this exacerbated by a combination of the "Baby Boomlet" ending while every college in the country expanded over the past 15 years. That really is what is behind this….

      If students didn't take out these loans, if they decided to go into a trade or something instead, colleges would be badly hurting and everyone knows that. So the interest rates have to be low so as to give the illusion of a bargain. Otherwise, no one would take them out.

      But the other real wild card in all of this are the "foregiveness" rules, which I don't think are factored in to the projected taxpayer costs. If a lot of kids coming out of college never get good jobs, then they won't be paying back as much and ???? Likewise, if a lot of them go public sector and get the 10-year forgiveness.

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