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What College Graduates Really Need: A Job
Posted By Rachel Sheffield On May 24, 2012 @ 10:38 am In Education | Comments Disabled
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.
Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2012/05/24/what-college-graduates-really-need-a-job/
URLs in this post:
 Wall Street Journal: http://online.wsj.com/article/SB10001424052702304050304577375572771360252.html?KEYWORDS=andrew+biggs
 Not only does keeping loan rates low do nothing for current : http://www.nationalreview.com/corner/296845/pleasedoublemyterm-douglas-holtz-eakin
 Washington Post: http://www.washingtonpost.com/opinions/subsidized-college-loans-are-another-bipartisan-boondoogle/2012/05/16/gIQA8sefUU_story.html
 7.9 percent: http://www.bls.gov/news.release/empsit.t04.htm
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