Why College Graduates are Useless

Is student debt good for anyone?  The answer seems to be a resounding “NO!”  Recent research reveals that high levels of student debt not only hurts students, but universities, creditors, and the greater economy as well.  By stifling economic activity and dragging the savings rate in the United States even farther below the Golden Rule savings rate, student debt has the potential to greatly reduce the quality of life in the United States.

Before looking at the effects of high student debt, it’s important to understand where this debt comes from.  A study by Mark Perry, a professor of economics at UM, found that on average, college tuition has grown at a CAGR of 7.45% since 1978.  Compare this value to housing prices, which have grown at an average CAGR of only 4.3% during the same time period (WSJ: “Degrees of Value: Making College Pay Off”).  Certainly, the average CAGR of incomes has not experienced such astounding growth, and some 40% of college graduates end up in low paying jobs that don’t even require a college degree (see my post: “Employment is on the rise, but is it the employment we want?”).  Consequently, more and more students are forced into debt as they attempt to bridge the gap between income and tuition costs.  Today, the average college graduate has $29,400 of outstanding student loans.

This rise in student debt has negative impacts on three main groups: (1) college graduates (2) creditors, and (3) universities.  In this blog post, I will address the impact this debt has on college graduates (I plan on analyzing the other two groups in a later post).  Certainly, the negative impact on graduates is obvious.  Stifled by excessive amounts of debt, college graduates cannot pursue the “American Dream” as freely as they’d like.  A study by the Consumer Financial Bureau found that many Millennials, because they are limited by student debt, delay home ownership, fail to save for retirement, and cannot take out small-business loans due to poor credit scores (USA Today: “Millennial’s ball-and-chain: Student Loan Debt”).  While this is certainly a shame for graduates, this limited economic activity is also a shame for the larger economy.  As we continue to recover from the Great Recession, limited economic involvement is not what we want to see; we want college graduates to buy houses and to save for retirement, as this type of activity makes economies thrive.

In this way, irony strikes again, as higher education seems to have the opposite effect as we would like.  Rather than increase economic activity, universities, by creating student debt, are suffocating it – at least for Millennials.  Furthermore, this post doesn’t even touch on the ways student debt prevents universities and creditors from contributing to economic growth.  To me, Millennials’ limited economic involvement is a cry for reform.  Somehow, students need to be able to attend college without crippling themselves with unmanageable amounts of debt.  But while the problem is obvious, finding a solution certainly is not.

5 thoughts on “Why College Graduates are Useless

  1. mdbold

    Debt is obviously a major concern for college graduates, but I’d be very interested to know how you come up with the claim that we are pushing our saving rate (remember there’s no ‘s’ on the end of saving!) “even farther below the Golden Rule” rate. How do you know what this rate is for our country? If there’s a study that claims to have a good estimate of it, please link to it!

  2. sekoch

    As alarming as the increasing amounts of debt (and cost of tuition) are, my own personal experience leads me to believe that the lack of knowledge about this debt is equally or even more concerning. Some college students are lucky to even know the balance of the loans they are accumulating, let alone how to manage them. Often, the only requirement to receive the loans is an online signature. If students understood the magnitude of the debt, as well as how to effectively repay it, I believe many students would weigh the pro/cons of taking on debt and make a more informed decision on what type of degree, what university, etc. is best for them.

  3. mhupp

    I think finding a solution for this might make for an interesting in-class discussion! I’m European, so I’m used to a totally different system of higher education, which for the most part doesn’t charge tuition at all. That obviously solves the whole issue of student debt, but it also tends to lead to less funding per student at universities (which increases class size and means that you don’t get to write class blogs, among other things). I personally favor a system where you only pay tuition “retrospectively”. Attending college is free, but once you graduate and get a job, you pay fees conditional on your income (in addition to your income tax). That gives you more funding per student, yet resolves the debt issue. Obviously going into detail here would be a little too much for this comment. Anyways, important issue & looking forward to your next posts on this!

    1. schmitzc Post author

      I’ve never heard of paying tuition “retrospectively.” That’s a very intriguing idea and definitely something I’ll have to look into for future blog posts.

  4. tyuan@umich.edu'tyuan

    I’m curious in this topic. The tuition is so high compared to the living expenses in the United States. I heard many students had debt during their college life. My friend’s roommate has three jobs in school because she has to pay for her tuition. How can she have time to concentrate on studying? People who have a heavy burden cannot live a great college life.

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