Posted: August 01, 2012
The Economist: Oh, please!By Tucker Hart Adams
I’m getting very tired of the headlines and hand-wringing about student debt. I realized how strongly I feel when a business professor whom I respect started in on the subject at a recent board meeting and I burst out, "That is such a bunch of BS!"
I assume the statistics we see quoted claiming $902 trillion in federal student loans for education, along with another $140 billion in private loans, are correct. I don’t doubt that 94 percent of those earning a bachelor’s degree borrow to help pay their tuition, double the figure 20 years ago. And, yes, education debt exceeds the $820 billion Americans hold in revolving credit (primarily credit card debt). Incidentally, revolving credit has fallen almost 20 percent since 2007. Americans really have made progress getting their financial house in order.
Do student loans mean young graduates have to put off buying a home for a few years? Probably. But where did we get the idea that one has a right to be a homeowner in his twenties? I remember a conversation with a German central banker in Denver on business who was shocked to find out that anyone under 40 could afford to buy a home.
Certainly many young people moved back in with their families during the Great Recession and its aftermath to save money. But they aren’t just new graduates with college debt. It’s happening in every category. Unlike when I was that age, living with one’s parents is now quite acceptable among one’s peers, perhaps even the "smart" thing to do. And I’m guessing those young people aren’t delaying the purchase of a car in order to pay their other bills.
The basic problem is that we keep referring to student loans as "debt." Technically, of course, that is true. But in reality it is an investment, an investment in human capital, to use the economic term.
How large an investment? According to the New York Federal Reserve Bank it averaged $23,300 in 2011, with 87 percent owing less than $54,000 and only 3 percent owing more than $100,000. It’s that 3 percent who get featured in the horror stories.
What is the return on that investment? For starters, an unemployment rate of 3.9 percent at a time when high school dropouts face an unemployment rate of 13 percent and those with only a high school education 8.1 percent. Even with the oft-reported problems recent graduates have had finding jobs in the last few years, the unemployment rate for college graduates is lower than it was a year ago.
With a community college degree, one can expect to earn 28 percent more than a high school graduate. With a bachelor’s degree it is 61 percent more. With a master’s degree 93 percent more. With a doctoral or professional degree 2.4 to 2.9 times as much.
Or to put it another way, expected earnings over the college graduate’s working life is $800,000 more than the high school graduate’s. That’s not a bad return on a $23,300 investment – about 9 percent a year.
I’ve said before that I don’t think everyone should go to college. But everyone should make it through high school and most through community college, where they can learn a skill or trade that prepares them to compete in a labor market that is now international. I would go so far as to argue that community college should be part of our free education system and that people should be required to stay in school until 18 or 19 rather than merely 16. It is one of the best uses of our tax dollars, perhaps
What do we get when we don’t invest in higher education? The highest rate of incarceration in the world, among other things. In 1990, California spent almost twice as much on higher education as it did on prisons. Now it spends almost twice as much on its prisons as on its universities.
So please spare me the handwringing about student debt. Let’s encourage everyone to invest in raising their human capital, whether as a skilled craftsperson, a business entrepreneur, a doctor … or even an economist.
Tucker Hart Adams, president of the Adams Group, monitored and analyzed the Colorado economy for 30 years. She can be reached via her website, coloradoeconomy.com.