Showing posts with label Labor Market for Recent College Graduates. Show all posts
Showing posts with label Labor Market for Recent College Graduates. Show all posts

Thursday, March 21, 2019

Take out student loans, get a college degree, and then go to work for a rental car agency: Is this the American Dream?

Enterprise Rent-A-Car is the number one employer of college graduates in the United States. According to Chronicle of Higher Education, Enterprise expects to hire 8,500 college graduates in 2019. In fact, three of the top ten companies for hiring college graduates are car rental companies: Enterprise, Hertz, and Avis.

For Enterprise, CHE reported, "a college degree matters mostly because it suggests that a candidate has acquired the right mix of skills to succeed in an entry-level job--and to move up the ladder from there." However, CHE explains, Enterprise does not care much about where its new hires went to college, what they studied, or their grades. Enterprise just wants people who obtained a degree.

Over the course of my working life, I've interacted with hundreds of car-rental agents. In my opinion, these agents don't need college degrees to rent cars. The idea of someone taking out student loans and spending four or five years in college just to get a trainee's position at Enterprise, Hertz, or Avis is absurd.

In my opinion, Enterprise's hiring policy is an example of credential creep. Companies don't require new hires to have college degrees because colleges teach useful job skills; for the most part they don't.

Rather a college degree is just a credentialing signal; it tells employers that an individual has the stamina to endure boredom, lackluster instructors, and mindless bureaucracy for four or five years--attributes that fit them perfectly for a trainee's job at Enterprise.

In fact, a high percentage of college graduates are now taking jobs that don't require a college degree. According to a report by the Federal Reserve Bank of New York, issued less than two years ago, 43.5 percent of college graduates are in jobs that typically don't require a college education.

And yet millions of young Americans are willing to take out student loans to go to college--on average, about $37,000.

So if you are a college student, you should ask yourself this question: Are you willing to borrow $37,000 in order to get a college degree and then go to work for a company that doesn't care where you went to school, what you majored in, or what your grades were?

If you answered yes, you are qualified to be a car-rental agent.

Photo credit: Thrillist.com

Tuesday, July 19, 2016

Susan Dynarski's Fix for the Student Loan Crisis: Simplistic, Dangerous, and Ineffective

Susan Dynarski published an essay recently in the Business section of the Sunday Times with the provocative title of "America Can Fix Its Student Loan Crisis. Ask Australia." Her prescription is simplistic, dangerous, and ineffective.

Essentially, Dynarski recommends putting American student borrowers into income-based, long-term repayment plans. She doesn't say how long, but she wrote approvingly of the English system--which, she attests, gives students 30 years to pay off their loans.

She also recommends putting student borrowers into a payroll withholding system whereby
debtors have their monthly loan payments deducted from their paychecks based on a percentage of their income.  When borrowers' incomes go up, their payments would be larger; if their incomes go down, their payments would be reduced as well.

Dynarski's proposal is very close to what the Obama administration is already doing--pushing millions of student borrowers into income-based repayment plans that stretch out over 20 or 25 years.

Dynarski says long-term student-loan repayment plans make sense because college graduates benefit from their college experience over their entire lives. "A core principle of finance is that the length of debt payments should align with the life of the asset," she writes didactically. "We pay for cars over five years and homes over 30 years because homes last a lot longer than cars." Likewise, Dynarski reasons, "[a]n education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term."

Dynarski urges the United States to follow the example of those savvy Europeans, who give students longer to pay off their student loans than we do here in the U.S. "All the international student loan experts I have spoken with are shocked by how little time American students are given to pay off their student loans," she informs us. Shocked!

Simplistic

Dynarski's simplistic proposal is based on erroneous premises.  First of all, contrary to Dynarski's view, many student borrowers do not have college experiences that benefit them over a lifetime. Students who borrow to attend for-profit colleges and have substandard experiences don't receive a lifetime of benefits. Perhaps that is why almost half of a recent cohort of students  who attended for-profit colleges defaulted within five years. People who drop out of college before graduating don't receive a lifetime of benefits either, although they may acquire a lifetime of debt.

And many people who borrow money to obtain liberal arts degrees are not receiving much benefit. I for one received almost no benefit from the sociology degree I obtained from Oklahoma State University many years ago. But at least I didn't borrow money to pay for it.

People who borrow $100,000 or more to get degrees in sociology, history, women's studies, religious studies, etc. generally are paying far more than their degrees are worth.  In fact, 45 percent of recent graduates take jobs that don't even require a college degree.  And in the workplace as a whole, about a third of college graduates are in jobs that don't require a college education.

Moreover, Dynarski's comparison between American college financing and Europe is not very useful. As she herself points out, higher education in many European countries is free, and most European countries have a bigger social safety net for their citizens than the U.S. does. It is one thing to pay on student loans for 20 years if health care is free and an old-age pension is assured. It is quite another thing for people to pay on their student loans over a majority of their working lives while saving for retirement and paying for health insurance.

Ineffective

If we think about Dynarski's proposal for just a few moments, we can see how ineffective it is for solving the student loan crisis. American higher education is the most expensive in the world, and stretching out students' loan repayments for 25 or 30 years will do nothing to get those costs under control. In fact, the reason so many higher education insiders favor long-term income-based repayment plans is because it enables them to continue jacking up tuition prices.

And Dynarski's plan takes no account of accruing interest.  Borrowers who make small monthly loan payments due to their low salaries won't be paying off interest as it accrues. Most Americans who enter these plans will never pay off their loan balances even if they faithfully make their monthly loan payments for 300 consecutive months.  Isn't it also a core principle of finance that people should actually pay off their loans?

Dangerous

Finally, Dynarkski's proposal is simply dangerous to the long-term well being of Americans who go to college.  Basically, she is proposing a special tax that everyone who borrows to attend college must pay over the majority of their working lives. Student loan payments will just be another deduction from people's paychecks--like federal income tax withholding and Social Security contributions.

Essentially, Dynarski is proposing a modern-day sharecropper system very much like the one that prevailed in the American South prior to World War II. The sharecropper system of the 1930s required tenant farmers to pay a portion of their crops to Southern plantation owners; the modern system forces college students to pay a portion of their future wages to the government over a majority of their working lives.

Both sharecropper systems are unjust: and Dynarski, by pitching the new sharecropper system in the Business section of the  New York Times, has become an apologist for exploitation.



References

Mathew Boesler. More College Grads Finding Work, But Not in the Best Jobs. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs

Susan Dynarski. American Can Fix Its Student Loan Crisis. Ask Australia. New York Times, July 10, 2016. Business  Section, p. 6.

The Labor Market for Recent College Graduates. Federal Reserve Bank of New York, 2016. Accessible at https://www.newyorkfed.org/research/college-labor-market/index.html

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults


Wednesday, June 8, 2016

How many college graduates have jobs that don't require a college degree? You might be surprised.

Last April, the Federal Reserve Bank of New York released an analysis of labor-market conditions for college graduates. Here is what it found:

  • In 2015, almost 45 percent of recent college graduates (graduates aged 22 through 27) were working in jobs that do not require a college degree.
  • Around 35 percent of all graduates (graduates aged 22 through 65) were holding down jobs that don't require a college education.
  • Wages for recent college graduates have remained relatively flat from 1990 to 2015.
So what do these numbers mean for young Americans?

College is not a good bet for everyone. First, although the college industry and their advocates (Brookings Institution, etc.) like to remind us that people who graduate from college make more money over their lifetimes than people who only have high school diplomas, going to college is not a good bet for everyone.

As the New York Fed has shown us, darn near half of recent college graduates are working in jobs they could have gotten without going to college. Of course many recent graduates will eventually find jobs that require a college degree. But even among the college-educated population as a whole, about one third of college graduates are working in jobs that do not require a college education.

 The payoff for getting a college degree is not as good as it once was. Second, wages for college graduates have remained about the same for the past 25 years--about $45,000 in constant 2015 dollars. But the cost of going to college has tripled over the last quarter of a century. That's why about two thirds of college graduates leave school with college-loan debt.

Thus, you may still need to go to college to earn a decent income, but a larger share of that income is going to go to servicing student loans.  In other words, recent college graduates are not as well off financially as their counterparts were 1990 because a majority of them are graduating with a significant amount of debt.

The case for a free college education gets stronger and stronger. People laughed at Bernie Sanders when he argued for a free college education from a public college for anyone who wants one. But, as I have repeatedly pointed out, Bernie's plan would actually cost less than the current federal loan program, because millions of people aren't paying off their loans.

Now Bernie is gone--swept away in the California primary election, and the higher education community can look at this idea afresh without fear of undermining their favorite presidential candidate--Hillary Clinton.

And lo and behold, the Brookings Institution published a paper today by a couple of croakers named Morley Winograd and Michael Hais that suggests free college might be a good thing.

And it would be a good thing. Certainly offering a free college education would be better than Hilary's scheme to pump billions of dollars more into a higher education system that is corrupt, obsolete, inefficient, and horribly overpriced.

References

The Labor Market for Recent College Graduates. Federal Reserve Bank f New York, 2016. Accessible at https://www.newyorkfed.org/research/college-labor-market/index.html

Mathew Boesler. More College Grads Finding Work, But Not in the Best Jobs. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs

Morley Winograd and Michael Hais. The Democrats' Generation Gap. Brookings Institution, Jun 3, 2016. Accessible at http://www.brookings.edu/blogs/fixgov/posts/2016/06/03-millennials-democrats-election-2016-winograd-hais?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=30380706&_hsenc=p2ANqtz-8kyQSbZyUfxh-t2hnsxhvRRXvUp2j0eORShy09EK-7-HQpeIdEwoZaQ1CXQ3fR5CAxWRHk2cBWPTT6cCkIOO74q4BLUw&_hsmi=30380706

 Morley Winograd and Michael Hais. The Democrats' Generation Gap, Mike and Morley web site, June 6, 2016. http://www.mikeandmorley.com/the_democrats_generation_gap