In part
2 of the posts on income inequality I wanted to dive deeper into the issue of
college costs. There are multiple
factors in play here so it may take a little time to completely unpack, but
I’ll try not to make this too long. The
first aspect to look at is the relationship between minimum wage and the
average cost of one year of college.
Let’s
start with a basic premise – a graduating high school senior is able to find a
job paying minimum wage upon graduation.
Before heading off to college, our student is able to work 40 hours per
week for 12 weeks. Given current tax
brackets, let’s also assume that our student pays no taxes on those wages. Using the college board data, will the
student earn enough to cover college tuition for the following school
year? In 1980 minimum wage was $3.10 and
the average tuition and fees at a public 4-year university was $804. In the summer of 1980 our student earned
$1488 before leaving for school – enough to cover tuition and fees with $684
left over. In 2016 our student earned
$3480 and faced an average tuition bill of $9648 at the 4-year public
university – a shortage of $6168. These
figures don’t include room and board so there are going to be some added
expenses to account for.
If we
use the NCES data from the last post, we can account for room and board as
well. For the 1980-81 school year the
average cost (tuition, fees, room and board) at a 4-year public university was
$2550, leaving our student with a $1062 deficit. NCES data only goes up through the 05-06
school year. In 2005, minimum wage was
$5.15 and the average cost at a 4-year public institution was $12108. In the summer of 2005 our student earned
$2472, which created a $9636 deficit.
Extend that out over the typical 4 years that our student attends
university and our graduate in 1984 only has a total debt of $4248. That is less than HALF the debt our 2005
student incurs PER YEAR! Our graduate in
2009 has a total debt of $38544.
Clearly
the numbers show an increasing need to borrow larger amounts of money to pay of
college. At the same time that college
costs are skyrocketing, the need for a college degree is also going up. Most of this data is anecdotal, but decidedly
relevant. When I graduated from college
in 2005, I had friends who had no choice but to pursue additional degrees if
they were going to find meaningful work within their field. Obviously my pre-med friends were going to
need more schooling. Not so obviously –
my friends going into social work. In
order to get a decent job in the social work field, they had to first get a
master’s degree. And it’s not just
social work where higher level degrees are required. Most athletic training positions now required
schooling beyond a bachelor’s degree.
Nursing positions used to be available in hospitals for both LPN’s and
RN’s. Those positions only required a
2-year Associate’s Degree. Now LPN’s can’t
get jobs at anything other than nursing homes and hospitals are increasingly
requiring a 4-year Bachelor’s Degree for their RN’s. This degree inflation is only adding to the
massive student loan debt.
Piling
on to the debt load – decreasing access to Pell Grants for college. Pell Grants do not need to be repaid, so
theoretically they should decrease the debt load for a college student. NPR recently ran an article about the
challenge of paying for college and the fact that summer
jobs just don’t pay. The article
discusses the max amounts of Pell Grants and how they have changed in relation
to the full cost (tuition, fees, room & board) of college. For the 81-82 school year the max award was
$1800 to help cover an average full cost of $2870, so the student only needed
an extra $1000 to pay for the semester.
The Pell Grant covered more the 50% of the full cost. Now the average full cost is just over $20000
and the max Pell Grant is only $5800; less than 30% of the cost.
When I
went through college, I heard a lot about credit card debt and the perils of
misusing my credit card. I learned early
to pay my entire statement balance each month, but most people haven’t learned
that lesson and credit card debt was, and still is, a major problem in this
country. Currently, credit card debt
sits around $882 billon. That’s a hefty
figure and the credit card companies are enjoying some nice interest off that
debt. Of course, if it gets too bad,
individuals can discharge that debt through the bankruptcy courts and walk
away. Understandably, credit card debt
got a fair amount of coverage in the media.
That changed as the first wave of Millennials started graduating and
having to pay on their debts. Suddenly,
student loan debt started to shoot up and now everyone is talking about student
loan debt. In June 2010, student loan debt
surpassed credit card debt.
Depending on which calculator you look at the total current outstanding
student loan debt sits around $1.4-1.5 trillion. That debt cannot be discharged in
bankruptcy. You cannot walk away from
student loan debt; it’s a millstone around the necks of millions of young
Americans today.
And it’s
not all young Americans racking up this debt.
Americans in their 30’s and 40’s are going back to school as they need
to re-tool their skills to remain competitive in today’s job market. Many of these Americans have families to
support and have to work jobs as a result.
They borrow funds to pay for the new degree and hope the new job (and
higher income) comes through. It doesn’t
always work out that way.
There
are some things we can do the help alleviate this problem. Mike Rowe, host of the hit show Dirty Jobs,
has been talking to anyone who will listen about trade schools and other ways
to find valuable employment. There are
good paying jobs that don’t require a 4-year degree. But none of the major college ranking
publications – U.S. News, Princeton Review, Forbes – give even a wink towards
the trade schools. Thanks, in part, to
Mike’s efforts Forbes recently changed that and published their first ranking
of trade schools. With all the push
in schools for STEM, Rowe is arguing for more trade jobs. We all know not everyone is cut out for the
academic world of a 4 year college. That’s
a good thing. We all need plumbers,
electricians, mechanics, construction workers, carpenters, etc. These jobs don’t require a 4-year degree;
they take 2 years at a trade school and then many of these careers put people
on the old school apprenticeship -> journeyman -> master career
path. Along the way, they make some
pretty good money.
I don’t
know what all the solutions are to this problem, so feel free to provide your own. I do know we better start tackling it now or
we are going to end up with a society where the only people who can go to
college are the rich folk and we can wave goodbye to the idea of America as a
land of opportunity for anyone willing to work hard.
