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Wednesday, February 17, 2010

The $550,000 student debt

WSJ article - the $550,000 student loan. Yes it can happen and this woman at least became a medical doctor in the process.

But what is even worse is when a college student goes into debt of $100,000 and ends up with a degree in Ethnomusicology trying to pay the loan off while working at Taco Bell.

It all starts with the college admin departments calling their service “Financial Aid”. This is akin to the loan shark calling his loans “aid” or the bank calling your car loan “car aid”. Granted college students do receive some scholarships and grants that are not debt but much of the “aid” is debt that will radically reduce the options of the borrowers and their families when it is time to pay the piper.

College loans are the closest thing we have in America to debtors prison. These loans can serve a purpose if they are small relative to the future earnings but when the education is wasted and the amount borrowed is far out of proportion to the future earnings, they are big trouble. And this article indicates that almost $300 billion of these federally insured debts are non-performing so yet another federal guarantee that US taxpayers will be paying for.

Monday, February 15, 2010

College grads are less apt to smoke than non college grads

This is a good article but it misses a couple of points. When kids go into college debt it is frequently a “forever loan”. It is not dischargeable in bankruptcy. Folks all over the country are walking away from the home loans and giving the homes back to the lender and most of the time they don’t owe any more money on the loan. Even if the bank went after the home buyer for the difference between what was owed on the loan and the cash collected at the foreclosure auction, this difference is generally dischargeable in bankruptcy.

This article makes a point that it matters what one spends on a college education matters. Some folks are spending over $200,000 on a college education – and this is a much harder nut to justify than a $40,000 college education.

But this article like most others really misses the concept of correlation versus causation. It turns out that college graduates smoke less than non college grads. But was it the college experience that made the life style difference or a higher IQ or some other factor? Were those that chose college to begin with less apt to smoke than those that did not choose college. This is a silly argument for college without having far more data.

The author points out that the number of people over 25 with college degrees in the US has risen from 24% in 1998 to 29% in 2008. So supply and demand alone would make the college degree less valuable than in prior decades.

But the main point this article misses is that it matters what kind of degree one acquires. A bachelor’s degree in English Literature will likely land you a job at Sonic Burgers but a degree in Electrical Engineering or Biomedical Sciences is far more liable to land a good paying job right out of college. I don’t have the data but I strongly suspect that the number of college students studying in fields where there is a demand by employers is shrinking rather than growing. And when one spends $200,000 and ends up $100,000 in debt after six years of college the job at Sonic Burger does not usually generate enough to pay big student loans off.

Tuesday, February 2, 2010

What's a Degree Worth?

Wall Street Journal Article “What’s a Degree Really Worth?”

At least one member in the main stream media is questioning the assumption about the assumed value of a college education. But again this article does not go nearly far enough.

Just because there is a correlation between past college and higher salaries does not mean that one causes the other. Most of the media needs to study logic and statistics so they can understand the difference between correlation and causation. The data clearly shows that individuals accepted to an expensive elite school like Yale or Harvard that then choose to go to a less expensive state college or university do just as well financially as if they had graduated from the more expensive university.

What I have not seen is the data on financial success for those with the same IQ, and socio-economic background that have graduated from college versus those that did not attend college.

And most importantly the term “college” lumps all of these educations together at just the wrong time. It matters if the student studies a subject that is in demand (like engineering, science and accounting) or takes a “fun” subject like Sociology, Medieval German or Ethno-Musicology.