The Great Recession sent millions of Americans scurrying back to school to improve their chances of securing jobs. But the difficulty that recent college graduates have had finding work — after taking on unprecedented loads of debt — has sparked a lively debate about whether a college degree opens doors the way it once did in the job market.
Enrollment in college and other postsecondary schools surged at double-digit rates during and after the recession as young people and middle-aged workers alike sought to hone their skills and burnish their resumes in hopes of finding better-paying jobs or, in some instances, any job.
The surge in enrollments sent student debt soaring to near $1 trillion, making it the fastest-growing and largest category of consumer debt in the U.S. economy.
But the payoff has been less than impressive: Recent college graduates are having as hard a time getting work as many non-graduates, while they are burdened with debts of as much as $100,000 for obtaining their degrees.
The estimated 8.5 percent unemployment rate for recent graduates is more than twice the 3.9 percent rate for older college graduates and higher than the 8.1 percent rate for Americans with only high school degrees.
Many graduates have been forced to take temporary or part-time jobs — or even work without pay — while staying with their parents and postponing marriage, buying a house and pursuing other life goals. Since the recession, the earnings of recent graduates have fallen by about 5 percent, reflecting their diminished prospects.
Adding to this predicament, at least 40 percent of graduates took out loans to get their degrees, but have little wherewithal to repay them amid the dearth of well-paying jobs. The growing strain is prompting students and their parents, many of whom co-signed for the loans, to reconsider whether college is either affordable or worthwhile.
While middle-class families are quietly voicing their doubts, some prominent and influential skeptics are loudly questioning the importance Americans have traditionally placed on getting college educations.
Peter Thiel, an entrepreneur who dropped out of Stanford University and made billions of dollars as co-founder of PayPal, said most people don’t need a college degree to be successful in business or the job market, unless they are going into medicine, academia or other areas where higher education clearly is needed.
To prove his point, Mr. Thiel set up a foundation that offers to pay a couple of dozen of the nation’s most talented students each year $100,000 to drop out of college and become technology entrepreneurs. He believes the young turks and society at large will be better off with fewer people earning bachelor’s degrees.
“We have a bubble in education like we had a bubble in housing in the last decade,” the Silicon Valley mogul told CBS‘ “60 Minutes” last month. “Everybody believed you had to have a house. They’d pay whatever it took. Today, everybody believes that we need to go to college, and people will pay whatever it takes.”
Mr. Thiel said college has been oversold as a ticket to a good job. He noted that an average plumber with no college degree makes about as much as the average doctor who has attended many years of college and medical school.
Moreover, the most talented young people who attend Harvard or other Ivy League schools often get funneled into careers on Wall Street, where the pay may be lucrative but the work benefits primarily the wealthy and is not that productive for the larger economy and society, he said.
At the other end of the spectrum, for-profit colleges, which tend to attract less-accomplished students, have become like “subprime mortgage lenders,” he said, adding that applicants are persuaded to go deeply into debt to get degrees of sometimes questionable market value.
Many students at for-profit schools don’t complete their education and end up in what analysts consider the worst of all worlds — with no degree but loads of debt.
“People are being conned into thinking that this credential is the one thing you need to do better in life,” Mr. Thiel said. “And they’re actually not any better off after having gone to college. They typically are worse off because they’ve amassed all this debt.”
Mr. Thiel’s criticisms are borne out by the plight of recent graduates, more than half of whom are either unemployed or “underemployed,” such as in entry-level restaurant or retail jobs, as they wait for better opportunities.
Despite the troubles for recent graduates, economists and academics say there is no reason to discount the value of college. Although a college education in some cases may have diminished in value as a result of the recession, they say, it still is the best way in the long run for young people to secure better jobs with better pay.
Drop out or stay?
Some are harsh in their assessment of Mr. Thiel’s critique.
“Thiel’s encouragement of dropping out is, to be frank, just plain stupid,” said Susan Thompson, an analyst at iShares, an investment firm. “The chances of college dropouts becoming successful entrepreneurs like [Facebook founder] Mark Zuckerberg or [Microsoft founder] Bill Gates are pretty rare.”
Studies show that people with bachelor’s degrees earn on average 84 percent more over their lifetimes than high school graduates, she said. Moreover, listings for most of the best jobs specify that a bachelor’s degree is required — including jobs working at Mr. Thiel’s hedge fund, she said.
“To be sure, college is extremely expensive, and it’s getting more costly by the year,” she said, but a careful weighing of costs and benefits shows that the roughly $31,000 in debt that a typical graduate takes on will more than pay for itself in higher earnings.
President Obama has weighed in squarely on the side of more education rather than less. He frequently encourages young people to stay in high school and go to college. His administration has made it easier for Americans to obtain loans for college, loosened and capped repayment requirements, and championed efforts to keep student loan interest rates low.
The Treasury and Education departments last month released a study showing that college graduates with full-time jobs in 2011 earned 64 percent more per week than high school graduates — the biggest gap in wages between the two groups since 1915. The report noted that the federal government now provides 55 percent of all financial aid for undergraduates.
Some critics say the easy availability of student loans is part of the problem because it encourages colleges to increase their costs, knowing the government will provide financing.
College costs surge
The phenomenal growth in student loans is a result of increased enrollment and soaring costs, which have far outstripped inflation and growth in family incomes. Between 2000 and 2010, surveys show, college tuition and fees rose by 92 percent while the median family income rose only 18 percent.
But the explosion of student debt also reflects the shrinkage of other sources of college funding in recent years, as stock market turmoil cut into the value of endowments and budget troubles led to cutbacks in state subsidies.
State support for higher education fell by 11 percent between 2008 and 2011 as the recession cut deeply into state revenue and forced draconian budget cuts. Student loans have filled the gap as other sources of funding dried up.
John Silvia, chief economist at Wells Fargo Securities, called the sharp increase in student debt “worrisome,” but he still recommends that young people pursue college degrees, given the better income prospects of graduates over the long run.
“Debt burdens are becoming increasingly difficult to manage,” he said, driving up delinquencies and bankruptcies while complicating and often delaying the transition into independent adulthood.
Mr. Silvia also rejected Mr. Thiel’s comparison of the explosive growth of student debt to the housing bubble in the past decade. At its peak, mortgage debt totaled $14 trillion — far more than the $1 trillion total of outstanding student debt today, he said.
Moreover, the money spent on college will more than pay for itself in higher incomes, while the money spent on expensive homes during the housing bubble often proved to be poor investments, he said.
More jobs require degrees
“A growing share of jobs in the economy use some cognitive thinking, and these jobs tend to require a college degree,” he said, adding that the number of jobs requiring postsecondary education will only increase.
Heidi Shierholz, an analyst at the Economic Policy Institute, said the difficulties of recent graduates reflect the extraordinary weakness of the job market after more than 8 million people lost their jobs during the recession.
The 5 percent drop in earnings of recent graduates since 2008 contrasts with the robust 19 percent growth in wages graduating classes recorded between 1995 and 2000, when the economy was booming and unemployment fell below 4 percent.
“The stark difference between these two economic periods illustrates how the wages for young graduates vary considerably depending on the health of the U.S. labor market,” she said. “Young graduates who enter the labor market during periods of strength face much stronger wage prospects than young graduates who enter the labor market during periods of weakness.”
Peter Morici, business professor at the University of Maryland, said students should keep in mind that not all college degrees are equal. What people study in college makes a big difference as far as their future employability and earnings.
“A worker with a bachelor’s degree in petroleum engineering earns about $120,000, while a degree in counseling psychology fetches just $29,000,” he said. “Even business degrees differ dramatically in value. Finance, accounting and supply-chain majors are worth a lot more than general business and human resources management graduates.”
John A. Challenger, chief executive officer of Challenger, Gray & Christmas Inc., an outplacement firm, agreed that graduates with degrees in accounting, engineering, information technology, financial services, sales and marketing, and human resources are more likely to find jobs than people with other majors.
But he added that the overall job market for recent graduates is gradually improving as employers increasingly realize they cannot forever rely on older workers and must recruit and train the workers of the future.
“Last year was slightly better than 2010, and this year should be slightly better than 2011,” he said. “Unfortunately, those expecting a rapid turnaround and sudden burst in hiring will be disappointed. Entry-level hiring is nowhere near pre-recession levels.”
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