Saturday, July 21, 2012

Take Student Loans As Seriously As Used Car Loans

On the bright side, we have a very well educated wait staff in this country.

During the first decade of this millennium, the chances are that, if you went to a restaurant, the likelihood that your table would be attended by a college graduate increased by 81%. In addition, the number of college educated janitors rose by 87%. Also, during that same ten year interval, the chances that your bartender would hold at least a bachelor’s degree have doubled. The same goes for file clerks.

And if anything, the problem is getting worse. Inside June’s terrible employment report was this nugget. The number of jobless young people, aged 20-24, who were not enrolled in school, rose by nearly 20%, from about 1,590,000 to over 1,900,000.

At a time when international markets demand that we generate a highly educated and technically skilled workforce that will permit us to compete against emerging engineering powerhouses such as India and China, we lead the world in highly educated file clerks.

But maybe they were the lucky ones. By the spring of 2011, only 56% of the previous year’s graduating class had landed a job. Any job. The classes of 2006 and 2007 achieved 90% employment rates within a year of graduation.

In the mid-1960s, Bob Dylan’s seminal ballad, “Subterranean Homesick Blues” lamented that, “twenty years of schooling, and they put you on the day shift.” I think that today’s graduates would eagerly jump at that deal.

And, while every spring America’s colleges and universities flood the job market with a million and a half fresh college graduates, we still turn out too few with the skills that are in demand in today’s job market. The National Federation of Independent Businesses (most of whom did build it themselves), reports that 75% of its members had posted job openings, but that 51% of those postings attracted “few, if any, qualified applicants.” I know of one engineering firm that has roughly 100 chronically open positions.

With so few qualified applicants, can anyone blame US companies for outsourcing jobs?

Clearly the problem with the US employment picture is not just that too few jobs are being created. Our educational system is not turning out graduates adequately educated for the available jobs.

This is reflected in declining income. Graduates from the classes 2006, 2007 and 2008 enjoyed average starting salaries of $30,000. Those fortunate enough to find work since then are starting at only $27,000. Of those who had jobs, only 71.1% held jobs that required a college degree.

The picture is even worse for what the New York Times euphemistically calls, “area studies.”

Only 44.7% of area studies majors held jobs that required a degree.

Examples of area studies include such majors as “Latin American Studies” and the humanities.

And on top of all that, the median student loan debt for the 2006 – 2010 graduating classes was $20,000. And that’s certain to go up as colleges raise tuition and the proportion of tuition costs borne by students has risen sharply as parents’ ability to contribute has failed to keep pace with rising costs.

I have a modest proposal. Let’s treat student loans as seriously as we treat used car loans.

To get a used car loan, the bank will estimate the car’s value and its projected value and will not issue a loan for more than the car’s value.

For example, if the expected improvement in earning power for a degree in a particular major (Latin American Studies for example) from a given college is less than the amount of the loan, then the loan should be refused. 

This would be in everyone’s best interests. The student would benefit by not wasting those four irretrievable years. He or she would also gain by not starting life after college with a crushing student loan debt.

To burden students with debt that is not commensurate with the value of their education doesn’t do anyone any good. The mortgage meltdown was caused by banks writing mortgages for borrowers who could not pay it back. We’re creating something similar here by giving student loans to students whose education will be worth less than the balance on their loans.

The economy would also benefit from having more appropriately educated graduates. Market forces would encourage students to pursue degrees that have some chance of gaining the student gainful employment upon graduation.

We can get by without bartenders credentialed in the classics.


Blogger willson said...

Used car loans is a good option in comparison to the car loans taken for new cars.As loans for used cars has lesser credibility than regular ones.
Used Car Finance

2:50 AM  
Anonymous charie101 said...

As what I've read from the news, there is fewer delinquents in auto loans compared to student loans who top the ranking in most number of delinquents. Is it truly because they value car loans more? As we all may know, fresh graduates are just starting to get a job and paying for debts is so in front of line when it comes to priorities.

1:07 AM  

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