Stories from Strapped: College Education

Because I looked at the book The Two Income Trap on Amazon, Amazon suggested that I also read Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead. It’s a popular theme lately. They say that the younger generation today are worse off than their parents in the 1970s. Other books with similar thesis include Falling Behind, The Big Squeeze, and (Not) Keeping Up With Our Parents. So I decided to check it out and see what the buzz is all about.

The author Tamara Draut is a Director of the Economic Opportunity Program at Demos, a national think tank in New York City. The main theme of the book is that young adults, born between 1971 and 1987, are worse off than their parents a generation ago because of these usual suspects:

  • high costs for college education (tuition rose much faster than inflation)
  • low starting salaries, especially for people without a college degree
  • high student loan and credit card debt
  • high rent and home prices, especially in big cities on the coasts
  • high costs for child care

After presenting the evidence for obstacles faced by the 20- and 30-somethings, Ms. Draut gave a list of recommendations for public policy changes. Although I missed the author’s cutoff for being a “young adult” by a few years, I’m still able to count myself as a member of Generation X. I can relate to some of the challenges mentioned in the book. These challenges and how to overcome them warrant a serious discussion. So I’m going to take them up one by one and write down my thoughts. The book includes many real life stories. Those stories are much more interesting than dry statistics. I will try to do one topic from this book every week.

Let me start today with Chapter 1 Higher and Higher Education. It says the younger generation can’t get ahead because college education has become more expensive. Some aspiring young adults and their families can’t afford it. They have to settle for community college. Because they also often have to work full time to support themselves, graduation rate is low. Without a college degree, they are stuck with low paying jobs.

It starts with this story:

Renee’s parents couldn’t afford to pay for her college, so she attended community college while working full time and supporting an unemployed boyfriend. A new job created conflicts with her class schedule. She dropped out with $4,500 in student loans. Four years later she’s still paying the loan. Without a college degree, Renee works as a legal secretary earning $28,000 a year. Renee regrets not being able to earn a four-year degree.

Renee missed the traditional window for college. She can still get a degree if she really wants to though. But I’m not sure the lack of a degree is holding her back. Usually after a few years on the job, people don’t care whether you have a degree any more. What matters is whether you do a good job. You learn much more on the job than what you can in school. Renee can get ahead, but she has to let her boyfriend support himself.

Next story:

Natalie chose to go to a small private college which cost $27,000 a year. She only stayed one semester because it was too expensive. After taking classes at a community college for one term, she went to an art school she really liked. 3 years later, she got an AA degree in multimedia and video production. She now earns $37,000 a year but she’s often short on cash because she has $20,000 in student loans and a car payment. She goes through a list of people she can call to borrow $10 for something to eat.

Going to a small, expensive private college is a luxury. If you have the money, great. If not, forget it. Just like I’d love to drive a Lexus but I don’t like the price. I settle with a Honda. I’m not sure what this story is supposed to show. Is it that bad for a single person to live on $37k a year? She had to borrow $10 for food? Something doesn’t add up here.

The third story:

Shaney got a scholarship which covered tuition for four years at the state university. She worked part time for room and board. She turned down internship opportunities because they don’t pay as much. She was a French major and she chose to study in France for a year, which she paid with student loans. She borrowed more from student loans because tuition increases made her scholarship run out sooner than she expected. By the time she graduated she had $25,000 in student loans. She couldn’t find a job because the job market was weak.

Did Shaney research career prospects before she chose to major in French? Studying in France is also a luxury which she took upon herself. Again, if you have the money and you think it’s worth it, go for it. But don’t complain about the student loans if you make that choice.

Later in the book the author Tamara Draut recommended that federal and state governments give more grants, as opposed to loans, to college students. Is the high cost of college education a problem? Yes, we should make higher education more affordable to more people. But I think more grants is the wrong solution, because it only addresses the paying part of the equation. With more grants, college education is just as expensive. What changes is who pays for it. One can even argue the additional grants will be absorbed by the increase in college tuition really fast in the same way having a gas tax moratorium won’t lower gas prices.

If we really want to lower the cost of higher education, we have to look at the supply and the demand. Either increase the supply or reduce the demand. That will make the cost lower instead of shifting the cost to somebody else. For example letting community colleges grant four-year degrees will increase the supply. Creating more career training programs which won’t take four years will reduce the demand. The program Natalie went to sounds like a good one. Let’s face it. If your only goal is to have a good salary, many four-year degrees are not so cost effective. I never used a lot of stuff I learned in college. If we take a narrow view, those classes were a waste of time and resources. If I only learned what I needed for doing my first job out of college, I could’ve been done in two years max. I would be just as productive and my employer wouldn’t see any difference. There seems to be a mismatch between what our education systems teach and what knowledge and skills employers need.

In a cost benefit analysis, college education isn’t that different from any other product people buy. Some colleges and degrees are a good value; some are not. You have to spend your money wisely like you do everywhere else. Not all schools or majors will lead to the same starting salary. If getting a good salary is the concern, pick your school and major carefully. If someone insists on getting a degree which doesn’t lead to a well paying job or they insist on attending an expensive private college for the experience, then it’s their personal choice. Money isn’t everything after all.

What do you think? Are colleges to be blamed for jacking up their tuition? Are more grants a good solution to the college education cost problem?

More to come. Next week we will look at the problem of low starting salaries.

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  1. mcfnord says

    you’re terribly hard on the vingette convention, and i’m not sure why. you’re more like an uncle or a libertarian trying to teach a teenager about life. most world currencies have outperformed the dollar causing a sound argument that american students have an implicit disadvantage in their own country. couple that with typical mistakes and yes, pitfalls identified in Two Income Trap, and it’s a perilous proposition, uncle Ron Paul.

  2. Harry Sit says

    Who’s Ron Paul? Remember I hardly watch TV. Oh, a political candidate who garnered very little support? I don’t think I have anything to do with him. I also don’t understand what the connection is between college education cost and currency values you implied. Do you mean college education has become more expensive because there are strong demand from foreign students attending U.S. colleges while paying with their stronger currency? It’s a factor but I thought U.S. colleges charge a lot more to foreign students than they do to U.S. students. So foreign students are making it cheaper for U.S. students, not more expensive.

    Sorry if I sounded like picking on Renee, Natalie and Shaney. That’s not what I meant. Nobody is perfect. I made more than my share of mistakes when I was in college too. The book’s author picked the stories which were supposed to show that the “system” failed them. I don’t agree. Renee didn’t follow the traditional track but now that she worked a few years and she knows better what she needs, she can get back to track and get the education she needs. She’s probably better off than high school graduates who dove into college in the blind. Natalie got into the field she wanted with a good salary. She wasted a little money with a private college but it’s OK. Her struggle with money for food has to come from somewhere else. Shaney is the worst-off of the three IMO. She got a four-year degree but she couldn’t find a job. That just shows that giving everybody grants and getting them degrees isn’t the solution. What failed Shaney was the erroneous belief that she’d be all set if only she gets a bachelor’s degree. There would be more cases like Shaney’s if we follow the author’s recommendation for more grants.

  3. Massey says

    I agree with you in part that these stories do not necessarily show that the system failed. To be honest, I don’t know anyone, outside of individuals with special needs, who really needs a $30/yr private school education. Both my wife and I chose to go to a public university (albeit a public ivy), so that we wouldn’t be swamped with debt.

    However, I do think that you strongly underestimate the (and this may not matter to you) non-economic value of a liberal arts degree. Sure we could all be trained to do one thing proficiently in 6, 12, 18 months. But a large part of what college should (in my personal opinion) be about is learning how to think critically about a whole host of topics. Perhaps it could be more efficient if we all just took a test to see what tasks we’re most adept, and do that for the forty+ years of our working life. That image is just to borderline socialist/commnunist for my liking.

    Anyway, now that my wife and I are both working, and sans student loan debt, we are saving for our first home. On that note, I get really excited when prices fall because it may be the only way we can get into the previously hyper-inflated market.

    Same goes for the stock market. I am maxing out my 401K match contribution while things are low; I have a 30, maybe 40 year outlook.

    But at the same time, I don’t want to dance too much because my in-laws are approaching retirement and my parents are stuck in a sprawling-suburban house that they desperately want to get rid of.

    With that note, keep up the writing. I look forward to reading more about Strapped.

  4. serbeer says

    I really enjoyed reading the last part of your analysis, wholeheartedly agreeing with it. It is basic economics: grants won’t help since it is motivation that is important as existing grant/loan system is quite sufficient to cover state schools tuition. Let me add the 4th story in contrast to the three from the book, my own that is.

    Being 19 year old immigrant who came to this country with my family with $50 in his pocket and suitcase of clothing, I had to forfeit study abroad programs and most of enjoyments in my early 20s and concentrate instead into getting into very top public school with major that I knew would pay good money from the start. I did and then worked extremely hard in school to stay at the top of the class, fill my summer with internships, etc–would have regrets now about not having some fun then–but don’t because I know why I did it–to get out of poverty that is illustrated in all 3 examples you recited. Goal accomplished: paid out school loans within a year after graduation while only spending $900 per month on everything else. Later, company that hired me after school agreed to pay for my graduate degree in the private school that is #2 in my field in US. And that meant I had to work full time job simultaneously with almost full time school for the next 2.5 years. As a result, did not take ANY vacations for my first 8 years in US and could not sleep in much on weekends either. Fast forward another 5 much more relaxing years and, let’s just say, last year I went to Europe several times with my (also self-made) wife while still maxing out all of our retirement accounts … that’s all the bragging I am going to do here because I add my story to your collection not our of vanity but to illustrate the fact that the choices we make about the school and lifestyle indeed determine the life we lead afterwards. Relatively few people have either extreme IQ or family money to be able to enjoy life at all times, you have to make sacrifice at one point or another to get ahead, and all you can do is to pick a point. It is no surprise that that point for many young people of college age is not their present. America truly is a land of opportunities but taking advantage of them requires making an effort or living with consequences of not doing so.

    Enough said. Looking forward to review of other chapters.

  5. Wai Yip Tung says

    I am looking for pre-school for my son. There is this school in San Francisco that is charging $1,600 a month. I get so much stress over this pre-school thing.

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