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.
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.
Refinance Your Mortgage
Mortgage rates hit new lows. I saw rates as low as 3.25% for 30-year fixed, 2.625% for 15-year fixed, with no points and low closing cost. Check mortgage rates in your state.