Is the recent Presidential Memo a good idea?

President Obama has issued as of 6/9/14 a memo directing the Department of Education to develop regulations concerning to limit the student repayments of loans to a maximum of 10% of the borrower’s income (1).

While on the surface this seems a like a good idea, but right off the bat it seems to me that this is form flat 10% income tax to those who borrower for education from the Bank of Ed. Let us see how the math stacks up.

Using some calculations from a previous posting “Will you make more money with a college degree?” let us assume the loan is capped at 10% of gross income, and is completely forgiven in 20 years (1, 2). I will use the same income and expenses used from my previous post (2).

Total Net Income (20 years, 2013 dollars)
	Less than high school graduate	High school graduate	High school graduate with some college	Associate's degree	Bachelor's degree
10% income College Loan	($53,878.91)	$2,931.01	($9,771.92)	$107,709.59	$294,173.35
w/o College Loan	$2,931.01	$114,601.57	$127,057.65	$285,922.26	$537,625.79
Total Loan Amount Paid over 20 Years	$71,385.51	$111,670.56	$136,829.56	$178,212.68	$243,452.44

Still clearly you will come ahead not taking the loan, but what is interesting is what happens if you end up with a job that makes the median income typically associated with lower educational attainment. 

So this would be you go to college, take out one of these 10% of income loans, and then end up working for a job that requires less than high school education because this all you could get and you get stuck in it for 20 years. Well then you will have really cost yourself more money than had you landed that median Bachelor’s degree job. Bottom line is it appears this loan process will punish those who are unable to obtain that median college income job.

Clearly then it is better to go to a more prestigious university or college, where the debt load will be higher due to more expensive tuition, and hopefully provide you with better opportunity to land that well-paying median job through the extensive alumni network.

Of course what this means politically is that the federal government must now ensure some macroeconomic mechanism that will encourage the growth of these well paying higher educational jobs to keep up with college graduation rates. After all it has a vested interest to do so as the more people who don’t end up with these higher paying jobs will in the increase the costs of national debt since educational loans are nothing but a budget offset.

Hmmm… the idea of a minimum wage based on educational attainment is sounding better and better.

Citations

(1) Office of the President, White House (2014). FACTSHEET: Making Student Loans More Affordable. Retrieved on 6-10-14 from http://www.whitehouse.gov/the-press-office/2014/06/09/factsheet-making-student-loans-more-affordable/

(1) Office of the Press Secretary, White House (2014). Presidential Memorandum -- Federal Student Loan Repayments. Retrieved on 6-10-14 from http://www.whitehouse.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments

(2) Bureau of Labor Statistics (2014). Consumer Price Index- All Urban Consumers. Series ID: CUSR0000SA0. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(2) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917400. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917500. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252918900. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). ((unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(2) Bureau of Labor Statistics (2013). Table 2010- Highest education level of any member: Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2012. Consumer Expenditure Survey. Combined Expenditure, Share, and Standard Error Tables. Retrieved on 5-10-14 from http://www.bls.gov/cex/csxcombined.htm .

How is student debt a macro-economic tool?

Student debt is an excellent macro-economic tool just as much as housing debt is one as well. This is why it is considered by many as a good debt (1 & 2). Although, housing debt is subject to possible speculation and thus causing greater delta in prices, which is why student debt is more preferred as tool because a college degree is non-transferrable to another person and it really doesn’t appreciate or depreciate in value over time. It simply is a cost which is amortized over the life of loan.

From a macro-economic perspective debt like student loans simple eat up potential consumption and savings of individuals and unlike housing doesn’t create an initial increase in consumption caused by the first produced house, nor a potential asset bubble (2). Further it acts like a government tax since currently this debt is controlled by the Federal Government through the direct loan process of the Bank of Ed, or could be considered a form of transfer payment. So despite the interest reducing individuals’ personal income tax, the actual loan is not currently counted as either a tax or income to the person but inherently acts like such a thing and better than that it counts as a revenue offset to government net expenditures in effect lowering the governments expenditures overall (2 & 3). Any boost to the economy would show up through the expansion of the higher education markets which don’t impact the overall economy too much but would increase some amount of GDP through employment and any investment done by the employees and university/college. It is a great way of expanding the money supply without ever having to increase the national debt or print more cash through the Federal Reserve System and it’s only inflationary to the higher education market vs. the rest of the economy. It is just a perfect macro-economic mechanism.

The big problem with student debt as macro-economic tool is the interest rate which currently is controlled by Congress. But even this element is flexible since if the student debt is causing a problem economically Congress can simply add some debt forgiveness or lower the rate as means to free up cash in the macro-economy. Although I think it would be better if these rates were controlled more by the Federal Reserve than Congress.

Long term though this tool may prove to be difficult to manage because it is inherently dependent (like housing loans) on the future income of the individual which is unpredictable in nature (4). What is somewhat predictable is the number of jobs requiring a college education which the Bureau of Labor Statistics periodically produces (5). The current projections for 2022 show an increase mostly in work not requiring college education which presents an interesting problem with the current growth rate of college graduates (5). At the current growth rates there will be a major short fall by 2022 requiring those graduating at that time to have to wait 21 years for a bachelor degree job slot to be freed up through attrition (5 & 6). Basically there will be so many possible people with a 4 year degree older than them that any potential new slot will take longer to open up since the older generations are more than like not going to retire anytime soon depending upon their debt load, and retirement needs.

This problem of overcrowding the college job market with degreed individuals will continue to cause a crowding out of those jobs requiring less education pushing down the overall income potential of a college graduate bringing into question the whole issue of general value if current job creation trends continue as noted in a previous post concerning student loans and accepting lower income jobs. And no doubt as the crowding out continues there is even greater risk of default, which has been mitigated in part by current laws preventing bankruptcy and allowances of garnishments.

What is worse is the fact that as more students apply for college, and seek more loans for college, this causes a runaway flooding of cash into the higher educational system causing localized market inflation or possible hyperinflation depending upon levels. This flood of cash is only limited by the size of the federal deficit since student loans are budgetary offset for the federal government (3).

So while as an excellent macro tool to control consumption once graduated, the problem is controlling the inflationary effects of the front end in since it would seem to require increased government loaning and thus inflationary pressures on micro market of post-secondary education.

These facts seem to be sort of counter-productive to the original purpose of the Higher Educational Act of 1965 (7). The idea was to allow for a greater number of people to achieve a higher education with the goal of building a better society overall. But it seems to me that with the use of student debt it is building instead a culture of a basic educational tax to obtain that society, with no guarantees of having a secured future. The reason is the job market is not keeping in pace with the production of an educated workforce, and it seems that no one really cares about this fact.

Since a majority of U.S. higher education degrees continue to be in business vs. any other possible field by little over 4 to 1, very clearly we need to increase work opportunities in the business markets overall (8). Or we need to encourage that entrepreneurial spirit of America through increased small business loans to allow all that education to mature (maybe a bit of a debt swap—educational loan folded into a small business loan).

So overall college debt is a great macro-economic tool and is very versatile, provided you don’t mind the fact the future supporting income is unknown and not guaranteed currently, and there is the potential of hyperinflation with the costs of college overall requiring a spiraling need for more cash to flow into the system as more people pile into the system.

Citations 

(1) Supiano, Beckie (2012). What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much. The Chronicle of Higher Education. Retrieved on 5/27/14 from http://chronicle.com/article/What-Does-1-Trillion-Mean-/131900/

(1)Wolber, Thomas K. (2012). Student-Loan Debt is Real Threat to Economy. Letters to the Editor. The Chronicle of Higher Education. Retrieved on 5/27/14 from http://chronicle.com/article/Student-Loan-Debt-Is-Real/132655

(2) Bureau of Economic Analysis (u.d.). A Guide to NIPAs. PDF. Retrieved on 5/27/14 from http://www.bea.gov/national/pdf/nipaguid.pdf

(3) Bureau of the Fiscal Service (2013). Combined Statement of Receipts, Outlays, and Balances- Current Report. Retrieved on 4/29/14 from http://fms.treas.gov/annualreport/cs2013/sc1.pdf%20on%204/29/14

(3) U.S. Government Accountability Office (u.d.). Capital Assets. Retrieved on 4/29/14 from http://www.gao.gov/fiscal_outlook/measuring_the_federal_deficit/interactive_graphic/capital_assets

(4) Executive Summary (2006). Dealing With Debt: 1992-93 Bachelor's Degree Recipients 10 Years Later, 1. NCES 2006156. Retrieved on 5/27/14 from http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2006156

(5) Bureau of Labor (2013). Employment Projections: 2012-2022 Summary. Retrieved on 5/27/14 from http://www.bls.gov/news.release/ecopro.nr0.htm

(6) United States Census Bureau, Population Division (2012). PEPSYASEXN-Geography-United States: Annual Estimates of the Resident Population by Single Year of Age and Sex for the United States: April 1, 2010 to July 1, 2012. Data. Retrieved on 5/27/14 from http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

(7) Cervantes, A., Creusere, M., McMillion, R., McQueen, C., Short, M., Steiner, M., & ... Texas Guaranteed Student Loan, C. (2005). Opening the Doors to Higher Education: Perspectives on the Higher Education Act 40 Years Later. TG (Texas Guaranteed Student Loan Corporation).

(8) U.S. Department of Education, National Center for Education Statistics, Higher Education General Information Survey (HEGIS) (2012). "Degrees and Other Formal Awards Conferred" surveys, 1970-71 through 1985-86; Integrated Postsecondary Education Data System (IPEDS), "Completions Survey" (IPEDS-C:91-99); and IPEDS Fall 2000 through Fall 2011, Completions component. Retrieved on 5/27/14 from http://nces.ed.gov/programs/digest/d12/tables/dt12_313.asp

Is a College Degree worth all the trouble of a loan?

The problem with this question is one of definitions and how we measure the value of things. A college degree is inherently something good in nature as such it should hold some significant value to both the individual holding the degree and the society at large. In theory, the knowledge gained from a college degree should allow the individual to obtain work associated with said knowledge, but in our capitalistic market system this is not guaranteed. Further, it is a mere social convention of recent times that those with college education should be paid more than those with say a high school education. There are no laws compelling businesses to pay according to this norm, except the minimum wage which is currently set at $7.25 an hour as the federal minimum (some states can have higher). To help illustrate this point I have included two graphs from the 1940 on educational attainment vs. wages paid.

As the Chart 1 shows when the 1940 census data is charted as the percentage of the total population per income bracket by educational attainment it becomes very clear that having a college degree should earn you more money. Those with such degrees clearly occupy a much greater percentage of the highest income bracket at that time, and thus supporting the current thesis that college education gets you more income.

Chart 1- Source: U.S. Census (1) & Bureau of Labor Statistics for dollar conversion (2).

But when you chart this same data (see Chart 2) so as to see the distribution of income with in the society as whole by educational attainment you come up with a different picture. You quickly realize that majority of people in 1940 were making $8,500 to $17,000 2013 Dollars per year. In fact a careful examination of the data reveals that those with college education seem to be split into two groups. One group making the normal wage that most of the populace is making and then a group making a lot more.

Chart 2- Source: U.S. Census (1) & Bureau of Labor Statistics for dollar conversion (2).

The problem is trying to do this kind of analysis with current data is not truly possible because the information is typically arranged in a statistical bell-curve pattern using median values. As such to tease out the data represented in Chart 2 is much more difficult, if not nearly impossible.

What can be done is comparing ranges and medians of the groups (see Chart 3). As such can see some overlay of income brackets, but since the median value represents the 50% mark it is hard to tell if there are truly more people in the higher end or lower end since it is nice smoothed bell-curve. What can be told is there does appear to be some overlap between the two educational degrees suggesting that it is possible that for someone with a bachelor degree to earn just as much as the median income of a high school degree. I suspect if the true population values were known per income groupings that we would no doubt see more of a curve similar to that of 1940.

Chart 3- Source: Bureau of Labor Statistics (2 & 3).

If anything what this information is more suggestive is that there are two major groups of people living and working in the U.S. currently. One group which is an overwhelming majority of the people earning pretty much the same wage regardless of educational attainment, and another group earning vastly much more and having higher education overall in comparison to the rest of the populace.

So does it mean is a college loan is worth all the trouble? I have to answer that I don’t think so, not really because of the possibility of not earning the median or higher wage amounts, but chiefly because of reasons mentioned in this and previous post concerning this type of loan. This is a loan that you can only get out of through death should something go wrong with the ability to pay. You cannot even try to “re-sell” the object you bought with the loan because it is just for you alone. That kind of loan is not worth any hope of better life, because you in the end become a slave to such a debt and such a life will be fraught with potential hardship.

It is far better to try one’s best to pay as you go, using any free money one can get (i.e. grants, grandparent’s paying for tuition, etc.). Sure this method may take you longer, but in the end you will have more freedom than one chained to debt.

Citations

(1) U.S. Census (1940). Table 2 - Wage or Salary Income in 1939, For Native White Males 25 To 64 Years Old Without Other Income, By Years of School Completed and Age, For The United States, Urban and Rural-Nonfarm: 1940. CPS Data on Educational Attainment: Educational Attainment. Data. Retrieved on 5-10-14 from http://www.census.gov/hhes/socdemo/education/data/cps/1946/p46-5/tables.html

(2) Bureau of Labor Statistics (2014). Consumer Price Index- All Urban Consumers. Series ID: CUSR0000SA0. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917400. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917500. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252918900. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). ((unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/ 

Should we have no student loans in the U.S.?

While I agree that in principal people really shouldn’t use student loans for college, I do not think we can totally abandon this concept purely from a legal perspective of free enterprise. Nor do I think the Bank of Ed will any time soon be shuttered since it represents the best macro monetary control ever conceived of in long while.

With that said, many believe there is a lot of free money out there but the sad truth these days is that many financial aid packages are nothing more than loan schemes (1). There have been some Ivy League universities who have used zero-loan policies for low income students to eliminate the use of college loans (2). This is primarily accomplished through the maximization of grants, scholarships and similar free moneys (2).

While the results of such policies have truly encouraged the lower income, and hence higher minority, attendance and retention it is not without its draw backs (2 & 3). Evidently, with zero-loan policy produces potential workers who are willing to accept lower paying public careers or jobs vs. those with loans who are forced due to expense to choose academic pathways which lead to higher paying fields of work (2). Although from an alumni donation perspective college loans will reduce the amount of gifting from those student loans recipients vs. the zero-loan students (3).

In 1992, Finland went off the student loan idea for college (4). Now I know Finland and the U.S. are totally different in many ways, but Finland’s experience is an interesting one. In Finland, evidently those entering college have to join a student union which would be akin to a professional organization in the U.S. and said membership includes health care (4). Ironically the switch to pure state support for college didn’t really change the average expenses students would incur (such as housing, food, and clothing) nor did it dramatically increase as the state expenditures (4). Further after going to this method student and parental financial support for higher education actually increased with an estimated 42% of students working during college career in 1995 (4). Students at that time in Finland were averaging 3 credits per month which is about a class month in U.S. terms (4). Current statistics on Finland indicate that 46.2% of people 25 to 34 hold a bachelor degree or higher as of 2010 in comparison to the U.S which has 32.8% or nations like Germany at 18.9% or Japan at 33% (5). As a percentage of GDP in 2010, Finland is paying about 6.3% to support its system currently, whereas the U.S. is at 5.3%, Germany was at 4.5% and Japan was at a mere 3.6% (5). Surprisingly in Finland in 2012 63.6% of their populace aged 25 to 34 did not hold a college degree, and even so their labor force participation rate for this age set for 2013 was 20% (6 & 7). This statistic is similar to the U.S. where the same age set had a 20.6% labor force participation rate for 2013 (8). In comparison the U.S. and Finland labor statistics appear to be similar to that of each with the exception of inactivity. The U.S. seems to have currently a slightly higher level of inactive working population overall (see Chart 1 and Chart 2).

% of 2013 Population by labor force status and age (Finland)
Age	Labor Force Participation	Employment rate, %	Unemployment rate, %	Inactive
25-34	20.0%	18.4%	1.6%	4.1%
35-44	20.3%	19.1%	1.2%	2.7%
45-54	23.2%	21.8%	1.4%	2.9%
55-64	16.8%	15.6%	1.2%	9.9%

Chart 1- Source: Statistics Finland (7)

% of 2013 Population by labor force status and age (U.S.)
Age	Labor Force Participation	Employment rate, %	Unemployment rate, %	Inactive
25-34	20.6%	19.1%	1.5%	4.8%
35-44	19.9%	18.8%	1.2%	4.3%
45-54	21.1%	19.9%	1.2%	5.4%
55-64	15.4%	14.5%	0.8%	8.5%

Chart 2- Source: Bureau of Labor Statistics (8)

In the U.S. the general claim to obtain a secondary education degree is for more money, better job security, and lower unemployment. While this may be true in some statistical sense for certain population groups, clearly Finland’s choice of having no loans has helped greater numbers achieve higher education overall, but labor wise it doesn’t seem to be translating into lower unemployment overall. It is clear that Finland has different work values than that of the U.S. since it has allowed culturally a greater diversity of work to flourish which includes work for those who for whatever reason have not pursued higher education. The real stark difference between the U.S. and Finland is the fact that those between 25 and 34 seem to be starting homes and are actually taking on housing debt more so in Finland than in the U.S. (9). In contrast nearly 60% of this populace was renting in the U.S. (10). Clearly the U.S. student loan method is having an impact on such things as 1st time housing starts, while in Finland those with less education are still able to find work to support a housing loan despite the burden.

The problem is with student loans is not necessarily the fact they exist but the fact that such a loan structure can be used for abuse economically. I do think overall it is better for education as a whole not to be fettered to loans because it can bring into question a whole host of problems and moral dilemmas. But America is not Finland, and as such we must allow the idea of educational loans to still exist but clearly one that must be seriously regulated so as to protect the inherent goodness of higher education. Such regulations should not be totally based on the free market ideologies or totally in control of the political machine of government, but something more or less in between.

It seems more important than eliminating student loans would be the job market itself being able to provide all peoples with the opportunity of work that supports the worker and their family needs regardless of educational attainment. While I fully believe that education is inherently good in nature, not all peoples will be gifted enough to maximize that potential for whatever reason. This puts a care burden on those who have obtained higher education to care for those of lower educational status socially and not to laud or rule over them with their higher status. It seems to me that these fundamental thoughts have been lost in the conversation of work in U.S. as we exit the Great Recession.

Citations
(1) Woodruff, M. (2014). When parents pay for college, student debt becomes a family affair. Yahoo Finance. Retrieved on 5/25/14 from http://finance.yahoo.com/news/student-debt-nearly-destroyed-this-family-s-finances-150749696.html?soc_src=copy


(2) Hillman, N. W. (2013). Economic Diversity in Elite Higher Education: Do No-Loan Programs Impact Pell Enrollments?. Journal Of Higher Education, 84(6), 806-831.

(3) Rothstein, J., & Rouse, C. (2011). Constrained after college: Student loans and early-career occupational choices. Journal Of Public Economics, 95(1/2), 149-163. doi:10.1016/j.jpubeco.2010.09.015

(4) Kivinen, O., & Hedman, J. (2000). From a Loan-Based to a Grant-Based Student Support System: the Finnish experience. European Journal Of Education, 35(1), 97.

(5) Snyder, Thomas D., Sally A. Dillow, and (ED) National Center for Education Statistics. "Digest Of Education Statistics, 2012. NCES 2014-015." National Center For Education Statistics (2014): ERIC. Web. 21 May 2014

(6) Statistics Finland (2013). Last year persons aged between 35 and 39 had the highest level of education. Data. Retrieved on 5/25/14 from http://www.stat.fi/til/vkour/2012/vkour_2012_2013-12-04_tie_001_en.html

(7) Statistics Finland (2014). Labour force survey. Data. Retrieved on 5/24/14 from http://www.stat.fi/til/tyti/index_en.html

(8) Bureau of Labor Statistics (2014). Employment status of the civilian noninstitutional population by age, sex, and race. Data. Labor Force Statistics from Current Population Survey. Retrieved on 5/25/2014 from http://www.bls.gov/cps/cpsaat03.htm

(9) Statistics Finland (2009). Young adults the most indebted. Data. Retrieved on 5/25/14 from http://www.stat.fi/til/vtutk/2009/vtutk_2009_2011-12-21_kat_004_en.html

(9) Statistics Finland (2011). Households’ assets. Data. Retrieved on 5/24/14 from http://www.stat.fi/til/vtutk/index_en.html

(10) Bureau of Labor Statistics (2012). Current combined expenditure, share, and standard error tables- Age of reference person . Data. Labor Force Statistics from Current Population Survey. Retrieved on 5/25/2014 from http://www.bls.gov/cex/

Will you make more money with a college degree?

This is hard to tell because with every story of financial success shown, one can show financial failure as well. What I can tell you is that 2013 & 1940 medians appear to be higher for those with a college degree vs. a high school degree. But that difference currently is only 1.7 times for 2013 and 1.5 times for 1940 (1, 2, 3). Clearly there has been some growth between the two points over time, but still not much suggesting the population spread may be similar to each other.

The problem becomes with how to measure bottom-line concerning such an “investment” (and I use this term very loosely) because there are lots of ways to look at this problem. Many governments and other organizations tend to look at the over-all costs of the education vs. the long term total income output associated with the degree, but I have trouble with such a view. Since the medians for a college degree is typically higher logically the outcome would be that the long term income output will be higher as well. But this view doesn’t take into account the fact that the median income represents the 50% point, as such 50% of the people are not making the median but less than the median. So does it really pay off then for those people? Maybe and maybe not.

I honestly think the better approach is to look at things from more of an accounting perspective on this one (4). A college degree clearly is a non-transferrable intangible personal asset which actually does have a useful life span. That life span is only as relevant as the knowledge the degree contained is relevant and as such over time that knowledge will become obsolete in nature (case in point at one point many thought the sun circled the earth, but this was proven otherwise over time with careful observations). In general the life span of college degree is about 10 years (5). After this point the information the degree contains will be considered obsolete in nature and will require updating.

This means the cost of the college education can be amortized over the first 10 years after graduation against the first 10 years of annual income earned less the other annual living expenses (or net income). Since we don’t know exactly what the person’s income will be once graduated since it is possible to obtain work that does not require a college degree or through whatever means a person could obtain a very high paying job let us then proceed to look at the financial outcomes for various income levels to see the effects.

I will be making the following assumptions for these calculations- 1. The observed current growth rate of the wages for Bachelor degrees appears to be at a -1% rate (3), 2. The current observed inflation rate is at 2% making for a net resultant of -3% (-1%-2%) for overall income growth (2), 3. The annual expenditures assumptions will be based on Bureau of Labor Statistics data for consumer spending by educational attainment adjust to 2013 values and I am going to assume that even if you have a college degree that your living style is more dictated by your income than by the fact you have a degree(6). 4. Annual loan payment will be based on 6% APR over a 10 year period with the initial loan amount is based on current trends noted by the New York Federal Reserve Bank estimation on student loan amounts (7). Note- Any variation in the size of the loan, APR, and period will change the results of these calculations.

	Total Net Income (10 years summed, 2013 dollars)
	Less than high school graduate	High school graduate	High school graduate with some college	Associate's degree	Bachelor's degree
College Loan	($33,148.22)	$8,062.31	$13,349.11	$80,776.86	$187,608.72
w/o College Loan	$8,062.31	$48,640.95	$53,927.75	$121,355.50	$228,187.36

As one can tell by the table above it is clear that if one takes a college loan out that the potential total net income earned is significantly reduced than if you had not taken a college loan. In fact if you happen to take out a loan and end up working a job that is typically paid the amount of money associated with a person who has less than a high school degree (i.e. say a minimum wage job), you will be basically bankrupt (without the ability to bankrupt against the loan). 

When trying to determine if you will make more money with a college degree, the question really is about what kind of pay you will make once you get out. This fact tends to be very variable depending upon current market conditions associated with how many jobs are open for your degree when you graduate, the current unemployment rate for your degree, and the total number of possible college graduates in your degree (larger volumes of those with a similar degree can cause a supply demand issue with the labor if there is few jobs available for large numbers). When calculating such risks it helps to understand that in the first ten years of one’s post graduate state, that there is the possibility of having to work jobs which will not earn enough to pay for a loan. So knowing the loan specifics (like APR, and size of the loan) can dramatically affect the outcome of these possibilities. 

In general though, what these numbers are indicating is that when a taking out a student loan you must have already lined up a good outcome with regards to future work (i.e. you need to know where and how much you will be earning at the end of your studies), and if not then it is best not to take the loan.

Thus you will no doubt make more money with a college degree provided you land a job that has income associated with a college degree and you will make even more money without the student loan.

But with all things considered, one must remember and take into account that we have no laws that guarantee the current typical income associated with a college degree and as such through market actions it is possible that current social pay norm associated with a college degree can become over time the same as the minimum wage law requirements.

Citations 

(1) U.S. Census (1940). Table 2 - Wage or Salary Income in 1939, For Native White Males 25 To 64 Years Old Without Other Income, By Years of School Completed and Age, For The United States, Urban and Rural-Nonfarm: 1940. CPS Data on Educational Attainment: Educational Attainment. Data. Retrieved on 5-10-14 from http://www.census.gov/hhes/socdemo/education/data/cps/1946/p46-5/tables.html

(2) Bureau of Labor Statistics (2014). Consumer Price Index- All Urban Consumers. Series ID: CUSR0000SA0. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917400. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917500. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252918900. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). ((unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(4) FASB (2012). Intangibles—Goodwill and Other (Topic 350). Financial Accounting Series, Accounting Series Update, No. 2012-02, July 2012. Retrieved on 5-10-14 from http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175824275038&blobheader=application/pdf&blobcol=urldata&blobtable=MungoBlobs .
(5) U.S. Department of Education (2013). Repayment Plans. Retrieved on 5-10-14 from http://www.direct.ed.gov/RepayCalc/dlindex2.html .

(5)Central New Mexico Community College (2012). Updating Certificate or Degree. Retrieved on 5-10-14 from http://www.cnm.edu/student-resources/academicrecords/indexed/updatingcertordegree.html .

(6) Bureau of Labor Statistics (2013). Table 2010- Highest education level of any member: Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2012. Consumer Expenditure Survey. Combined Expenditure, Share, and Standard Error Tables. Retrieved on 5-10-14 from http://www.bls.gov/cex/csxcombined.htm .

(7) Federal Reserve Bank of New York (2013). Student Debt by Age Group. Retrieved on 5/12/14 from http://www.newyorkfed.org/studentloandebt/.