Wednesday, August 8, 2007

Strapped - Part 1: Education


Strapped: Why America's 20- and 30-Somethings Can't Get Ahead by Tamara Draut (ISBN 9781400079971)
Rating: 10/10

This was an absolutely fabulous book, the best I've read in a long time. It actually got me underlining passages, which I never do since it defaces the book. It takes a three-pronged view at why it's so hard for today's 18-34 year olds (in this book, those born between 1971 and 1987) to not only get ahead, but to break even and not sink into debt.

The first issues she brings up is the high cost of education.

"Borrowing one's way through college just wasn't the norm. In 1977, college students borrowed about $6 billion (2002 dollars) to help pay for college, compared to the $28 billion borrowed by students in 1993. By 2003, the amount of borrowing had doubled, to $56 billion. The rise in loan volume cannot be completely explained by increases in college enrollment. The number of students enrolled in college grew by 44 percent between 1977 and 2003, but student loan volume rose by 833 percent."

Yes, you read that right, 833 percent! Student loan debt was a fairly non-existent phenomenon until the 1990s (not that it didn't exist, but it wasn't the epidemic it is now). Then it absolutely exploded. And given the number of really good schools that don't give merit-based aid, many students have to rely on need-based aid, which generally comes in the form of loans.

"A 2002 survey of college borrowers found that 40 percent [of students] had delayed going to college or had gone to a less expensive college to avoid the burden of large student loans." Given the currency that the big name schools play in some professions (medicine, law, architecture, design, etc), the fact that more and more students are choosing to go to community college does have a definite impact on future earning potential. The book lists several real-life examples of students who wanted a certain career (for example, physician's assistant), but were unable to pay for their education and so had to settle with a lower paying degree (nursing, or I can't remember right now, whatever the stage below nursing is).

Now, perhaps in some of these fields, the gap isn't quite so pronounced - getting a medical degree will stand someone in good stead, whether it's from Harvard or the state or community college. But take, for instance, someone who wants an arts & sciences degree. Many students go for arts & sciences as a more general knowledge base, and once they get there they decide what they want to major in. The career path isn't laid out, and the job after graduation isn't as easy to pin down.

Take me, for instance. I have a double major degree in French and Anthropology. I use neither in my chosen profession (publishing). I attend social functions which allow me to use my French, but don't use it for work. I view my college degree as a good base formation for me, teaching me to think critically, educating me broadly, that kind of thing. And I am extraordinarily lucky that I have no student loans. But if I were burdened with several hundreds of dollars of loan payments every month, I could very well start questioning what the hell I was doing in college studying subjects that ended up having no relevance on my professional career. Sure, having the degree definitely helps me getting a better job and a better salary, and will stand me in good stead if and when I decide to go back for a grad degree. But many students don't have the luxury of going for a general degree and paying for room and board at college. Sometimes at the same time holding down two or three jobs and perhaps supporting children as well.

"A bachelor's degree is clearly what a high school degree used to be in terms of basic education for an economy based on knowledge."

A college degree is the basic currency of the economy nowadays, and it is difficult to get a well-paying job without one. The author points out that starting in the 80s and 90s, the corporate world turned into an hourglass - lots of workers in the bottom, a bottleneck in the middle, and higher up the top level jobs. Without a college degree, it is definitely much harder to move up through that bottleneck of middle management into the upper tier.

The percentage of college tuition has also shrunk over the years. I can't put my finger on the exact page in the book, but the percentage of tuition actually covered by the government in grants as need-based aid has not kept up with the explosion in tuition costs. If I remember correctly, the average grant was in the ballpark of $4000 per year. Taking the private colleges out of the pictures (which are upwards of $30K/year), state school can run to the low five figures per year, which leaves those students of modest economic background in a definite bind.

The lore in America is that you can pull yourself from modest beginnings up by your bootstraps to the corner office making a six figure salary. And that dream does happen for some people, but the whole paradigm of education and the economy has vastly changed over the last two decades. When students graduate from college with an average of $20K in debt, grad school with an average of $45K in debt, and phd with an average of $100K in debt, it's hard to save money and get ahead, difficult to invest in our future when we're just concentrating on squeaking by with what we have.

Economists have written at length about the epidemic among this generation of not saving, or of going into debt. It is often blamed on "kids" not being able to control their spending, buying unnecessary luxuries, that kind of thing. And for some of us, that'd certainly true. But then you look at the others, the ones breaking their backs in two or three jobs to try to pay back those loans, their rent, their car payments, food, insurance, perhaps child care, and you can say how small their luxury spending actually is, if they have any.

More posts to come at a later date about the other topics in the book - child care/health care costs, credit card debt, home ownership, and apathy to politics.

I recommend this book to anyone in this age group, to get perspective on why we're all so strapped for cash and what we can do about it. Also, greatly recommended to all of our parents, to help them understand that things are considerably different for us than it was when they were our age.

8 comments:

Gopi Rajaseharan said...

Based on my own experience, I would say that in this part of the world, people can wait to get a college degree if so inclined. My first round during college was useless. I was not into my studies at all. Too many distractions. But I started making money at an internship which gradually became full-time employment. I dropped out...and now I am back in school. But I know what area I want to specialize in now and, more importantly, I am very motivated to do it. My experience in the real world all these years also allows me grasp concepts better (the same concepts that my classmates, kids just of out high school, are struggling with). People need to know how to manage money first. This has to be taught in high school. But its not. If a college education can't make money for you right away, it can wait.

The Lethological Reader said...

Gopi, I think you're right that lots of post-high school students end up partying away college. And if they are serious about their education, they don't necessarily know what they want to do with their degree, so they can't choose a degree which will help their career. I had no idea in college that I'd end up in publishing. Also, they should have some kind of class in high school that teaches kids about how to balance their budget, how to use a credit card responsibly, that kind of thing. Perhaps as a section of an economics class or something. Too many kids get to college and rack up empty debt on their cards because they don't understand how it can affect them later on.

Gopi Rajaseharan said...

I would say a well-earned college degree is a requirement if you are planning on becoming a doctor or a scientist, fields that require exact knowledge and a solid technical foundation. But if you are planning on working for wages until you figure out what to do down the road, an associates degree might work better...just so its bigger than a high school diploma and gives you some breathing space while you dabble with several jobs. It is difficult to convince traditional parents as they will insist on you finishing your education...because all their friends' children have college degrees, yada, yada. Plus our school education system is archaic. Its too bad school administrators still argue about whether intelligent design should be introduced into the curriculum when more practical concerns exist. On their end of the bargain, parents should not be allowing kids to possess credit cards anyway unless their kids demonstrate a solid knowledge of money management. Ok, enough ranting for today :)

The Lethological Reader said...

It's kind of a catch-22 - kids should get credit cards and build up some kind of credit history before they graduate college, or it becomes considerably harder for credit to get extended after that point. But if their parents haven't taught them a good foundation of money management, they just create a bad credit history for themselves.

I think a college education is valuable, even if you're not quite sure what you want to be. Many jobs nowadays require a minimum of a college degree to even get to the interview stage (often the case in publishing and other knowledge industries). But for other students, going to college right away may not make sense financially or practically.

Bethany said...

HI, I am really glad that you reviewed this book, as I was thinking of buying it. I have to agree with alot of what it says, college costs are ridiculous and scary. It bothers me that most of Europe considers college essential, so therefore it is free, because a more educated population is better for everyone, but here we have to go into debt. My first time at college, I majored in Literature, not everyone is a math major. I recently have gone back to get my teaching degree and we have figured out by the time I graduate I will have over 50,000 in student loans. Can you imagine? And the state of Utah has generously offered to pay me the exorbitant sum of 24,000 a year for a teaching job on graduation. I worry because I do not know how I will ever pay it back and still make any money. In know there will be people out there who say you have to love what you do, its not the money, or you should have picked another major. But is that really the answer to the question. Something is really wrong with this system.

The Lethological Reader said...

Bethany,

I agree, the system isn't working. Especially for teachers. I mean, you would think the government, and in fact everyone, would want teachers to be highly educated - both in how to teach and in their subject area. But the fact that a grad degree in teaching will put you $50K in the hole, and then teachers are grossly underpaid once they graduate, that's just not right. In my book, this encourages teachers to not go back for more education, and THEY'RE the ones educating the next generation. It just doesn't make sense to me.

Regarding your comment about loving what you do - it is important to find a profession that you're passionate about, that drives you. But to think that money doesn't matter? It doesn't matter as long as you have enough of it to eat, pay you bills, and pay for the roof over your head. And if your bills include huge loans racked up in educating yourself so you can carry through with the profession you love, it's that much harder to scrape by. Difficulty making ends meet makes even the most perfect of jobs seem harder to handle.

Gopi Rajaseharan said...

"kids should get credit cards and build up some kind of credit history before they graduate college, or it becomes considerably harder for credit to get extended after that point. "

Raina, my dad actually acquired credit cards in my name that he then used for purchasing, acquiring debt and then paying that debt off. I never saw/used those cards personally until I was in my mid-20s. But by then he had built my credit history for me!!

The Lethological Reader said...

Gopi,

That's excellent that your father had the foresight to build you good credit - I think that this doesn't even occur to most parents!