The college student debt bubble

November 20, 2011

Education

Many students believe some majors (or degree programs) aren’t worth the debt

Etta Spencer learned the hard way that all college degrees aren’t created equal.

The Madison resident borrowed $28,000 and earned a bachelor’s degree in business from the University of Southern Mississippi in 2003.

It took her two years to find a job, and after four years of working and paying off $10,000, she was laid off.

Nationwide, the cost of college has more than doubled since 2000, outpacing the rate of inflation. But while costs have risen, wages have not. Some economists worry about a higher education spending bubble, as some students who incurred debt to get degrees in not-so-lucrative fields won’t be able to pay back loans.

The widely held notion that “a college degree is the only way to get ahead” has increased demand and prices, and college loan debt is now greater than the nation’s cumulative credit card debt.

Since most college loans are backed by the federal government and thus bankruptcy-proof, a higher education bubble can’t rock the economy like the housing crisis did, but it could create a drag in consumption. Potentially, fewer students would pursue higher education, and the country could end up with a less-educated workforce.

Dr. Bob Neal, senior economist with the Mississippi Institutions of Higher Learning, said the worst case scenario for college students taking on debt is that they won’t graduate and thus won’t be likely to find a job that will enable them to pay back their loans.

The second worst scenario is that students will graduate with $30,000 or $40,000 in loan debt — $25,000 or more is now the national average — and become unemployed or underemployed. “It may be that in their working lifetimes that investment never pays off,” Neal said.

Spencer, however, found a better path.

“The medical field is the way to go,” said Spencer, now 30, who began work as a nurse at Greenwood Leflore Hospital in 2010, and loves it, despite the hour and a half commute. “Money-wise, you will never go backwards with nursing. I think it’s hard with a business degree. It’s competitive.”

Spencer found an economical way to attend nursing school: She signed a two-year contract with Greenwood Leflore Hospital, which paid for her expenses at University of Mississippi Medical Center’s accelerated program.

“The real issue to me is the average cost of a college degree is escalating each year very rapidly — like three times the rate of inflation — yet wages have been stagnant. The return on your investment is lower than it was a decade ago. How long will it be before the average student or the student’s parents come to the realization that this just isn’t worth it? Then I think you will begin to see the bubble in higher education,” Neal said.

Mississippi’s average college loan default rate — which includes public and private institutions — is 10 percent, as compared to the national average of 8.8 percent. Of state public institutions, Alcorn State University has the highest default rate at 11.7 percent, and Mississippi State University has the lowest: 5.5 percent.

Former students like Madison resident Etta Spencer, 30, have learned through experience that certain majors may not pay off.

Spencer borrowed $28,000 and earned a bachelor’s in business from the University of Southern Mississippi in 2003. It took her two years to find a job, and after four years of working and paying off $10,000, she was laid off.

“The medical field is the way to go,” said Spencer, who began work as a nurse at Greenwood Leflore Hospital in 2010, and loves it, despite the hour and a half commute. “Money-wise, you will never go backwards with nursing. I think it’s hard with a business degree. It’s competitive.”

Spencer found an economical way to attend nursing school: She signed a two-year contract with Greenwood Leflore Hospital, which paid for her expenses at University of Mississippi Medical Center’s accelerated program.

Travis Altsman, 27, who attended Mississippi State University for seven years, took out $25,000 in loans and graduated with an architecture degree in 2009. He’s happy with his choice.

Although most architects make less than $50,000 a year and it would be nice to have more money, Altsman said, he likes the job security he feels he has with a specific, professional degree.

Altsman beat the poor architecture job market at the time of his graduation due to a part-time job with Barlow Eddy Jenkins he obtained during his last year of coursework in Jackson.

“I was working during school … People were laying people off. I held on hoping they would hire me full-time when I graduated, and they did,” he said.

If students realize certain college degrees aren’t worth it, universities that make poor investments may also eventually feel the pinch. For this to happen, students would have to look past the now-entrenched societal stigma of not having a degree.

Many college students earn degrees in disciplines they don’t expect to use in their professional lives but feel the college experience and having any degree is worth it.

Now an interior designer, Ann, 34, (who requested her full name not be used) doesn’t regret earning a degree in history from Mississippi State University in 2002. When she enrolled at State in 1995, she had trouble deciding what to study. After three years she took a break from school. While working, Ann learned she had an interest in interior design but decided that starting over again to earn a degree in that field would take too much time and money.

“During the years I was taking a break from school, I felt like people looked down on me for not having a college degree,” she said. “Even though I don’t really use my history degree in what I do, I feel like school was worth it because of the contacts I made and the social experience.”

Likewise, Josh Stevens, 27, obtained a degree in criminal justice from Mississippi Valley State University in 2010 and now works for a Greenwood mortgage company. If he did it over again, Stevens would study something else because he doesn’t feel he learned that much. But, “I definitely think it’s valuable to have it, just to have a bachelor’s degree,” he said. If he were on the employer’s side of the fence, however, Stevens said he’d rather hire someone with work experience. But he knows every employer doesn’t share his view.

Stevens found an economical way to finish getting a degree. After spending four years in the Marine Corps, Stevens came back to Mississippi and incurred some debt at the University of Mississippi. He moved back home and attended nearby Valley on a minority scholarship.

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