The conundrum: Unemployment and student loans

Nancy Anderson, MBJ contributing columnist

Nancy Anderson, MBJ contributing columnist

Over the last few years, I watched the unemployment rate climb to double digits then fall back into the 7+ range. It’s been a long, slow slog to recovery. As I dug through the data on unemployment during this time, some obvious points hit me.

First, the duration of unemployment has been longer than during other recessions, and we still have a high percentage of unemployed who have been that way for longer than six months. Many are working for less than they did before the recession, and many are working at jobs that are less than full-time.

But during the entire time, the most interesting piece of data had to do with education. People with college degrees had much lower unemployment rates than those without a degree. In fact, when the overall unemployment rate topped 10 percent, the rate for college graduates stayed in the 5 percent to 6 percent range.

And that’s why the student loan situation is so important.

Rising numbers of high school graduates are heading to college. Fewer families have prepared for such an event. And college costs have gone through the roof. The combination means more and more are depending on grants and loans to make this happen.

While most understand the importance of a college degree, most students (and their parents) don’t understand that not all degrees are created equal. A college degree is an investment in future earnings. Like any investment, one must consider how much money will be returned for the upfront payment.

Before choosing a major, students should get educated about the quality of the degree. First, does the institution awarding the degree have a good track record in placing graduates? Second, is the particular degree marketable? Are there employers looking for graduates in this field? Finally, once employed, how much can this degree produce in income?

Sixty percent of students going to college now will borrow money to pursue this dream. When they graduate, they will have, on average, debt of $26,600. Within the first five years of graduation, two of every five will be delinquent on their loans. Relief in bankruptcy is rare, and loan forgiveness is limited. Currently, $85 billion in student debt is past due, and some retirees are facing a garnishment on Social Security income. Some may die before they pay off their college loans.

Which brings me back to looking at education as an investment. For many families looking to educate their children, loans are the only option, but before blindly taking on debt for that degree, make sure the degree is worth it.

» Nancy Lottridge Anderson, Ph.D., CFA, is president of New Perspectives Inc. in Ridgeland — (601) 991-3158. She is also an assistant professor of finance at Mississippi College. Her e-mail address is nanderson@newper.com, and her website is www.newper.com.

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