Thursday, June 16, 2011

Karl Denninger, "Another Nasty Statistic Regarding College"

"Another Nasty Statistic Regarding College"
 by Karl Denninger

“This isn't good... ‘The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.

Of course, these are the lucky ones — the graduates who found a job. Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007. (Some have gone for further education or opted out of the labor force, while many are still pounding the pavement.)’

So 4 in 10 graduates had no job at all - not even one that didn't use their putative skills for which they spent the money.

But let's assume you do have a job.  The median income was $27,000.  What if you have $60,000 in student loans? On a 10 year amortization schedule and a 5% blended interest rate the payment is $633.75.  Every month.  Your gross income is $2,250/month.  More than 25% of your gross income, before taxes, is consumed by student loan payments. Your imputed income (that is, the effective purchasing power of your "degree" when you subtract out the debt service) is $19,395, again before taxes.  But you're in a higher tax bracket than the person who simply earns $19,395 - which, I will remind you, is $9.70/hour.

Worse, your debt cannot be discharged in a bankruptcy.  A high school graduate who takes on debt like this and gets in trouble can file a Chapter 7 (being well under the median household income) and shed it.  You, as a graduate, cannot.  You're stuck with it, and if you lose your job you're instantly hosed, as that $60,000 will have penalties and interest immediately added to it.

As I have pounded the table on for years, while College is frequently a "good investment" when paid for in full at the time you take it (that is, you're investing time and current income) it almost never is when you have to finance that alleged "education."

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