Borrowing in a Field of Study That Pays

Many of our young adults pass through a college experience that leaves them burdened by heavy debt and a field of study choice that is likely to earn low wages. For many, the selection of a college and a major places oversized emphasis on the architectural beauty of the college, its “easy” courses, its students’ affability, and its reputation for parties or game days. Data on job placement by graduating major are also available before enrolment, but some students make their curriculum choices on other grounds.

Fortune and CareerBuilder studied job openings and hiring for the highest number of unfilled jobs (job postings minus job placements). In 2014, they found that among the top ten jobs, there were more than 29,000 marketing and sales management jobs open in each month, paying over $50 per hour. Software developers and medical service managers were paid $40 to $50 per hour. Nurses, industrial Engineers, physical therapists, and speech pathologists were paid $30 to $40 per hour for the 19,000, 18,000, 14,000, and 8,000 vacancies respectively. There are other job categories, but the headcount of vacancies in those categories was fewer than 6,300 in any given month. A 2016 study by Karsten Strauss at Forbes reveals similar results.

Marketing management and STEM jobs pay very well, but graduates in other fields will find it difficult to earn more than $15 per hour. If students think about it, this should have a bearing on the majors that they select.

Managerial or STEM jobs pay 10% to 100% more than the average wage in the U.S. The major fields of study that half of college students choose are poorly aligned with the job openings that pay good wages. The soft majors leading to low paying employment are; Art, Agriculture, Communications, Consumer Science, Cultural Studies, Education, English, Fitness, Foreign Language, History, Humanities, Interdisciplinary, Philosophy, Political Science, Psychology, Sociology, and Theology. About 52% of college students graduate in those majors.

About 48% of graduates chose managerial or STEM majors such as Business, Sciences, Engineering, and Health Care which lead to much higher paying employment. Some students will excel in the job market regardless of major, and a few STEM graduates will make poor career choices that lead to low wages.

The 52% students in soft majors are not inept, but unless they were born wealthy, they have chosen majors that do not equip them to afford tuition and living expenses during and after college – when student loans become due for payment. A student loan burden and low wages are a prescription for misery. The combination can force graduates to defer buying a home, getting married, raising children, or enrolling for an advanced degree.

Any student can default on a loan, but those earning low wages have a higher propensity to default. Loan defaults can fall on taxpayers, so the public has a legitimate stake in protecting the public from financial burdens the college and student choose to expose it to. The long-term consequences of major selection (including likely earnings) should be made clear prior to students prior to enrolment, and the warning should be repeated prior to each application for student loans.

Since both the student and college will benefit from the loan, both have a responsibility to borrow only what will be repaid. This is a common safeguard used in the real world. Aligning the level of debt repayment with probable future earnings is a prudent safeguard that mortgage underwriters use to make sure the borrower does not borrow beyond his ability to repay.

A proposal in the President’s federal budget calls for colleges to share some of the risk of default on student loans. Already, a “school could lose federal funding, for example, if a certain percentage of its students default on their loans in a given year” but “the threshold is set so high that schools seldom meet it.” The Obama administration, looking to combat a similar problem, enacted a rule known as “gainful employment” that cut off individual degree or certificate programs if a high proportion of students were leaving with large amounts of debt and meager earnings.

Perhaps the Congress can unify in agreement on this practical safeguard. It would help the students and the public.

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