College, the Skills Gap, and the Student Loan Crisis

Max Oden/The News & Advance via AP

Sweet Briar College graduates wait before commencement exercises begin Saturday morning, May 16, 2015 just outside of Amherst, Virginia.

It’s a long-held truism in American society that a college degree is the ticket to middle class prosperity. Since graduates count on landing a good paying job, taking out student loans to help achieve that goal has become an acceptable tradeoff. And, if a young person can’t find a decent gig, somewhere along the way he or she must have failed to acquire the skills necessary to compete in the 21st century economy.

Marshall Steinbaum, an economist with the Washington Center for Equitable Growth, a research and grant-making organization, says it is time for Americans to rethink this paradigm. In an interview with The American Prospect, Steinbaum discusses the group’s recent report on student debt. The research was conducted in conjunction with Generation Progress and the Higher Ed, Not Debt campaign.

What follows is an edited transcript of our conversation.

Rachel Cohen: Your new research looks at student loan delinquency. You find that the groups most likely to miss payments on their loans are middle-class African Americans and Latino graduates. 

Marshall Steinbaum: The whole premise of the student loan project is that people should go to college, financed by debt, because higher education is the solution to life’s problems. If you’re poor, or don’t have a job, the reason why, we say, is because you don’t have the higher educational attainment that could get you a better job. All of these ideas have been wrapped up in the narrative of the “skills gap.”

So, we steer minorities into taking out debt. But as a matter of policy, we have also made it very hard, both informally and formally, for blacks and Latinos to acquire wealth. So what happens is that minorities are more likely to co-sign [family members] onto student loans, liquidate their housing equity, or take out credit card debt to finance their college educations.

If you have white kid with ten times the family wealth as the black kid, even if their parents are both earning relatively middle-class incomes, you have to ask what does it mean to finance a college education for someone with a fraction of the wealth? It means a lot more pulling on the family’s scarce resources, and a lot more exposure to financial schemes that could go south, especially when it turns out that your degree is not as valuable as it was claimed to be.

Why are we seeing so much indebtedness today?

We’ve expanded the range of higher education options, and a lot more people are taking on student debt to go to college. In terms of recent history, this definitely started with the Great Recession. With the economy doing poorly, more people were encouraged to go to college so they could be well positioned [for employment] when the job market picked back up.

Moreover, we saw the absolute explosion of for-profit colleges during the Great Recession, thanks in part to the Bush administration deregulating that sector. By accrediting for-profit colleges, all students attending those institutions became eligible for student loans.

Black and Hispanic homeowners were also hit hardest by the housing crisis. Do you see a parallel between that crisis and student loan defaults?

Yes, definitely. Just as minorities went into debt to buy housing that turned out to be worth far less than expected, the same thing happens in higher education where minorities go into debt for less valuable degrees. These one-off treatments for multi-generational racism, like buying a house, or getting a college degree, don’t work. They might even reinforce the problems if people are induced into taking out loans that cause them more long-term harm than good.

What kinds of evidence challenge the "skills gap" narrative?

There are two broad sets of evidence that show it’s false. The first is that people who do have skills haven’t been getting wage increases. Even in sectors like tech and engineering, nobody is getting raises. The only people who do get raises are in the top 1 percent.

What about people who are not trying to get raises but who just want to earn a decent salary?

That gets to the second set of evidence. People who do have good skills, credentials, and qualifications are generally taking jobs that are lower down the job ladder than they would have taken before. You have a lot of people with BAs taking jobs that before wouldn’t have required a BA, and you have people without BAs basically getting forced out of the labor market altogether.

A 2014 National Bureau of Economic Research study found that although students who major in things that traditionally lead to higher-paying jobs are historically more “protected” against the effect of graduating into a bad labor market, the extent of that protection was substantially lower in the Great Recession. In other words, it helps to have a STEM degree, but much, much less than it used to.

How do your views compare to those of other economists who are looking at these issues?

The whole idea that the “skills gap” is fake and that higher educational attainment is not a solution to the labor market’s problems is gaining traction within the academic economist community. But that basically creates a vacuum.

What do you mean? 

So the old paradigm about skills and human capital is going away but there’s no sense of what the new paradigm should be. My view is that we aren’t seeing more job creation because taxes are too low. There are more incentives now within corporations to send money to shareholders and rake in profits, rather than expand operations and give raises to workers.

In a world where the rich pay 90 percent of marginal income in taxes, why would you not give raises to your employees? That’s what we used to have, a de facto maximum income. Now we live in a world where the rich pay 20 percent of marginal income in taxes, and so they’re grabbing as much for themselves as they can and there’s not enough for anyone else. Few people agree with me, but it does help that I have Emmanuel Saez and Thomas Piketty on my side.

The narrative around “skills” and college attendance is very powerful in K-12 policy circles. K-12 leaders argue that even elementary school students must be prepared for college. How does this view affect the conversation about student debt?

Our findings, plus others, very clearly point to the idea that college is not the solution to multi-generational wealth inequality. That doesn’t mean that poor or middle-class minorities should avoid college, but that it is a very simplistic schematization of how you get out of poverty in this country.

I’d also add that segregation in higher education is a very under-discussed issue. We have all of this emphasis on getting minority students into college, but there’s almost no attention paid to the fact that minority students disproportionately go to lousy colleges. The better colleges, the four-year nonprofit institutions with track records of graduating very successful students, are by and large still difficult to access for minorities.

The problem has become how to get students into college, not about getting them into good colleges. 

Right. The for-profit higher education sector basically exists to suck up all of the people who have been directed into this life path because the higher-quality institutions exclude minorities.

Now there’s definitely an effort within the [Obama] administration to regulate institutions that have high delinquency rates and high drop-out rates. I have mixed feelings about that. One the one hand, I do think there’s a whole swath of the higher education system that is predatory. On the other hand, the solution to historical exclusion is not to worsen that exclusion.

If you followed the situation with Maryland’s Mount St. Mary's College, the college president basically said the school plans to force out the students who look like they’ll drop out early, so that they won’t count towards Mount St. Mary’s College’s drop-out rates.

If the Obama administration adopts a policy of penalizing institutions for drop-outs, you’ll see more stuff like what we’re seeing with Mount St. Mary’s College. That kind of behavior on the part of institutions would be especially discriminatory to minorities.

In addition to regulating colleges for drop-outs and delinquency, there's a definite chance that colleges would be regulated for graduates' earnings as well. The effect of that will be to induce institutions to force students into “in-demand” majors, and possibly even close down other departments. That is an ideological purge masquerading as an economic or higher education reform policy. You’d be much more likely to see this in a Republican administration.

Where does that leave the debate about incurring debt to get a college education?

I think we've made our bed: People have to go to college to work, and hence it's incumbent on us to make sure they can actually find a job and that college is affordable and non-exclusionary.

But we could rethink everything. We could forget the “skills gap” nonsense, and go back to a world where economic policy is organized around making sure everyone who works makes a decent living, regardless of educational attainment, and that our universal K-12 system actually gives everyone the academic background they need not just to enter the economy, but to prosper in it.

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