Policy Analysis | May 2011

Post-secondary Access and Affordability

Jonathan Watts Hull

Last week's EdNotes featured an article highlighting a peculiarity of the current economic downturn: while the employment impact was relatively democratic in nature the nascent recovery has, for the most part, failed to gain traction for those individuals who lack post-secondary education. According to the Bureau of Labor Statistics, the unemployment rate for high school graduates in 2010 was 10.3 percent, for those with some college, but no degree, it was 9.2 percent, while for individuals with a bachelor's degree, unemployment was 5.4 percent (individuals with associate degrees had a 7.0 percent unemployment rate). The employment gap is mirrored by an income gap as well, with high school graduates earning roughly 60 percent of the earnings of an individual with a bachelor's degree (those with some college fare only slightly better at 68 percent).

Looked at through a closer lens, however, the prospects for most college graduates appear to be fading. While they continue to enjoy an employment advantage, a study out this week from Rutgers University indicates that while those individuals who graduated before the Great Recession took hold were mostly able to find work, nearly half of graduates in the class of 2010 had found employment by this spring. Moreover, while 80 percent of all graduates in the classes of 2006 through 2010 are employed, the report found that median starting income for most recent graduates is lower than for those who graduated just before the recession.

This situation exists in part because at least 40 percent of these graduates took jobs that do not require a college degree. Additionally, the economic downturn created an "employment latency" that contributes to a very competitive job market, particularly for recent graduates with limited or no work experience. This situation appears to affect most sectors, including teaching and nursing, two fields that have heretofore been viewed as "recession proof."

The situation for these recent graduates is not made any easier by the rising costs of higher education, causing many to ask if the degree is truly worth the cost. Tuition and fees at public 4-year colleges and universities has increased by 112 percent over the past decade (when viewed in constant dollars), about twice the rate of inflation over the same time period. Indeed, during the past two years, when the economy experienced either no inflation or a modest deflation, tuition continued to rise as public support for education declined, and institutions made up for the difference by increasing tuition and fees.

This has resulted in an increase in the level of debt carried by students graduating from college, a concern at any time, as student loan debt is believed to delay wealth creation and asset development among graduates, as well as delay personal choices such as marriage and child bearing. According to a report from the Federal Reserve Bank of New York in June 2010, Americans currently hold more student loan debt ($829.8 B) than credit card debt ($826.5 B). Average debt levels for seniors with student loans (67 percent of all graduates, or 1.4 million students) increased nearly $5,000 between 2004 and 2008 (to $23,200, from $18,650, or 24 percent).The confluence of higher student debt loads and a poor job market for graduates has led to an increase in student loan defaults and delinquencies, indicators of the severe financial stress recent graduates find themselves in.

The rising cost of higher education has lead to calls for cost containment and new models of financing. Two examples from Texas include legislation to establish priority criteria based on academic promise for the TEXAS grant program, which provides funds for students to participate in post-secondary education. Texas Governor Rick Perry recently challenged the state university system to produce a quality, relevant college degree for a cost of less than $10,000 to the student. That figure is one-third the current average cost for public institutions in the state, and faces an uphill battle in face of diminishing support from state government. Other proposals include reducing the time students spend in college to three years, as is not uncommon in Europe.

A recent change in the eligibility requirements for the Pell Grant (passed during the 111th Congress) increased the number of students who could receive the need-based awards and the maximum awards they could receive (and so greatly expanded the program, to such an extent that the program may now be in financial stress). This has expanded educational opportunity, particularly at two-year colleges, but it also has meant that the program has grown from $16 billion in 2008 to nearly $40 billion in fiscal year 2011 (in part because the program had failed to keep up with inflation, and the 2010 legislation corrected this), with the program potentially facing a $5.7 billion shortfall in 2011. The program is in flux, however, with the Congress considering cuts to the program that would roll back support and limit eligibility.

State contributions to student higher education participation and affordability was the subject of a previous Ednotes on the Issues that discussed changes to HOPE-style scholarships. State aid to students in the United States exceeded $10 B in 2009 (Southern states awarded $4.2 alone). State need-based grants remain a significant support for student college participation, with state aid in this category reaching $6.0 B in fiscal 2009. This support is not evenly distributed, however, and 10 states (only two from the region, North Carolina and Texas) award two-thirds of all need based grants. In the South, need-based aid is less prevalent than it is nationally, representing 38 percent of state grant aid to students, compared to a national average of 59 percent. Having said this, the 15 states in the South provide nearly 43 percent of all grant aid to students in the United States, including nearly 85 percent of all non-need-based aid (due to the prevalence in the region of merit scholarships).