We have all heard of price inflation, wage inflation or asset inflation, however over the past few years another kind of inflation has been creeping into the economy. It is called degree inflation.
Many occupations that used to require a high school diploma are increasingly requiring a bachelor’s degree. This rise in educational requirements has now extended beyond just associate and bachelor’s degrees. Some employers that used to hire candidates with bachelor’s degrees, are now primarily hiring people who hold a Master’s degree.
You would think that a job which requires a degree such as an MBA would require the advanced skills that accompany it. You would also think that employers would be offering to pay more in order to attract better skilled qualified candidates. Therefore the logic follows that if you get a higher education you will be paid more and be better off.
There are, however, other signs in the economy that present a different story. The figures stated by the Fed seem to indicate a stable situtation yet according to recent figures also from the Fed, a different picture emerges. We can see this by looking at a general picture of the student loan debt landscape (Data via federalreserve.gov, WSJ, newyorkfed.org here, here and here and clevelandfed.org here). The most recent reports indicate there is:
- $1.45 trillion in total U.S. student loan debt
- 44.2 million Americans with student loan debt
- Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
- Average monthly student loan payment (for borrower aged 20 to 30 years): $351
- Median monthly student loan payment (for borrower aged 20 to 30 years): $203
About 40 percent of the $1.45 trillion student loan debt was used to finance graduate and professional degrees. Combined undergraduate and graduate average debt loads by degree are the following:
- MBA = $42,000 (11% of graduate degrees)
- Master of Education = $50,879 (16%)
- Master of Science = $50,400 (18%)
- Master of Arts = $58,539 (8%)
- Law = $140,616 (4%)
- Medicine and health sciences = $161,772 (5%)
These student loan debt statistics seem to show that the cost of attending college is becoming a growing burden for a huge portion of Americans. In addition, these numbers were taken from a study in 2012 according to the website Student Loan Hero. However, according to more recent data from the MIT Sloan School of Management, The average MBA debt last year (2016) hit a record $107,172 at Sloan, up 25% in four years from $86,688. Either graduates are not finding jobs or they are being forced to take jobs that pay salaries far below what they would expect to make in accordance with their degrees.
This situation is not being ignored by all observers. Four years ago, billionaire entrepreneur Peter Thiel announced the Thiel Fellowship. It is a two-year start-up accelerator for young science and technology prodigies. The program awards 20 kids under the age of 20 $100,000 each to pursue world-changing innovations and businesses. However, there is one catch. They have to drop out of school to get it.
Theil is not the only one to advocate dropping out of college. Blogger and entrepreneur James Altucher has also written many time about alternatives to college and all the reasons why you are better off not going.
Getting a higher degree used to be a challenge and also a filter in a way. Only those in society with the greatest dedication to study would surmount the entrance exams required to get into many schools and in addition, take on the heavy workload in order to finally achieve their degrees. The degree had a meaning and a special badge of honor which was highly praised and rewarded in the workplace.
Historically, most colleges and universities in the US have been non-profit. Although there have been for-profit institutions for many years most of them were not accreditated. Once this began to change, for-profit institutions began to grow rapidly. As the emphasis on profit took importance over education, the entry bar was lowered. Why would your institution want to turn away a paying customer? What seemed like the best strategy was to make it as simple as possible for a paying customer to enter and study. Having taught at a for-profit University I can tell you first hand that it was blatantly obvious where their focus and attention was.
The result of the proliferation of these for-profit institutions has been a flooding of the market with degrees from schools with absolutely no reputation for excellence in higher learning. Meanwhile, online learning and the growth of accredited university certificates through massive open online courses (MOOCs) on website like Coursera are now offering an alternative to traditional university enrolment.
So, what seems to have happened is we find ourselves in a vicious cycle. More and more employers are asking for more credentials. Therefore, in order to find a position more people are being forced back to school in order to satisfy the needs of the employers. With so many people obtaining degree qualifications there are increasing concerns that academic credentials are losing meaning and value.
The reduction of qualifications to status conferring pieces of paper is known as “Credentialism.” Credentialism is a concept that has been around since the 1970s, when it was coined by social scientist. It’s an ideology which puts formal educational credentials above other ways of understanding human potential and ability. With a greater degree toting underemployed population, students are therefore beginning to ask if their degrees are worth the tuition fees they are expected to pay back as long-term loans.
In the end, this cycle feeds on itself. The longer a graduate remains unemployed, the faster the value of his skill set is diminished in the market. What we are left with as a society is a large number of unemployed, underemployed highly skilled graduates with high debt load burdens that they are unable to pay off.
The answer to this problem may lie in our mindset. If our motivation for learning is the joy of discovery as opposed to monetary reward we may all find ourselves better off in the long run. Education has been widely documented by researchers as the single variable tied most directly to improved health and longevity. And when people are intensely engaged in doing and learning new things, their well-being and happiness can blossom.