Editor’s note: This article is a part of a head-to-head. Read the other article here.
By indiscriminately subsidizing and underwriting student loans for all university majors, regardless of post-graduate income or employment opportunities, federal and state governments have inflated tuition prices and saddled young Americans with crippling student loan debt.
Instead of incentivizing students to pursue marketable college degrees, lawmakers decided it was a good idea to make the American taxpayer foot the bill for generalized higher education, having assumed any investment would pay for itself in future earnings.
Louisiana’s TOPS program, federal Pell grants, tax deductions and tax credits rely on this false assumption that any higher education subsidy is worth the expense of student loan debt and forfeited wages while in college, irrespective of the field of study.
Government subsidies and student loan underwriting for higher education isn’t without merit. In past decades, a concerted government effort to educate the American workforce fostered economic growth and development from a manufacturing economy to a service economy, which led to higher wage growth and lifetime earnings for college graduates.
Conversely, however, diminishing returns on higher education caused by spiking tuition and lower wage growth should force lawmakers to reconsider whether equally subsidizing high return on investment degrees and low return on investment degrees is a good idea. Lawmakers have failed to account for the variance in loan default risk carried by individual majors, which if accounted for would increase resulting interest rates for unmarketable majors and naturally push students away.
Essentially, they have artificially kept all student loan interest rates, irrespective of future income, to a same low rate. While egalitarian, less marketable majors, such as mass communication, subsequently carry much higher risk of default when compared to more marketable majors, such as finance.
Lower paying and higher unemployment degrees should be of particular concern in lieu of the ballooning student loan debt and loan default rates. It’s no wonder then that rubber stamping all student loans, regardless of major marketability, have resulted in over $1.5 trillion in student loan debt nationwide and a projected default rate of nearly 40 percent by 2023. Clearly, federal and state governments need to think about whether the higher education loans American taxpayers subsidize and underwrite will be paid back.
While all majors pay roughly the same amount in annual tuition and room and board, $13,585 at public universities on average, the median annual earnings of 25- to 29-year-old degree recipients are vastly different. STEM fields earn an average of $60,100, with electrical and mechanical engineers earning well over $70,000 annually, while liberal arts and humanities, social work and human services and fine arts earn at or less than $40,000.
The problem from a creditor’s standpoint, which in many cases is the American taxpayer, is obvious. Between high debt and low income, especially in the years immediately following graduation, those with degrees in either liberals arts and humanities, social work and human services or fine arts take significantly more time to pay interest accruing student loan debt, which means they end up paying more.
Assume, for example, you received a mass communication degree, and you become a news reporter. After four years, not adjusting for the wages you forwent during college, the cost of a degree, accounting for tuition, fees and room and board, comes to roughly $50,000.
And, let’s also assume you’re making an average after-tax pay of $25,000 with a monthly repayment on your loans of 15 percent of your annual pay. It would then take 22 years to repay your education investment if the assumed interest rate on an unsubsidized federal loan was 4.66 percent.
The bleak financial reality can be even bleaker for low return on investment degree recipients, especially if you fall into the 60 percent of full-time students who won’t graduate within four years. Tack on a victory lap or two, and the cost of college loans may follow you to the grave.
Moreover, because these higher debt, lower-paying and higher unemployment majors are spending so much of their income on student loans, they aren’t able to spend money elsewhere, such as on home mortgages, which drive the American economy and build individual wealth.
By no means should the government be equally subsidizing and underwriting lower-paying, higher unemployment majors and occupations. Not only do STEM and business majors lead to better paid occupations with lower unemployment, but there also exists a shortage of labor in some STEM subfields, such as petroleum engineering, software developing and data science.
Louisiana has an opportunity to proactively nudge its higher education student population into high-demand jobs by offering TOPS only for marketable majors. Public higher education for this state’s youth should start by putting them on a career path toward financial security with higher paying and lower unemployment jobs, and that means incentivizing majors that give them the best chance to succeed.
Patrick Gagen is a 21-year-old mass communication and finance senior from Suwanee, Georgia.
