The Higher Education Bubble Burst
Updated: Dec 14, 2020
On June 24, Bernie Sanders introduced a bill that would eliminate all student loan debt. If that proposal went into effect, and I invested my student loan payments into a retirement account, at age 65 I would have an additional $368,000 for retirement at an average inflation-adjusted return (at an average, non-adjusted rate it would add over half a million dollars).
That’s real money and it makes a difference.
With $100,000 in student loans and two master’s degrees, I am part of the 67 percent of student loan debt holders who are women. I am also a breadwinner mom who supports a family of four. Like many of my fellow Americans, I once viewed higher education as the pathway to a stable, well-compensated career. A road to the American Dream.
Things have changed.
The same education that guarantees economic security and opportunity is choking the U.S. economy through student loan debt, cutting especially hard at women. Student loan debt could well be the next crisis to strangle our country unless we act now.
Higher Education: The Great Equalizer or Aggravator?
The promise of education as the great equalizer is rife with issues. By examining higher education through the lens of gender equity, we find it benefits men overwhelming more than women. When these benefits are disproportionately withheld from women, the entire economy suffers from lost economic opportunity—not just women—because gender equity expands the economic pie for all. Closing the gender equity gap in the U.S. would increase GDP by $2T annually.
Instead of bringing us closer to gender equity, paying for higher education is hindering us from reaching it. To see why this is true, let’s break down the issue from a labor economics perspective and look at the three factors impacting gender equity:
Labor Force Participation
As the most educated cohort in the U.S., women have been doing their part in education attainment to close the gender equity gap, but lower wages hold them back. And not just in the way you think.
Education Versus Pay: Something’s Off
In 2000, women comprised 45.1 percent of the college educated workforce. They’re now at 50.2 percent. As of the first quarter of 2019, the number of women in the labor force holding at least a bachelor’s degree (29.5 million) exceeds the number of men in the labor force holding at least a bachelor’s (29.3 million).
This milestone matters because educational attainment correlates highly with income. Glance at the graph below to see just how strong this connection between education and salary is. Women with a bachelor’s degree earn more than double the amount women with less than a high school diploma earn.
Image source: https://www.aauw.org
Perhaps you noticed another trend in the graph above: as 50.2 percent of the college educated workforce, women still receive less pay than their male counterparts. With college-educated women earning 26 percent less pay than men in comparable jobs, it’s clear the gender pay gap remains.
Women working full-time, year-round can expect to take home smaller paychecks than working men with the same level of educational level. Worse, women earn the same as or less than men with lower educational qualifications at all but one level. Yes, that means a man with an associate degree will earn the same as a woman with a bachelor’s.
The higher women set their educational aspirations, the greater the pay inequity they’ll experience. Women with bachelor’s degrees earn 71.4 percent of what men with bachelor’s degrees earn. And a graduate degree? She’ll earn 69.1 percent of what he’ll earn.
We must not forget about the pay gap that starts before women reach the workforce, either. Although both male and female students show the same likelihood of working during their undergraduate studies, male students earn $1,500 more per year than female students.
Among those who’ve dropped out of college, male dropouts realized no meaningful difference in pay while women faced drastic losses in earnings.
In summary, these data make two points clear:
Post-secondary education correlates with significantly higher earnings.
To secure a well-paying job, women need more educational qualifications than men.
And for women, more education means more student loan debt.
The $1.5 Trillion Question: What About Debt?
Believing in higher education as the path to opportunity and security comes at a steep, unsustainable cost. As you’re reading this, the U.S. has 45 million borrowers who hold about $1.5 trillion in outstanding student loan debt. That’s more than credit card debit, it’s more than car loan debt, and it comes only second to home mortgage debt.
Despite accounting for 57 percent of undergraduates nationwide, women hold 67 percent of this $1.5 trillion student loan debt. This unequal share of student debt falling on women exacerbates the gender equity gap, and the data reveal what’s fueling this trend:
The average debt for a female student is $2,700 greater than a male student.
Among undergraduate students, 44 percent of women take out loans compared to 39 percent of men.
Also among undergraduate students, women take out an average of $3,000 in student loans per year, which is about $400 more than men.
A major explanation for why more women than men take out student loans emerged after T. Rowe Price conducted a study analyzing 238 households. The underwhelmingly simple findings showed that women are less likely to get help from parents to pay for college.
The study reported that 50 percent of boy-only households, while just 35 percent of girls-only households, saved money for college. Moreover, 83 percent of boy-only households compared with 70 percent of girl-only households regularly contributed to a college savings account. Lastly, the households more willing to incur debt, send children to expensive colleges, and cover the complete cost of tuition were the boy-only households.
Another study supports these findings. In a survey of over 1,400 college grads, private student loan provider LendEDU reported that 6 percent of women and 10 percent of men had parents who paid for the majority of their college education. The LendEDU report also found that 50 percent of women and 43 percent of men claimed their parents made zero monetary contributions to their college education.
Student Loan Debt: Paying It Back or Bust
Along with holding a greater share of student loan debt, women also experience greater difficulties paying it back. Repaying debt takes 1.9 years longer for women than for men—resulting in greater total interest accrued. (The repayment rate is even longer for black and Latina women.)
The gender pay gap partially explains this lag time in repayment. Women earn 20 percent less than men, on average, and have less discretionary money to pay off debts. When broken down by race, the gender pay gap looks like this:
Asian-American Women: 85 cents for every $1 white, non-Hispanic men earn
White Women: 77 cents for every $1 white, non-Hispanic men earn
African-American/Black Women: 61 cents for every $1 white, non-Hispanic men earn
Native American Women: 58 cents for every $1 white, non-Hispanic men earn
Latinas: 53 cents for every $1 white, non-Hispanic men earn
Considering the gender pay gaps by race, it’s no wonder why 34 percent of all women and 57 percent of black women who are repaying student loans report difficulties in meeting their essential expenses.
In today’s economy, repaying student loan debt is difficult, and it’s not uncommon for borrowers to default on their loans. In fact, in the past six years, more than two million borrowers have defaulted on their loans. That number grows by 1,400 each day. In fact, the default rate has doubled from 2003 to 2011. The Brookings Institute expects 40 percent of borrowers to fall behind on loan repayments by 2023.
Due to the gender pay gap and their larger burden of student loan debt, default rates are higher for women—especially black and Hispanic women—than for men. Defaulting on loans means lower credit ratings, missed economic opportunities, and moves us further from achieving gender equity.
This defaulting trend is precarious for several reasons. First, in regards to student loan exclusively, unsustainable levels of debt will slow down the economy and cost taxpayers $31.5 billion over the next decade. Second, more women defaulting on their loans moves us further from gender equity and stalls the entire economy by $2T.
We cannot continue down this path. We must take action now to prevent what could likely snowball into our country’s next economic crisis.
What’s Next For Higher Education?
Even though four in ten recent college graduates work jobs that don’t require a degree; even though the price of college has surged by 1,375 percent since 1978 (four times the rate of overall inflation); and even though U.S. colleges spend more per student than nearly every developed country; we cannot write off higher education altogether because America’s reliance on the college-educated labor force is growing.
In the aftermath of the Great Recession, jobs gains favored workers with a bachelor’s degree or higher while job losses disadvantaging those with a high school diploma or less.
Here’s how the recovery period job gains were distributed:
Bachelor’s degree or higher: 72.5 percent of jobs (8.4MM)
Associate’s degree or some college: 26.7 percent of jobs (3.1MM)
High school or less: 0.6 percent of jobs (80,000)
As we rapidly near the inflection point that is The Fourth Industrial Revolution—the intersection of humans and machines—we must be shrewd and nimble in our approach to educational reform. Looking ahead, 38 percent of businesses expect to create productivity-enhancing roles and 25 percent expect automation to create new roles in their organization. By 2022, the most conservative reports predict 54 percent of all employees will require significant reskilling or upskilling.
How to Fuel Tomorrow’s Economy
Efforts to reform paying for higher education for the benefit of all should stem from three strategic initiatives: income-driven repayment plans, student loan forgiveness programs, and embedding gender equality into the future of work.
Support income-driven repayment plans that reflect borrowers’ realities—i.e. borrowers’ debt to income ratio. This includes streamlining income-driven retirement programs, thus making it easier for borrowers to enroll in them. Congress should also allow refinancing for federal and private student loans in the same way borrowers can refinance other financial instruments.
Introduce student loan forgiveness programs to improve economic outcomes for all. Currently, student loan forgiveness programs benefit employees working for tax-exempt organizations. These programs should extend to workers in industries that keep our economy running, such as doctors, nurses, teachers, and engineers.
Embed gender equality into Fourth Industrial Revolution business initiatives. Professions in emerging technologies (machine learning, AI, cloud computing, etc) are already unequal. In AI, for example, women make up 23 percent of current talent. With a majority of companies set to adopt machine learning and big data analytics into their enterprises by 2022, gender gaps will widen if left unchecked. Businesses can reverse this inequitable trend by “Hardwiring Gender Parity” in their future workforces.
Finally, let’s close the gender pay gap once and for all. We should not punish half of our labor force, our future talent, for receiving an education. Equitable pay will improve not only economic realities for women, but it will also become fuel for tomorrow’s economy.