What the Lost Decade of Wages Means for Colleges and Their Graduates

The long-term changes we're witnessing to the U.S. economy should be yet another sign to college leaders that something has to be done about rising prices, and fast.
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Last week's annual snapshot of American living standards from the Census Bureau offered plenty of statistics to show just how bad the last decade was for the paychecks of most Americans. For higher education, the report was mixed: good news for students on the degree payoff, but another healthy dose of reality for colleges that believe current upward trends in tuition prices will continue unabated.

First for students, the report underscored yet again the lifetime economic benefits of getting a college degree. The poverty rate for Americans in their 20s with a college degree in 2010 was 8 percent, compared to 23 percent for those in the same age group with just a high-school diploma (the poverty line was set at $22,314 for a family of four in 2010).

While the poverty rate for those in their 20s with a bachelor's degree has increased by two percentage points since 2002, it jumped by six points for those with a high-school diploma during the same time period. For both groups, the poverty rate has improved as they moved into their 30s, but those with a high-school diploma are still much more likely to live in poverty even 10+ years after high-school graduation.

Even so, there is mounting anger by college graduates who blame their alma maters for the fact they can't find a job in this bad economy. The lead story on the NBC Nightly News on Friday evening featured several YouTube videos of enraged college graduates asking the question that's been getting a lot of media attention in recent months: Is college worth the investment? As usual, the news segment highlighted an outlier in the college-debt debate: a student who graduated with a bachelor's degree in international studies in May from North Carolina State University with more than $100,000 in debt, about four times the average.

For jobless college graduates, their degree and the time, effort, and money invested in it seems like a convenient punching bag. If colleges want to continue to sell themselves as a ticket to success in the future, they need to do a better job at defending their degrees against the rising chorus of the "Don't Go to College" crowd.

The jobless young are an angry band not just in the United States, but around the world, as shown by the protests in Europe and the Middle East this past year. This pain is the result of a changing global economy, not a bad college education (although in some cases, colleges shouldn't be let off the hook--just see the book, Academically Adrift).

As Michael Spence noted in a recent article in Foreign Affairs, globalization is forever changing the jobs picture in the United States and other wealthy countries. Nearly all the new jobs created in the United States between 1990 and 2008 were in the non-tradable sector of the economy, particularly health care and government, which are unaffected by global competition. The Economist noted last week that the "natural rate" of unemployment in the United States is now around 7.5 percent.

Along with last week's income report from the Census Bureau, the long-term changes we're witnessing to the U.S. economy should be yet another sign to college leaders that something has to be done about rising prices, and fast.

Perhaps the number that should be most disturbing to colleges in the Census report is that the income of the typical American family has dropped for the third year in a row and is now roughly where it was in 1996, when adjusted for inflation. Meanwhile, the inflation-adjusted price of a public four-year colleges is about 1.8 times what it was in 1996.

Rising family wealth during the 2000s, helped greatly by inflated home prices, allowed colleges to continue to pump up their prices. The census numbers and the nonstop bad news on housing show those days are over. Add to that the fact that there are likely to be substantial cuts in federal student aid in the name of deficit reduction in the coming years.

The vast majority of tuition-dependent private colleges (and a growing list of private-like public colleges) are simply not ready for this shifting market. One president of a very tuition-dependent private college told me in a conversation over the summer the new normal for his institution is 3 percent annual tuition growth. While maybe reasonable to him considering the recent past, I asked if a rate that high is sustainable given the current economy. He seemed surprised that I'd even ask the question.

A higher-education admissions and marketing consultant who specializes in the private-college sector told me recently that his firm does many retreats for trustees and senior college leaders that in part highlight the average household income for the state where the college is located.

"The wealthy board members are very surprised and cabinets [of college leaders] are silently reflective and nod in agreement," he told me. He always asks the college officials if they could afford their prices if they didn't get the tuition remission. "Almost always they say no."

We know the economic model of colleges is broken. Now the economic trends are telling us that the days of pushing the problem off to another president or another board of trustees are behind us. The University of the South cut its price by 10 percent this year. Will others follow? Can they afford to? If not, what is their way out?

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