This week I attended the Citizen League and Minnesota Public Radio's program "Policy and a Pint" entitled "Generation Debt". State Representative Carlos Mariani served as one discussant. Among other laudable accomplishments, he is the Executive Director of the Minnesota Minority Education partnership, DFL lead on the education reform committee, and on the education finance committee. He discussed the issue with Art Rolnick, co-director University of Minnesota's Human Capital Research Collaborative, a fellow in the Humphrey School of Public Affairs, and a past SVP and Director of Research of the MN Federal Reserve.
I was shocked to learn that the student loan debt level is higher than credit card debt at nearly one trillion dollars, to be exceeded only by mortgage debt. Seventy-one percent of Minnesota students graduate with debt, and $25,000 is the national average. Nationally, 10 percent owe more than $50,000 and 3 percent owe more than $100,000.
Students are shouldering more of college costs, and a rise in lending is the result. Often, the consistent decline in public funding is blamed, and with state incomes firmly plateaued in the foreseeable future, this picture is unlikely to change. When the topic of cost containment came up, Rolnick suggested technology might be part of the answer. He reasoned, if education can be delivered electronically from anywhere in the world, competition will rise, and tuition will decrease. He admitted, however, that this solution will not counter double-digit increases. (Not to mention students like to go to college. There is a social development need met by attending a brick-and-mortar institution that shouldn't be overlooked.) Demand for a college education will continue to rise, and, if government funding remains stagnant or continues to drop, students will pay an increasingly larger portion of the bill.
So what does this issue have to do with HR? Well, I'm sure I don't have to tell you – everything. Here's a couple of ways those of us sourcing and developing talent might be affected.
For certain jobs, compensation rates aren't enough to sustain monthly loan payments. In scenario one, fewer students choose that career path, causing a drop in the supply of talent. Organizations raise salaries and engage in a bidding war for those remaining, resulting in higher labor costs. In scenario two, students still choose their preferred line of study, but get a master's degree to differentiate themselves from the competition, leading to more debt, and a need for a higher income. Organizations are tempted to hire the master's degree candidate, which raises the market value of the job, again leading to higher labor costs.
However, I'd be remiss to not take into account the dearth of entry-level jobs available; in fact, it is at a 60-year low. The phenomenon of unemployed youth has led the media to dub recent college graduates as the "Boomerang Generation" insofar as they return home to live with mom and pop after college. No job (or a job that doesn't support a lifestyle and loans) lands youth back in their twin-sized bed. So in scenario three, salary levels remain stagnant, and parents shoulder another five years of cohabitation while newly-minted graduates build their earning potential to match their loan payments (The Pew Research Center found that the new age for independence, is, on average, now 22.) Spending on housing and the independent lifestyle that comes with it is delayed.
On the macro-economic side of the coin, S&P warned student loan debt has an ominous trajectory and could be the next bubble to burst. And consider the purchasing power lost in the vortex of debt payback. Twenty or so years ago, these dollars would be buying a car or a house. Now, young adults' budgets are stretched more thinly than their parents', or for that matter, even their older siblings'. For organizations, this means a dip in revenue from this sector of the population and a continuous drag on product sales geared towards anyone paying off college loans. I'm not an economist, but I have to think that this volume of debt will affect the strength of the overall economy. If consumer demand is suppressed, supply dips, and jobs disappear – and that's bad for everyone.
So we have higher labor costs, parental dependence, and less spending. That's a bleak picture, but here's a worse one: Let's say that fewer young adults choose to go to college, or, perhaps more accurately, less of them can. At Policy and a Pint, Rep. Mariani hit this point home. With the economic situation being what it is, there are more parents with bad credit who can't co-sign. Federal students loans, which students can sign for themselves, cover tuition but aren't large enough to live on. Student jobs are scarce. Scholarships won't reach everyone. What is a middle- to low-income student to do? For those who qualify to attend a university but are without funding, their development is capped artificially. As a country, this issue has the potential to constrain our pool of talent, the human development of our nation. For us in HR, that's our supply, our resource, the fuel that propels our organization towards success. For 50 years we've talked about equal opportunity and the glass ceiling, and the consequences of not tapping the potential of the entire pool of talent. Now, the problem of college funding takes this notion to an even more encompassing, societal level.
At the end of the session I was disappointed by the lack of answers. I think it is safe to say that we in HR can start to prepare by strengthening our entry-level training programs, recruiting partnerships with communities and universities, and tuition reimbursement programs. We can explore how to select high school graduates appropriately, and how to train them quickly. Organizations can ready themselves to supply the technical and managerial training employees need to perform well and climb the ladder. But what of learning skills? Where do people learn how to critically think? In what environment can you safely fail until you learn? Where do you learn study habits – where do you learn how to learn? Largely, college. To truly be ready for the doom-and-gloom scenarios I've displayed here, we in HR need to be ready to teach learning skills en masse. A formidable challenge, but one for which we can prepare.