Class of 2015: Most Indebted Ever

The graduating class of 2015 may be partying like it’s 1999! A study earlier this year from Michigan State University found that employers have been recruiting new college graduates at levels not seen since the go-go years of the technology boom and Y2K (remember that?). With economy and the job market picking up steam, hiring of college graduates this year was expected to be up by 16 percent from a year ago, though the National Association of Colleges and Employers puts the increase at 9.6 percent. Either way, the market for recent grads is improving and more than half of employers are offering signing bonuses, the highest percentage in five years.

Of course it is easier to get a job with a degree. The national unemployment rate stands at 5.4 percent and is 4.8 percent for recent college graduates and 2.7 percent for all college graduates. With that degree comes increased earnings potential: the Federal Reserve Bank of San Francisco found that the average U.S. college graduate is likely to earn at least $800,000 more than the average high school graduate over her working years.

All of this good news about college comes with an asterisk: the ability to land a good job out of college often depends on a graduate’s major. According to a report by the Georgetown University Center on Education and the Workforce, “Recent college graduates who major in arts, psychology, and social work earn $31,000 per year, only $1,000 more than the average high school educated worker. By comparison, recent graduates who majored in engineering earn $57,000 per year, almost twice as much as the average high school graduate.”

For families that are spending tens and even hundreds of thousands of dollars, the Georgetown report begs the question: What if my child is not interested in the STEM (Science, Technology, Engineering and Mathematics) majors? While you can’t force college students to study what you believe is most prudent for them; if they are likely to head into a liberal arts field with a lower earning potential, you need to steer them into a cheaper undergraduate education (community and public schools or private colleges that offer loads of grants) and to keep a lid on total borrowing.

Many families can only get their kids through college by assuming loans. That’s why total outstanding student debt (federal and private) reached nearly $1.2 trillion at the end of the first quarter of 2015. The class of 2015 is only going to add to that staggering sum: its graduates are the most indebted ever. The average graduate with a student-loan owes just over $35,000, according to Edvisors. Adjusted for inflation, that’s more than double the amount borrowers had two decades ago. Unless these graduates are about to land one of those plum STEM jobs, they could be paying off their loans for decades. (The average student repays her college debt within 20 years of graduation.)

Students and their families need to strike a balance between the increasing necessity of completing a college education (earlier research from Georgetown predicted that the share of jobs requiring post-secondary education will likely increase to 64 percent by 2020, a big jump from 50 percent in the 1970s) and the decision to assume tens of thousands of dollars of loans to earn that coveted degree.

One way to keep debt levels in check is to only assume a total student debt load that matches what you think you (or your prospective graduate) will earn in the first year of work. If you’re going to be an engineer or software designer, you can borrow a total of $50,000 to $60,000, twice the amount of an art history or education major. It may not seem fair, but to navigate the current labor market effectively, without draining current and future resources, this rule of thumb may keep the scales balanced.

Most Lucrative college degrees

It’s college acceptance and graduation season, which means parents and students alike are asking the perennial question: What’s the most lucrative major? According to the January 2014 Salary Survey from the National Association of Colleges and Employers, the final overall average starting salary for Class of 2013 bachelor’s degree graduates increased 2.6 percent to $45,633 from the results of the Class of 2012. The most lucrative degree is engineering, engineering and engineering! Figure 1: Top-Paid Majors for Class of 2013 Bachelor’s Degree Graduates

Major	Average Starting Salary
Petroleum Engineering	$97,000
Computer Engineering	$70,900
Chemical Engineering	$67,500
Computer Science	$64,700
Aerospace/Aeronautical/Astronautical Engineering	$64,500
Mechanical Engineering	$64,500
Electrical/Electronics and Communications Engineering	$63,000
Engineering Technology	$61,500
Management Information Systems/Business	$60,700
Logistics/Materials Management	$59,800

Perhaps you are wondering what your kid should do if he or she has no aptitude for, or interest in, engineering. Well, there's always computer science, management information systems/business, and logistics/materials management, which were the non-engineering majors whose average starting salaries were among the highest for Class of 2013 bachelor’s degree graduates.

Figure 1: Average Salaries by Discipline

Broad Category	2013 Average Salary	2012 Average Salary	Percent Change
Business	$55,144	$53,900	2.3%
Communications	$44,552	$43,717	1.9%
Computer Science	$59,084	$59,221	-0.2%
Education	$40,590	$40,668	-0.2%
Engineering	$62,564	$62,655	-0.1%
Humanities & Social Sciences	$38,045	$36,988	2.9%
Math & Sciences	$42,956	$42,471	1.1%
Overall	$45,633	$44,482	2.6%

Source: January 2014 Salary Survey, National Association of Colleges and Employers

Pity the poor liberal arts major! It seems like people like me, who loved taking English and political science classes, are doomed! Before you get too depressed, there is still ample opportunity for liberal arts majors to land a good job, but they may need to set their sights a little lower. As a group, liberal arts graduates received starting salaries that averaged $38,045 and among the top employers for 2013 liberal arts graduates were those in healthcare and social assistance (counselors, and human resources and social workers); professional, scientific, and technical services (market research analysts, marketing specialists, paralegals, and legal assistants); and information (artists, writers, authors, and editors).

Figure 1: Top-Hiring Industries for Class of 2013 Bachelor’s Degree Graduates

Industry	2013 Average Salary
Educational services	$40,302
Professional, scientific, and technical services	$49,154
Healthcare and social assistance	$43,335
Federal, state, and local government	$47,123
Manufacturing	$55,020
Finance and insurance	$54,660
Information	$42,763
Management of companies and enterprises	$57,891
Wholesale trade	$53,691
Other services (except federal, state, and local government)	$34,071

Source: January 2014 Salary Survey, National Association of Colleges and Employers

So here’s the deal, with nearly $1.2 trillion in total student loans outstanding, its clear that many students will have to borrow money to earn these degrees. The key is to keep total student loan borrowing levels at or below those first year salaries, so that recent graduates don’t drown under the weight of repayments. That may mean foregoing an expensive school or working harder at finding grants and scholarships.

Tuition increases slow: Student loans mount

The College Board is out with its annual report on college costs and if you are an optimist, you will be heartened with the results. Resident students at 4-year state schools are paying an average $8,893, up 2.9 percent from the previous year (+0.9 percent inflation adjusted), the smallest annual rise in 38 years. The net cost, which adjusts for financial aid and grants, is $3,120. Private, nonprofit four-year college students pay just over $30,000, up 3.8 percent from the previous year (+1.8 percent inflation adjusted), with the net cost at $12,460. Adding in room and board, the costs rise by about $10,000 annually for each. The more pessimistic will notice that while tuition increases have leveled recently, when adjusted for inflation, the headline price for private colleges has nearly tripled over 40 years; for public colleges, it has quadrupled.

Source: College Board Advocacy and Policy Center, The Washington Post

There's no doubt that a college degree helps your job prospects. As of September, the national unemployment rate stood at 7.2 percent, but here is how the rate breaks down based on educational attainment:

• Less than HS Degree: 10.3%
• HS Degree, no college: 7.6%
• Some College/Assoc. Degree: 6%
• BA and higher: 3.7%

The need for a degree, combined with escalating costs, has forced many students to borrow in order to finance their education. 57 percent of 2012 graduates of public four-year colleges had education debt averaging at $25,000. At private nonprofit colleges, 65 percent had debt of nearly  $30,000. As a result, student debt has now topped  $1.1 trillion, more than the total outstanding balance for credit cards!

While there is ample evidence that college grads earn more over their lifetimes, but there is little correlation between paying more for that education and earning more money. That’s why it’s so important for students to be smart about their college choices and the way they finance them. That may mean foregoing an expensive school or working harder at finding grants and scholarships. It also may mean attending a lower cost community college for two years and transferring into the big state school for the final two years.

The key is to keep total student loan borrowing levels at or below those first year salaries, so that recent graduates don’t drown under the weight of repayments. One in 10 students now defaults within two years of starting repayment, according to Department of Education.

Before you take the plunge and start borrowing money willy-nilly, here are answers to 7 important questions about student loans.

1) What are the different types of college loans? There are three ways to borrow for education: Student loans (Federal Stafford and Federal Perkins loans), parent loans (PLUS loans), and private student loans.

2) What is a Stafford loan? A Stafford federal loan is awarded to students who are enrolled at least half time in college, complete the (dreaded) Free Application for Federal Student Aid and demonstrate financial need. Two-thirds of these loans are awarded to students with family adjusted gross income of under $50,000. Stafford loans come in two flavors -- subsidized and unsubsidized. With a subsidized loan, the government pays the interest while students are in school; with an unsubsidized loan, the student pays the interest and can defer payment until after graduation. So subsidized Stafford loans are preferable to the unsubsidized variety. The term is 10 years, although other terms are available via consolidation.

3) What is the interest rate on Stafford loans? Dating back to 1992, Congress set the interest rate on federal student loans at fixed rates ranging from 6 percent for loans issued in the 1960s to 10 percent for loans issued between 1988 and 1992. By the end of 2006, student loan rates were at 6.8 percent. The College Cost Reduction and Access Act of 2007 phased in a reduction of the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. The phase on newly originated undergraduate loans was 6 percent for 2008-09; 5.6 percent for 2009-10; 4.5 percent for 2010-11; and 3.4 percent for 2011-12 and 2012-2013. The rate is scheduled to revert back to 6.8 percent for the 2013-2014 school year unless Congress agrees to keep it where it is, which it is expected to do.

4) How much can an undergraduate borrow through a Stafford loan? 

Dependent Students	Annual Loan Limits
First Year	$5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year	$6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond	$7,500 ($5,500 subsidized/$2,000 unsubsidized)

5) What is a Perkins loan? A Perkins loan is a subsidized federal loan offered though colleges. It works like this: The U.S. Department of Education provides funding to the school; the school determines which students have the greatest need; and then the school combines federal funds with some of its own funds for Perkins loans for qualifying students. The government pays the interest on the loan while the student is in school and also during the 9-month grace periods. There are no origination or default fees, and the interest rate is 5 percent for the 10-year repayment period.

6) What is the Federal Parent Loan for Undergraduate Students (PLUS)?PLUS loans allow parents to borrow money for uncovered education costs. Unlike with Stafford or Perkins loans, larger loan amounts are available up to the total cost of college, at a fixed interest rate of 7.9 percent. Interest is charged from the date of the first disbursement until the loan is paid in full. Credit checks are conducted for the loans, and PLUS loans are the financial responsibility of the parents, not the student.

7) What is the difference between a PLUS loan and a private loan? Private lenders may offer more flexible repayment options and perhaps a lower interest rate. However, more private loan rates are variable, which means the cost of the loan can rise in the future.

Best college degrees: Should we care?

It’s college acceptance and graduation season, which means parents and students alike are asking the perennial question: What’s the most lucrative major? That’s such a hard question, because I worry that kids who have no aptitude for, or interest in, engineering or computer science will get scared off when they see charts like this one from CNN:

Pity the poor liberal arts major! It seems like people like me, who loved taking English and political science classes, are doomed! Before you get too depressed, there is still ample opportunity for liberal arts majors to land a good job, but they may need to set their sights a little lower.

The college Class of 2013 commands an overall starting salary of $44,928—up 5.3 percent from 2012, according to the National Association of Colleges and Employers. This is how it breaks down by broad categories of majors:

• Engineering $62,535
• Computer Science $59,977
• Business $54,234
• Health Sciences $49,713
• Communications $43,145
• Math & Sciences $42,724
• Education $40,480
• Humanities & Social Sciences $37,058

So here’s the deal, with nearly $1 trillion in total student loans outstanding, its clear that many students will have to borrow money to earn these degrees. The key is to keep total student loan borrowing levels at or below those first year salaries, so that recent graduates don’t drown under the weight of repayments. That may mean foregoing an expensive school or working harder at finding grants and scholarships.

Before you take the plunge and start borrowing money willy-nilly, here are answers to 7 important questions about student loans that originally appeared on CBSMoneyWatch.com.

1) What are the different types of college loans? There are three ways to borrow for education: Student loans (Federal Stafford and Federal Perkins loans), parent loans (PLUS loans), and private student loans.

2) What is a Stafford loan? A Stafford federal loan is awarded to students who are enrolled at least half time in college, complete the (dreaded) Free Application for Federal Student Aid and demonstrate financial need. Two-thirds of these loans are awarded to students with family adjusted gross income of under $50,000. Stafford loans come in two flavors -- subsidized and unsubsidized. With a subsidized loan, the government pays the interest while students are in school; with an unsubsidized loan, the student pays the interest and can defer payment until after graduation. So subsidized Stafford loans are preferable to the unsubsidized variety. The term is 10 years, although other terms are available via consolidation.

3) What is the interest rate on Stafford loans? Dating back to 1992, Congress set the interest rate on federal student loans at fixed rates ranging from 6 percent for loans issued in the 1960s to 10 percent for loans issued between 1988 and 1992. By the end of 2006, student loan rates were at 6.8 percent. The College Cost Reduction and Access Act of 2007 phased in a reduction of the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. The phase on newly originated undergraduate loans was 6 percent for 2008-09; 5.6 percent for 2009-10; 4.5 percent for 2010-11; and 3.4 percent for 2011-12 and 2012-2013. The rate is scheduled to revert back to 6.8 percent for the 2013-2014 school year unless Congress agrees to keep it where it is, which it is expected to do.

4) How much can an undergraduate borrow through a Stafford loan? 

Dependent Students	Annual Loan Limits
First Year	$5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year	$6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond	$7,500 ($5,500 subsidized/$2,000 unsubsidized)

5) What is a Perkins loan? A Perkins loan is a subsidized federal loan offered though colleges. It works like this: The U.S. Department of Education provides funding to the school; the school determines which students have the greatest need; and then the school combines federal funds with some of its own funds for Perkins loans for qualifying students. The government pays the interest on the loan while the student is in school and also during the 9-month grace periods. There are no origination or default fees, and the interest rate is 5 percent for the 10-year repayment period.

6) What is the Federal Parent Loan for Undergraduate Students (PLUS)?PLUS loans allow parents to borrow money for uncovered education costs. Unlike with Stafford or Perkins loans, larger loan amounts are available up to the total cost of college, at a fixed interest rate of 7.9 percent. Interest is charged from the date of the first disbursement until the loan is paid in full. Credit checks are conducted for the loans, and PLUS loans are the financial responsibility of the parents, not the student.

7) What is the difference between a PLUS loan and a private loan? Private lenders may offer more flexible repayment options and perhaps a lower interest rate. However, more private loan rates are variable, which means the cost of the loan can rise in the future.