The “Real” Income Issue Lurking Behind Student Debt and the “Pay As You Earn” Program


This past month, the Department of Education proposed expanded eligibility rules for its Pay As You Earn (PAYE) program which is designed to help relieve the debt burden for close to six million students.

The program basically does two things. First, it gives some students the opportunity to have their remaining student debt forgiven after 20 years. Second, it allows student loan payments to be adjusted to better match a borrower’s discretionary income.

The proposed changes are getting mixed reviews with lots of analysis. What’s mostly missing though is a more rigorous focus on the “real” discretionary income issue.

While overall unemployment rates have come down to a seven year low of 5.3% at the end of June 2015 most know that there is much more to the story. Among the most alarming is that for recent college graduates, the statistics have been pretty bleak, with only 52% employed full time 6 months after graduation.[1] Compounding the problem is the fact that 49% of 2013 and 2014 graduates consider themselves underemployed or in a job that does not require a college degree.[2] These are the real income issues in our student debt problem.

At a time when graduates are struggling to find meaningful and lucrative work using their hard earned education, they are also struggling with large student loan balances hanging over their heads. When a student stays unemployed for their first 9 months after graduating, their lost wage opportunity is an average of $33,000,[3] equal to an average graduate’s entire college debt.[4] But what students appear to be more immediately worried about is will they find work that matches their schooling or their passions.

This really hit home for me when, five days before her graduation, I received a frantic call from my niece. Instead of relishing the joy and excitement of finally achieving her goal of graduating from college, she was in tears. She had worked so hard, but was without a job - at least not one that counted. Continuing to work at the local sub shop did not count for her.

Final exams were behind her and the uncertainty of what came next was overwhelming - where she was going to live, how she would learn to effectively look for a job and whether she would be able to land work in her chosen field. Not once did she mention her student loans, which are significant. She did mention that there were no classes on campus on job search and she and most of her classmates had little understanding of what a career center could or would be able to do to help.

Job search is hard - a job all on its own. The job market is tough, but, with more than 50 million hires a year and employers talking talent shortage, jobs are out there. The key is to equip our students with what should be considered a basic life skill – job search readiness. Researching the job market, networking appropriately with confidence, building a personal brand, crafting an accomplishments-based resume, developing the poise and clarity of thought to handle tough interview questions – these are critical skills that will shape a student’s path through an average of 13 jobs in a career and determine the fit and fruitfulness of the bulk of their weekday activities the rest of their working lives.

Adjusting student loan payments may help alleviate some pain, – let’s face it, a lot of pain – but the root cause of the problem and moment of truth for our students as they embark on this next phase of their lives is how they will learn to choose a career path and gain the skills it takes to land a job that’s right for them.

My niece was one of the lucky ones. This fall, she’ll be a music teacher in a school she loves and has signed the lease on her first apartment as a college graduate. She worked hard at her job search and she had job search help. In the process, she developed a critical life skill. Her question to me: “Why don’t they teach this stuff in school???”

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