Monday, September 13, 2010
Student loan default rate creeps higher
CNN reported today that defaults on student loans for fiscal 2008 are the highest they have been in over 10 years. The rates jumped from 6.7% in fiscal 2007 to 8.0% in fiscal 2008. The rates are the highest for graduates of for-profit schools, followed by public then private institutions. This growth in default rates only reaffirms that the economic recession is making job placement and retention no easy task; students that have newly entered the labor force simply can not find ways to pay back their debt. It would be interesting to see how this rise in default rates would effect the Cobb-Douglas production function we studied last Friday in which the three inputs (labor, capital, and human capital) effect MPL and MPH. Would the rise in default rates make having a college degree less valuable? Would it cause a decrease in MPL for unskilled workers because more people with college degrees would enter the unskilled work force, taking whatever jobs they could find?
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Not only it's an interesting article but an article that involves us as students who took out student loans to have a college degree. The article sounds daunting to the rest of us, obviously. Not only that it's difficult to find jobs because of high unemployment rate and in this particular state of economy, but people are working longer and unlikely to retire. There are many factors involving MPL and MPH, so I can't really say for sure whether the rise in default rates would make the college degree less valuable or that it could also convince potential college students to change their plans about going to college and rather work, this result may decrease MPL?
ReplyDeleteThis would be very interesting to see what happens, but I sure hope the economy gets better when we graduate!
I doubt this would affect MPL and MPH as this is regarding defaults on student loans which presumably occur after a student has obtained their degree. This means that the level of human capital would remain constant. It may, however, be affected, if students choose not to pursue a degree due to increasing rates and thus the actual number of degrees decreased
ReplyDeleteI think the value of the degree in the short run would decrease because it may be difficult to find work right after graduation. However, in the long run it will pay off because graduates are bound to find a job once the job market picks up. The rise in the default rate definitely does not help any to those graduating soon. I think the number of degrees obtained may actually increase because of the lack of jobs and people getting laid off, so they go back to have something to do in the mean time or to enter into a new field that they will have a better chance at finding a job with once they are done with getting their new degree. I think people would still get them despite these higher default rates.
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