The Ruse of the Unemployment Numbers

March 1, 2015 Leave a comment

US UnemploymentHungry? Imagine being served your multi-course dinner by a Ph. D. in Pharmacology, or getting your burrito delivered by an experienced human resources professional. Both of these scenarios are very real. Both of these individuals, one a friend, the other an acquaintance, lost jobs due to economic downturns at their respective organizations and both have taken jobs, simply to pay the bills, while they seek out new opportunities in their chosen professions.

Both of these individuals are examples of many that have succumbed to a massive, but hidden, problem called underemployment. Watching falling unemployment numbers now being reported below 6%, down from nearly 10% four years earlier is, in many ways, simply misleading.

I believe it was Mark Twain who quipped, “statistics are like an alienist; they can work for either side.” The ‘official’ unemployment rate (technically called U3) is a simple and broad measurement that divides the number of people who are not working, want to work, and have been actively applying for jobs by the sum of the people working and those loosely defined as unemployed. In doing so, today, you get a number that’s just below 6% as stated above. While many seem to accept this as THE measurement of employment health, this is merely one measurement though; The unemployment rate can be calculated using a variety of differently ‘useful’ parameters and the U3 rate leaves out many that should be included as they are in the U6 statistic (see below).

With the Fed preparing to raise interest rates as soon as they believe the labor market is strong enough, determining that strength is difficult. But one fact everyone should be able to reasonably agree on is that the ‘official’ unemployment rate does not even attempt, and can’t really, measure the actual strength or health of the labor market exemplified by the openly known fact that Fed Chair Janet Yellen looks at a “dashboard” of at least nine labor market indicators!

Thus, lots of people who are unemployed by many reasonable definitions may not count as such, depending on the metrics used, in the official government statistic. In fact, using the government’s own definition, workers who are discouraged or marginally attached to the labor market do not count in the official unemployment rate. There are different, broader, unemployment measures available, but they do not get the headlines.

In fact, of the over 90 million Americans 16 years old or older that are not working, hence not part of the equation, fall into several categories: retirees, stay-at-home parents, students, and those who would prefer working but have given up on finding a job. Policy makers have been reduced to making educated guesses about the relative size of each subgroup of those not working because the capture of the actual numbers is speculative at best, and then their potential to reenter the labor market as conditions improve remains in question too.

Despite the significant decrease in the official U.S. Bureau of Labor Statistics (BLS) unemployment rate, the ‘real’ unemployment rate is most likely over double that approaching near 13%. This number, which is a better portrait of the nation’s REAL economic health, reflects the government’s U-6 report, which accounts for the full unemployment picture, and this includes those that are marginally attached (describes individuals not currently in the labor force who wanted and were available for work)to the labor force, plus those “employed part time for economic reasons.” In July, this marginally attached group accounted for 2.2 million people. To put that in perspective, there are currently 16 states in the U.S. with populations smaller than 2.2 million. Another number, large in and of itself is the 741,000 discouraged workers – workers not currently looking for work because they believe no jobs are available for them. These are included within the list of marginally attached people. Another 7.5 million were not considered unemployed because they were employed part-time for economic reasons. Those people are also called involuntary part-time workers – working part-time because their hours were cut back or because they were unable to secure a full-time job.

Unemployment is really a measure of labor market disequilibrium; it measures the mismatch between employers’ demand for labor of various types and workers’ willingness and ability to supply that labor. Unemployment that is “too high” or “too low” in aggregate, or in specific job categories, is really about these mismatches, not the overall health of the labor market.

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What happens if I do not re-pay my student loan?

July 31, 2014 9 Comments

student-loan-debtStudent Loans for college can be one of the most significant debts one may ever incur, both in a good way, and potentially bad.  They are necessary for many to attain their educational goals and aspirations, but on the back end, once done with school, they are waiting and, if not managed properly, can haunt people for life.

By some estimates, nearly one in three student loan borrowers in the US that are in repayment are actually behind on their payments.  Six months after graduation student loans come due and the first payment request will come to the door.  Many students I’ve worked with in the past were not even aware that, if graduating in a traditional form, in May, November meant loan payments were to be waiting and the lender expecting a nice response! 

While some take it on as a responsibility and manage their debt accordingly, others tend to put a blind-eye to the subject and that is a dangerous approach especially when dealing with the federally funded loans.  Let me explain.  Any loan is an agreement, a contract, that gives one money now, in the present, with agreed terms that you repay it back over time with interest.  The interest (and penalties) being where the loan providers make their monies so when repayment doesn’t happen according to the terms signed on for, the lenders tend to take it seriously.

Ignoring your debt only makes it worse in a general sense.  While some loans can be ‘negotiated’ away or walked away from with minimal (relatively) negative effect, when it comes to student loans in particular, there is truth in the adage that if ignored it will only get worse. Student loans don’t just go away, and the consequences of making no attempt to pay or resolve them can be severe.

Sometimes one even ‘ignores’ their loan by accident.  For example, many students I’ve worked with have been under the misconception that by deferring loans, say attending grad school for example, that the loans just sit there doing nothing.  While partially true, ‘doing nothing’ in that there is no immediate expected re-payment, when they come due after the deferral time frame, what’s now waiting in addition to the loan, is all the new accrued interest that HAS been racking up on the meter while the deferral time has ticked away.  The loan doesn’t just sit there inert, interest is adding up and added on to the original tally, so while your payments may have been deferred for a year or two, the interest has grown and is tacked on and your debt has ballooned more.

So, what DOES happen if student loans are ignored and/or mismanaged?

1) the debt will simply grow.  Predictably, account-ably, the maths increase and one gets deeper in debt.  Interest will continue to accrue and be added on as payment balances, that seem so daunting now, will only get even larger.  Additionally, loans that go into collection will incur additional penalties that can increase costs up to a significant percentage (State law, depending on where, may limit collection costs).

2) Credit scores will suffer and especially bad at a time when trying to build this number.  Late payments will appear on your credit reports and your credit scores will go down.  Negative information may be reported for up to seven years, and for many graduates their credit scores are more important than their college GPA’s when it comes to real life.  Need an apartment?  Many landlords are checking credit scores to measure potential tenants.  Need a car?  Credit scores are used to determine your risk and loan interest rate.  Want a job?  Many employers, more as time goes on, are checking credit scores as a way to determine how well one manages responsibility.

3) You will eventually go into default.  Federal loans generally can be considered to be in default when a payment has not been made for a period of 270 days.  Once in default, the government has “extraordinary powers” to collect (see below).

4) Private student loans are a bit different, though. The definition of “default” depends on the contract, and may include simply missing one payment or the death of a co-borrower. Private loan lenders don’t have the same collection powers as the federal government but they can sue the borrower, and if they are successful, then use whatever means available under state law to collect the judgment.

5) Expecting a tax refund?  If you’re lucky enough to have a job, you may have to kiss your tax refund goodbye.  If a federal student loan and in default, the federal government can intercept part or all of you tax refund.  Married filing jointly?  Yep, good guess!  A spouse’s portion of the refund may be at risk too, and they may have to file an injured spouse claim to recover it after the fact (although private student loan lenders cannot claim tax refunds).

6) Wages may, and most likely will, be garnished.  Normally, a creditor must successfully sue you in court in order to garnish your wages, and even if they are successful, there may be state limits on whether and how much income can be taken.  But if you are in default with a federal student loan, the government may garnish up to 15% of one’s paycheck.  While you may be able to challenge the garnishment under certain circumstances, but in the meantime, do you really want your employer to know you are in serious trouble with your loans and financial management?

7) Any co-borrowers/signers are in trouble too.  Anyone who co-signed a student loan is on the hook for 100% for the balance.  It doesn’t matter if it is a relative, friend, stranger; anyone that puts their name on the loan contract is then liable for whatever is left/accrued on the loan.  Simple.

8) One can be sued.  Lawsuits are less common with federal loans than with private ones. (After all, why would the government sue when it has so many other ways to collect?) But a lawsuit is always a possibility especially if you ignore your student loans.  If/when sued, it is advised to seek the help of an attorney experienced in student loan law to raise a defense against the lawsuit and come to some agreed resolution.

Essentially, one in default will be haunted by this debt for life.  It may sound blunt, but it’s the reality and better the devil you know.  There is no statute of limitations on federal loans, which means there is no limit on how long you can be sued and it simply does not go away.  State statute of limitations do apply to private student loans, however, limiting the amount of time they have to sue to collect.  But it doesn’t stop them from trying to collect — and if one doesn’t know their rights it may go on indefinitely.

But What if You Can’t Afford to Pay?

For starters, get your free annual credit reports to see where things stand.  Personally, I like and use CreditKarma.com.  It’s free, secure and easy and will give constant monitoring and one will have a clear understanding of how debt is affecting credit.  There’s also the National Student Loan Database to track down your loans.

For federal loans, you can get back on track with a reasonable and affordable payment plan.  Programs available for federal loans such as Income-based Repayment (IBR) that allow some borrowers to qualify for a lower monthly payment based on income, and then discharge the remaining balance after a certain number of years of repayment may be an option.

For private loans, talk with an attorney who understands how to discharge certain private student loans in bankruptcy.  It can be tough to qualify and it’s getting more difficult, but not impossible. If that’s not an option, you may be able to try to negotiate a settlement?

While it’s never a good idea to ignore loans, there are times when a borrower simply cannot afford his or her loan payments. Fact of life but if ever in said situation, remember to prioritize.  Federal loans are more important than private ones.  Ignoring any debt/loans can be painful and have negative consequences to your lively-hood, but doing so at the federal level is life-long.

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What’s Missing in the College Experience? Part 1 of 4

April 8, 2014 Leave a comment

"Help! Interest? Vested? Taxes? Huh...?"

“Help! Interest? Vested? Taxes? Huh…?”

Recently, while meeting with our intern, Eli Lisseck ’13, we were discussing his transition from four undergraduate years at Oberlin to the present, where he is now actively engaged in his job search.  I asked him, now that there is some time in the rear-view mirror, to look back and reflect on his four-years of quality education and its application to his reality today.  In this 4-part article, examining, what he thought, shortcomings to the college experience and my personal observations having worked in such for 20 years, we discuss these areas and talk about what educational institutions could do better in preparing students for transition to independence and adulthood.

When asked, he said; “one thing pertaining to the job search that I have observed changing recently is that it never ends. With communications technology rapidly advancing, even people currently at a great position always have the antennae tuned in for new opportunities, just in case. The relatively new culture of rapid job switching and constant job searching puts even more weight on crucial job search skills, and relevant life skills related, than has existed in the past.  There are a few crucial actions to consider, and steps to take, that I wish I had learned a couple of years earlier than I did.  None of these things are particularly difficult to begin doing, but practice certainly helps tremendously.  I hope that thinking ahead will give students about to graduate a head start compared to recent graduates such as myself who have had to pick these skills up as they became relevant, rather than being prepared.  What follows is a list of four ideas, in no particular order, that I feel would benefit students if they were incorporated into undergraduate learning processes.”

Part 1 of ‘What’s Missing in the College Experience’ – General Financial Acumen

“After paying incredibly high tuition for four years, a student should at least have an idea of how to succeed outside of school. Students are first and foremost trained to continue inside the academic world, but many students will not be academics forever. Colleges want successful alumni, and students want to live on their own, so it seems like some required class about finances is pertinent. It doesn’t have to be complicated, just the ins and outs of filing a tax return and how to budget oneself when planning around employment.  An astounding number of recent graduates will forget to budget for healthcare, utilities, tax withholding, and the like when considering their potential income, and struggle later because of it.” (Eli Lisseck ’13)

As supporting anecdotal ‘evidence,’ in an endearing sort of way, one student I had, who accepted a job offer and moved to NYC, related her experience to me that was both funny and inexplicable at the same time.  She was a graduating senior, and a savvy one at that, from Mount Holyoke College and was majored in Economics.

She got her apartment and had that secured at least.  On moving day, she was handed the key by the land-lord and started to move in all her belongings. Walking in she flipped the switch in the entry hall and the light did not come on.  So she flipped it several times.  Nothing.  After setting her stuff down and out of the way, figuring it to be a dead bulb she went and got a light bulb from another spot in the apartment and switched it out and flipped the switch again.  Nothing. Enterprisingly, she then went out and bought a box of light bulbs and came back and started to swap them with the ‘dead’ bulb thinking this should be an easy fix.  Nothing, as expected to an outsider at least.

The reality was that she, in her life-time, every time upon flipping a switch, something was to happen!  She had no concept that one had to start an account with the utility company and it had never occurred to her to inquire as it had been a constant presence, like the very air that she breathed, in her life.  Again, for her entire existence on this planet, something happened when she flipped a switch so who knew?

Much of her story highlights the fact that graduates, or soon-to-be, ‘don’t know what they don’t know’ until it’s either presented or experienced first-hand, with the latter sometimes being too late. This is very apropos to the plight of many college graduates today as they seemingly have no concept of the issues of personal finance and related terms and topics such as; taxes, gross and net pay and what the differences are?  No understanding of the litany of potential benefits that employers may offer in a job and how each of these can play out? Investments and the power of compounding.  The majority have no idea what ‘compounding’ even means?  The fact that a landlord might want first, last month AND a security deposit before they can even set foot in an apartment? What the term ‘vesting’ means? And this is many times Economics’ majors, yet.  How about the fact that credit cards are not ‘free money’ and need to be paid back, with interest yet? What’s interest and why are they allowed to collect that? Remember all those student loans?  Well in November of the graduating year, the note holders show up at the door wanting it to be repaid. Oops, forgot to budget for that!  That renter’s insurance is a necessity when they move out on their own, thinking that the building ‘must be insured, so my belongings must be too…?’

There is an incredible lack of financial understanding and it can have large ripple effects on their navigation of life post-college. For many years I’ve taught workshops and presentations on personal finance, budgeting and understanding benefits offered by employers, etc…  These workshops have always been, historically, well attended and feedback almost universally of appreciation and thanks.  For many, these presentations are kind of deer-in-the-headlights sort of endeavors as students would sit there bewildered, perhaps having a new appreciation for what their parents have navigated to get their sons or daughters to this point in their education.  Some of the more common observations I’ve had are that students have no understanding of the language and machinations of how money & finance works on either the micro or macro scale.

Sadly, this series of workshops on finance that I have done for the colleges, were never a mandated part of anyone’s curriculum and it should be.  It was simply a need that I had witnessed so put it up on offer.  There is no reason or excuse that a student leaving college has no concept of personal finance, taxes, benefits, how to balance a checkbook even.  It really would be a simple addition, if not an all-out mandate, to one’s four-year experience. In fact, the cost-benefit of such is a huge consideration in that graduating students, future alumni/ae, can look back and say that they were ‘better prepared.’  No matter as to one’s major; if it be Economics or Dance, once departing the hallowed halls, they need to be able to understand how it all relates to function in the world they choose to live.  What’s critical, in my view, is that each student leaves college with an understanding of personal finance and how it relates to their transition to the working world.

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Being a New College Graduate Means You are…

April 2, 2014 Leave a comment

Pew Economic Report for New Graduates

Pew Economic Report for Young College Graduates

Facing an unprecedented amount of debt – According to The Institute for College Access and Success (TICAS) Project on Student Debt two-thirds of the graduating class have debt waiting for them at door after graduation with the average borrower graduating approximately $26,600 in the red. In total, student loan debt is amounting to over $1 trillion. $1.2 trillion to be more specific. Think of that number for our new graduates entering the workforce and the economy as a whole. Of this $1.2 trillion in student debt, about $1 trillion is in federal student loans. This figure does not tell the full story, however, as the $1.2 trillion does not include funds students must divert away from retirement savings, parent borrowing, or credit card debt. While a tie for federal student loan interest rates to the market is of some help, lowering the current rates for undergraduate students from 6.8 to 3.8%. But if and as the market climb, these rates will also climb until they reach a cap of 8.25%.  By TICAS calculation, this may cost families $715 million more over the next 10 years.

What does the lower number of 3.8% interest actually translate to for students? If we go back to that average figure of $26,600, compounding for interest year over year using the 10-year-payback plan that is the standard, the total cost of your $26,600 loan is now closer to $40,000.  Break that down by monthly payments and you are looking at about $320 per month going toward student loan payments.  In the end, the opportunity cost of the education itself is almost $40,000 in addition to what’s already been out of pocket for tuition, room, board, books, food, etc.  Every dollar now owed is a dollar delayed in terms of the down payment on a house. Money put aside for retirement or investments.  Dollars sacrificed for the next generation’s needs.

Facing an improved economy but – for every position offered by an employer, not only are the new grads in competition with each other, but facing increasing numbers from laid-off, displaced and/or career changing job-seekers that, in addition to a college degree, offer a tangible employment history and applied experience. With that new competition, increasing numbers of recent college graduates are ending up in relatively low-skilled jobs that, historically, have gone to those with lower levels of educational attainment. This is having a push-down effect where those with only a high-school degree are now being displaced by college graduates.

In fact, the proportion of ‘over-educated’ workers in occupations appears to have grown substantially; for example in 1970, fewer than one percent of taxi drivers and two percent of firefighters had college degrees, while now more than 15 percent do in both jobs; The figures are based on an analysis of the 2011 Current Population Survey data by Northeastern University researchers. They rely on Labor Department assessments of the level of education required to do the job in 900-plus U.S. occupations, which were used to calculate the shares of young adults with bachelor’s degrees who were “underemployed.”

About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in well over a decade.  In 2000, the share was at a low of 41 percent, and this was when the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.  The result is that if you look at employment broken down by occupation, young college graduates were heavily represented in jobs that merely require a high school diploma or even less.  The barista serving you coffee with the Ph.D is no longer an urban myth.

Faced with ‘new’ employer skepticism – As more and more news reports and pundits attempt to explain the plight of current prospects for new graduates, another, new-ish court is being heard from more and more; the employers.  They say that college students, in general, are entering the workforce, or trying to, with a double whammy working against them; coming in the door without the skills needed to hold down or perform a job AND, in addition, unrealistic expectations about the job itself and the requirements the employer is needing. This means that in a soft job market like we’re now experiencing, recent graduates are facing not only stiff and varied competition from experienced workers re-entering the workforce but also new, budding skepticism from the employers with the (limited) jobs on offer.

According to Inside Higher Ed, more students have struggled to make their mark in a depressed job market and this has raised the obligatory questions about the intrinsic employment value of a college degree?  In the same correlative breath has the concern that new graduates are not equipped to function in the work place and are not meeting employers’ expectations and needs.  A new survey reaffirms that quandary.  In the report, “Bridge That Gap: Analyzing the Student Skill Index,” only half of college students said they felt very or completely prepared for a job related to their field of study. In contrast, and perhaps even more telling, even fewer employers – 39 percent of those surveyed – said the same about the recent graduates they’d interviewed in the past two years.  The fact of the matter is that the latter percentage, whether real or perceived, is the benchmark as they, the employers, are the ones hiring.

The most ‘educated’ but the least well prepared – As the more scrutinizing lens of a poor economy starts to look for answers, many have argued that colleges and universities aren’t doing enough to prepare their students for the work force.  This is true; sort of…  I would have to agree with that assessment and I don’t mean in a way that condemns the educational institutions’ intentions.  The problem is that the ‘system’ is not built where the idea of higher education and its synthesis of development and ’employ-ability’ are best intertwined.  In most cases, for example, representative career service offices tend to be an isolated campus entity.  Either an overbooked office that doesn’t have the resources and staff time to effectively work with students navigating their career path OR an office that can go underutilized or flat-out ignored by the campus community.  I’ve seen and experienced both and both are a disservice to the very client’s they try to serve.  In the past couple weeks I have spoken with several soon-to-be graduates and the common question asked is “have you been to your campus career center?” Invariably, the answer seems to be either ‘no’ or ‘yes, but only one or two times.’

What’s missing is that colleges need to be systemically embedding career development into the fabric of the undergraduate education.  This is a difficult task as many a faculty department will fight the ‘vocation’ label and/or expectation tooth & nail.  This is changing as new members replace the incumbents understanding the new economy and its demands but it is a slow evolution at best.  If this were to come to fruition, an organic and institutional embedding of course and career, not only would this better prepare students for life after college, it would help to justify the value of a liberal arts degree, or any degree for that matter especially as outcomes are becoming the new quantitative rage.  

To qualify, this post is not meant to simply and merely highlight the negatives facing our soon-to-be-freed graduating class, but instead to shed some light on the realities being faced, not just by the current generation, but all generations as there is a systemic, ripple-effect that reaches out and affects us all.

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