As national elections swing into high gear this fall, one thing is for sure: Politicians from both political parties will be making promises. These promises will be grand in scope, short on specifics, and, unfortunately, likely to produce unintended consequences. Moreover, as a society, we will be paying for this many years into the future.
The promise from both parties is a renewed commitment to education, college degrees and other professional credentials, in particular.
This kind of rhetoric is setting the stage for the next big bubble, and the implications for consumers and our economy could be catastrophic. As a business psychologist who evaluates people prior to being hired, the impact of the housing bubble on employment prospects has been apparent and, now, the impact of accumulated student loan debt is becoming increasingly clear.
First a few words on the housing bubble. For more than a generation the well-intended notion that everyone should be a homeowner has been touted by both sides of the political spectrum as a noble ambition. Toward that end, inexpensive funding schemes were promoted along with a variety of exotic financing plans from adjustable mortgage rates to interest-rate only starter mortgages.
Houses sold like hotcakes and their values increased proportionately, thus creating a housing bubble. In their eagerness to make loans, lenders and lending agencies cut corners and "no doc" loans became commonplace. Wall Street, in turn, purchased batches of these loans bundled together as collateralized securities, which allegedly would limit the risk of selected defaults.
However, when these defaults occurred en masse, it set off a chain reaction in the housing market that resulted in the Great Recession. So what is the impact on employment today? Well, many people are underwater as the value of their homes has declined precipitously and now owe more that than the original value of their mortgage. The result is that these individuals are no longer mobile and available to pursue job opportunities out of their geographical area since they cannot sell their homes. In short, they are locked into place.
Not to minimize the terrible impact of the housing bubble, but its old news. The new news will be the bubble being created by the impending volume of student loan debt.
Studies have shown that those with college degrees earn more income over the course of their lifetime than those with only a high school diploma. Hence, politicians are peddling the theme of more education beyond the high school level. Just as there were opportunists who took advantage of people during the housing crisis, there are now opportunists offering eager students easily accessible loan monies to help pay for their education. Unfortunately, problems exist with this situation, which will likely result in another serious economic bubble.
Student loans are being offered to individuals at legitimate four-year institutions of higher learning as well as at professional schools that grant specialized degrees in law enforcement, health services, computer science, and psychology.
A few years ago I was invited to speak at a school of professional psychology's career day and, when asked by a student about the prospects for jobs in the field, I responded that job openings were scarce given the state of the economy. I also added that far more degrees were being granted than the demand for psychological services would ever sustain. Going one step further, I cautioned my audience that the prospects of getting a job that would pay enough to retire their costly student loans -- including the high interest rates -- were very slim.
Warning them that their school and others like it were putting students at risk for debt for the rest of their working lives, I was shocked when I wasn't asked back the next year to speak at the school's career day.
Psychology is not the only field guilty of this problem. Unfortunately, prospective students make the mistake of not asking about placement statistics for their schools. Furthermore, going back to school during a bad economy has long been accepted as a legitimate way to wait out a listless hiring market. Meanwhile, the student loan debt being accumulated during this period of time bodes for a bubble and another ensuing financial crisis.
Being saddled with debt loads will dog people for many years into the future, and the standard of living for these individuals will suffer significantly. Adding to the impending problem is that debts from student loans are not dischargeable in personal bankruptcy proceedings.
As I sit on the other side of the desk and listen to job candidates who cannot move because they cannot sell their homes with underwater mortgages, it is frightening to think about the people who will be entering the workplace with mounds of student loans added to their already burgeoning debt loads.
Burdened with crushing debt loads, the implications for employers will be evident. First, it will add to employees' stress levels as financial worries are a major cause of marital tension with obvious spillover effects to one's job. Second, employees will likely place pressure on their employers to promote them faster or at least raise their pay levels as quickly as possible. Finally, faced with debt, employees will be on the lookout for better paying job opportunities, thereby undermining corporate loyalty.
In closing, as election season is on us, be careful about big-time promises -- no matter how seemingly beneficial or well-intended. As in the past, these promises carry with them unintended consequences and, in the case of our economy, these same promises can also create financial bubbles which, when they pop, cause harm to our nation as a whole.
Dr. Laser is the author of Out-of-Work and Over-40: Practical Advice for Surviving Unemployment and Finding a Job. He is a regular contributor to The Weissman Report, has written articles for top media outlets and industry publications, and has been quoted as an expert by Forbes.com, BusinessWeek.com, CBS MoneyWatch, Huffington Post, Black Enterprise and the Chicago Tribune. For more information, please visit www.laserassociates.net.
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