Business Beat: Craig Allen

A recent study conducted by the consulting firm McKinsey & Co. in conjunction with online student hub Chegg and involving more than 4,900 graduates, most of whom finished college between 2009 and 2012, suggests that college grads are growing increasingly disillusioned with their ability to secure employment with their degrees.

Graduates are finding that, despite having completed all requirements for their degrees, they are unprepared for the practical requirements of today’s demanding and specialized jobs. There is clearly a sizable gap between traditional college degree programs and the needs and expectations of employers.

As a professor for the University of Phoenix for the past four-plus years, I’ve witnessed the evolution of the business of education, as providers migrate to the online format. Along with this shift in the delivery format of education, the scope and structure of degree programs have begun to shift away from the traditional to a more job- or career-specific focus. Schools like the University of Phoenix are on the cutting edge of this change. But change is slow to come, and does not occur without significant challenges.

In the time I have been teaching, or facilitating, as my role as a University of Phoenix professor is referred to, I have witnessed many format changes, as the university tests various teaching formats and technologies. It is clear that the process is evolving quickly, and that it is still very early in the evolution of the online educational format. Where I think schools like UOP are excelling is in the flexibility that the online format offers for students — those with demanding work schedules, children and health challenges, and even members of our military serving overseas — who are, for the first time, able to progress through the educational process while still living their lives, earning a living, and attending to their responsibilities.

One of the toughest challenges for many of these online programs is the considerable costs, as online degree programs are some of the most expensive. According to American Student Assistance, a nonprofit organization assisting students with student loan information, about 20 million students attend college each year. Of those, about 12 million, or 60 percent, use student loans to pay for college expenses.

There are approximately 37 million people in the United States with student loans today. As of the first quarter of 2012, the under-30 age group has the most borrowers at 14 million, followed by 10.6 million for the 30-39 group, 5.7 million in the 40-49 category, 4.6 million in the 50-59 age group and the over-60 category with the least number of borrowers at 2.2 million, for an overall total of 37.1 million. (Source: Federal Reserve Bank of New York)

There is roughly $1 trillion in total outstanding student loan debt in the United States today. Roughly $864 billion is outstanding federal student loan debt while the remaining $150 billion is in private student loans. (Source: Consumer Financial Protection Bureau). As of the first quarter of 2012, the average student loan balance for all age groups is $24,301. About a quarter of borrowers owe more than $28,000; 10 percent of borrowers owe more than $54,000; 3 percent owe more than $100,000; and less than 1 percent, or 167,000 people, owe more than $200,000. (Source: FRBNY)

Among all bachelor’s degree recipients, median debt was about $7,960 at public four-year institutions, $17,040 at private not-for-profit four-year institutions, and $31,190 at for-profit institutions. (Source: College Board) Of the 37 million borrowers who have outstanding student loan balances, 14 percent, or about 5.4 million borrowers, have at least one past-due student loan account.

Of the roughly $1 trillion in outstanding student loan debt, approximately $85 billion is past due. (Source: FRBNY) The official FY 2010 two-year national student loan cohort default rate rose to 9.1 percent, up from 8.8 percent in FY 2009, while the three-year rate declined slightly to 13.4 percent from 13.8 percent. (Source: Education Department)

Only about 37 percent of federal student loan borrowers between 2004 and 2009 managed to make timely payments without postponing payments or becoming delinquent. For every student loan borrower who defaults, at least two more borrowers become delinquent without default. Two out of five student loan borrowers — or 41 percent — are delinquent at some point in the first five years after entering repayment. As of October 2012, the average amount of student loan debt for the Class of 2011 was $26,600, a 5 percent increase from approximately $25,350 in 2010. (Source: Project on Student Debt)

Clearly student loans place extraordinary burdens on a large percentage of college graduates today. The financial challenges of student loans often limit the recent graduate’s employment options; they are forced to only consider jobs that pay enough to cover living expenses plus the additional student loan payments. This challenge can not only make it significantly more difficult for the jobseeker to find work, but can also force the person into a career path can lead to dissatisfaction, depression, relationship issues, etc.

The McKinsey/Chegg study also found that more than half (53 percent) of participants said that they would “do things differently if they had to do it all over again,” choosing a different major or a different school. This study also found that a third of graduates “did not feel college prepared them well for employment.” Half of graduates said when evaluating a school before applying, they did not consider graduation, employment rates or starting salaries of alumni when selecting a school or degree program. Former Education Secretary William Bennett, in a recent book, questions the value of attending the vast majority of colleges, stating that only 150 of America’s 3,500 colleges are actually worth attending.

It is clear from the research and statistics, and from the opinions of a large percentage of recent college graduates, that more needs to be done to better prepare students for real-world job requirements. In the courses I teach, I strive to include as much practical knowledge and the direct connections between the course work and actual career-based financial and economic concepts as possible.

One of the courses I teach is a financial planning class, which not only offers practical applications of key financial concepts for careers, but is also highly valuable for personal financial challenges and goals. (One of the key concepts we cover is, in fact, the understanding of student loans and the challenges associated with the repayment of these loans.)

Although career demands and the requirements of employers is a moving target, more must be done by colleges and universities and at the individual course level by professors, to better prepare students for jobs in the 21st century. As technology takes the lead in the evolution of the educational process, in terms of the delivery format, educators need to find creative ways to marry practical, real-world concepts and the application of traditional concepts to real-world job requirements.

I am encouraged by what I see from a technology standpoint, but not by the pace of changes to the industry. The faster educators accept the reality of career demands and the practical necessities of the educational process today, and make the necessary changes to degree programs, the sooner college graduates will improve not only their chances for a fulfilling career, but for a more fulfilling life.

Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at or 805.898.1400. Click here to read previous columns or follow him on Twitter: @MPAMCraig. The opinions expressed are his own.