New student loan program estimates future earnings
Filed under: Money College
In an effort to provide more data for student lending decisions, a company called People Capital has released a new "Human Capital Score" calculator. By providing your SAT scores, college major, and the name of the college you're attending or planning to attend, the calculator will spit out a number (and a range) of what you can expect to earn after you graduate.The score is still in beta so it's strictly a novelty for now, but the ultimate plan is for the score to be used by private loan providers looking to decide how much they can prudently lend to college students.
Students and their families should be extremely wary of this service -- It may be useful enough on average that student lenders can improve their underwriting decisions with it, but you would have to be on more drugs than Michael Jackson the day he died to borrow money for college based on earnings projections. Although making loan money available based on choice of college and major might be a winning strategy for lenders, there is so much variation within those groups that students shouldn't take out money based on either of those factors.
In the FAQ section of the website, People Capital writes that "An engineering major from MIT with high scores and grades will have a high Human Capital Score™ because past engineers from MIT with high scores and grades have on average enjoyed high incomes after graduation. If this particular student plans to join the circus (no disrespect to this particular career path intended, just that it traditionally affords a lower income level) after graduation, the Human Capital Score™ cannot, and does not attempt to, reflect this."
What's wrong with this statement? A large percentage of people embark on career paths that aren't related to their majors. Are you working in a field that's directly related to your area of study as an undergrad? Research suggests that only 55% of college graduates land jobs related to their majors. And even if a student does take a job related to his major, there's a good chance that major will change before he graduates!
Many college financing experts suggest that students borrow for college based on their anticipated earnings. This is an absolutely, horrifically bad idea. First, no one can predict what the demand for college graduates will be in four years, and most students may want to pursue different careers by then anyway. College should be about opening doors and creating opportunities -- not chaining students to the highest paying jobs they can find upon graduation so they can service student loans they thought would be prudent when they were 18 years old.
Reader Comments (Page 1 of 1)
7-08-2009 @ 4:22PM
TI said...
Does it take into account if 1) I am black, white, or Asian? If I can get a job based on affirmative action I can get a job much easier than my white friends. or 2)where I was born....my birth zip code and current zip code? Those would tell you what tax bracket I am in, or my family is in...an indicator of wealth. or 3)how much money my family has? Again this is vastly important. I've had friends get a BA in history, yet their parents own several car dealerships and a 1/2 mile of very important land in Illinois...and while they are not geniuses they are going to make millions over a lifetime. or 4)whether or not my family is in politics and what there office is? Lets face it if my family has a President, Senator or member of the House of Representatives...or if my father is a powerful mayor...all bets are off. I can get ANY job and attend ANY university. or 5)what country am I from? It would matter greatly where I was born. Am I from Uganda and have to return there, I might be involved in subsistence farming wheras if I were from Iowa I might be part of a huge family farm. or 6)what country I plan to work in? Am I Chinese or Indian and am going to work in the United States in the high tech field or am I going to not get a VISA and stay in India or China.
Unless that software looks at all of this then it is USELESS.
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7-08-2009 @ 6:11PM
aawindoze said...
Oh wow, now THAT is messed up dude!
RT
www.anonymize.tk
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7-08-2009 @ 6:57PM
Dan said...
Clearly this author hasn't actually spoken with anyone in college or who has graduated from college, "Many college financing experts suggest that students borrow for college based on their anticipated earnings. This is an absolutely, horrifically bad idea."
No, no, that's a GREAT idea. Any college student should consider what their earning potential in their field will be and make decisions that factor that in. Taking on $100,000 in student debt to start at a $25k/year job that has 40 year veterans making $60k/year is a bad idea, you will never get out from under that crushing debt. This does not mean that you should not pursue a particular career path. Far too many students however, choose to go to a school that is way over priced, and often one that does not offer a better education, than a less expensive public/private university somewhere else.
Just like any other cost benefit analysis potential students must consider the debt to earnings ratio of their college career. Any company that plans on loaning you money to purchase an item does the same thing, and there's a good reason, are you going to be able to pay it back? You're issue seems to be with the lenders asking this question when in fact you should be encouraging students to ask themselves this question.
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7-08-2009 @ 9:06PM
heatherly said...
@ #1: you forgot to include, "Am I a woman?"
Women still bring in an average of 70-something cents for every dollar a man makes (at the same job) in the country that brags so much about equality for all. And the ratio is different for every job.
@ the author: I'm told to never take out a loan without having a clear idea of how I'm going to pay it back. If I'm not basing this decision on projected earnings, how do you suggest I decide how much/little to borrow?
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8-07-2009 @ 11:41AM
someguy said...
I just can't stand that the guy's shirt in the photo has the number buttons in the order of a telephone (1-2-3 on top) instead of a calculator (1-2-3 on bottom).
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