Wednesday, February 25, 2015

A different take on student loan defaults

Stereotype: student loan debt is at all time high levels and is now larger than credit card debt.  Defaults are rising mainly because of the rising cost of four-year colleges and graduate schools.  

Not so fast, says the NY Fed in a post yesterday on Marginal Revolution.  It turns out that default rates are highly correlated with balance due at the end of schooling.  The default rate is over 30% among those with a balance of $5k, whereas it is between 15 and 20% for those with a balance due of $100k or more.  Those with very high balances tend to be those who completed school, whereas those with the lowest balances tend to be predominantly those who lasted only a semester or two.  

Turns out that there are a lot more student borrowers in the low balance category (72% owe $25k or less) than the high balance one (3% owe $100k or more).  One of the commentators on the NY Fed blog offers a possible explanation of what is going on:
Bad credit seems to correlate with bad academics. Many seem concerned more with paying bills than paying education. Sometimes they are just out of jail and no one will hire them. Their probation requires they work or get a job which the later is nearly impossible. Other times we have people so deep in the hole in debt already that the student loans was a way to buy more time. The word is out if you have bad credit and are desperate for funds just go to a community college where tuition is low and borrow the maximum. We noticed in our data pull many students graduated from high school or received their GED up to 10 years ago or more! 
I should emphasize that correlation is not causation, but these results raise serious questions about how the US is structuring its student loan programs at the federal level.

Friday, February 20, 2015

Raleigh labor market #3 in US

According to the latest ratings in Forbes, Raleigh clocks in as the #3 labor market in the US out of 150 metropolitan areas.  Yet another reason to come here to get your MBA!

Thursday, February 19, 2015

Walmart boosts wages

Big news from Walmart, on top of falling prices we now have rising wages!  Today the nation's largest retailer announced that it was going to make sure that all of its US workers would earn at least $9 an hour by April.  According to NYT, this is likely to affect half a million employees.  It will certainly be a big boost to those earning the minimum wage.

Walmart's motivation is most likely competitive pressure.  The unemployment rate keeps dropping, which means employers are competing for fewer applicants.  Walmart's move is likely to put more pressure on firms such as Target and Home Depot to raise pay.

There also is a chance that the wage increase pay for itself.  As MBA 505 students know, a higher wage reduces turnover and thus reduces hiring and training costs.  A higher wage also should be associated with higher standards for individual productivity.

Tuesday, February 17, 2015

MBA alum recognized by CNN Money

Scott Bolin, an NC State Jenkins MBA from the class of 2012, is the subject of a CNN Money story on Five Startups that are Reimagining the World.  Scott is co-founder of Tethis, a company that has developed a way to treat wastewater.  Applications range from fracking to city sewers.  Tethis has raised almost $2 million from investors.

Scott concentrated in entrepreneurship in the MBA program and has been able to put what he has learned into practice.  Typical NC State -- Think and Do!