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College Degrees Still May be Worth Increased Expense of Education; Technology Developing Towards Internet of Things; Project Calls on Business to Act Against Global Warming; Masdar City World's Greenest City
Aired June 28, 2014 - 14:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: The debate is over. College is worth it after all. I'm Christine Romans. This is CNN MONEY. Two important new studies this week conclude if you are not heading to college you are risking your financial future. First, the Federal Reserve Bank of New York, it finds the rate of return for a bachelor's degree has hovered around 15 percent since 2000. Tuition has been rising and wages are stagnant, but that rate of return has held pretty constant.
What about one-third of college grads working as baristas or retail clerks, the so-called "mal-employed." The study finds that even they earn more and stay employed longer than workers with just a high school education. But what about that $1 trillion of student loan debt? Rates on government loans are set to rise next week for new borrowers, but a Brookings Institution study this week suggests that not everyone is drowning in all that debt. Only seven percent of young adult household owe more than $50,000 in student loans, 58 percent have less than $10,000 in debt. That is on its surface a manageable amount. The message is, it is up to you. You have to pick the right college and right major. You can't take on too much debt. You have to finish. The real debt crisis is the students who borrow but don't graduate. And you have to save for it. And that might not include help from your parents.
Another survey out this week finds 77 percent of parents say they plan to help their child pay for college. That is down from 81 percent last year.
Jeff Selingo is the author of "College Unbound" and a contributing editor to the "Chronicle of Higher Education." Andrew Rossi is the documentary filmmaker behind "Ivory Tower." It's in theaters now and will be broadcast by CNN films in the fall. Jeff, let me start with you. Is the bottom line here that college is worth it with a big asterisk, only if you aren't one of the debt outliners, only if you finish, only if you have a major that happens to be rewarded in the economy right now?
JEFF SELINGO, AUTHOR, "COLLEGE UNBOUND": In this economy you need an education after high school. That is definitely true. But the problem is many students go off to college because they are not sure what else to do after high school. And 400,000 of them drop out of college every year. And those are many of the students who are thousands of dollars in debt and don't have anything more than a high school diploma and are having trouble getting a job and having trouble paying off those loans. So yes, there are a lot of caveats to this. But the biggest problem here is that we have excessive debt from a lot of students out there, and that is the issue we should be focused on right now.
ROMANS: Andrew, I want to bring you in here before we play a clip of your film. We want to point out that the Brookings Institution study, that's households ages 20 until 40. Some of those are technically gen-x. They might not have the big debts that younger students are, and really over the last few years that student debt has really spiked and might not be captured in some of these most recent numbers.
ANDREW ROSSI, DIRECTOR, "IVORY TOWER": That's exactly right. That study is based on 2010 data. And what we actually see is that for the class of 2014, 70 percent of students from public and private schools are graduating with an average of $33,000 in debt. That is an amount that is hard to carry. The other thing we should look at is that it shows that the repayment term for those loans has actually doubled in the amount of time. So whereas students previously maybe were holding their debt for seven years, now are holding it for upwards of 14.
ROMANS: That delays house creation and people getting married and it causes a lot of other ripples down the road. I want to take a look at a clip from your movie "Ivory Tower."
(BEGIN VIDEO CLIP)
ANYA KAMENETZ, "GENERATION DEBT": A lot of the older generations that criticize the millennials grew up at a time when you could go to a state university and pay your way through with summer jobs. These millennial children then got to college and realized the money is not there to pay for me. I'm not going to be able to graduate into a cushy job. And in fact everything that I was told about the way that the world works turns out not to be the case.
(END VIDEO CLIP)
ROMANS: What has changed for this generation?
ROSSI: What is really happening is that the financial model for nonprofit higher education is unsustainable and tuition rates are rising at a stratospheric rate. Since 1978 the cost of college has gone up by 1,120. So every single year we see students needing to take out more loans, a greater amount of them. But the entire situation has become unsustainable.
ROMANS: Jeff, let's talk about the students who drop out. They have the debt and no degree to show for it. That seems to be a real, real problem, some of these kids sometimes are going to colleges and don't have the math and reading skills and then they are behind, and then they're paying all of this money for what they should have learned in high school. Is it the college's fault, the students' fault, families not preparing? Whose fault is it when they don't finish?
SELINGO: I think everyone is to blame in some way, colleges for accepting the students in the first place, for high schools for graduating them. But we also have a cultural issue here in that when you graduate high school in the U.S. there are very few choices. You can go to the military, and that's a declining option. You can go and get a job and not a very good one, or you can live at home. So I think many students go off to college at 18 as kind of a convenient warehouse because there is nowhere else to go. And that's what we need to change. We need to come up with more options post high school on the way to college. Not that they should never go to college, but more options on the way to college.
ROMANS: I worry you with going to see two Americas, the inequality within the college graduate system. You have some graduates who don't have a lot of debt and maybe have a strategic major, and others who maybe learned a lot but they are not going to find their place.
ROSSI: That's absolutely right. The stratification in our society is just increasing. That is actually one of the reasons why we see the college degree having so much value is partially because the wage rates for those with only high school diplomas continue to stagnate and in fact decrease. So the question becomes what is the intrinsic value of the B.A., of the college degree and the college experience. What do we want our young people to get out of this bridge between adolescence to adulthood?
ROMANS: Is there a quick answer for those parents who say my kid is exceptional, he or she doesn't need to go to college? There are some of those people who don't.
ROSSI: Sure. I think there is an increasing reduction in the stigma associated with not going to college. It is becoming more acceptable to say my child has an interest in the arts or athletics or perhaps in technology particularly, and they can see a future where not having that diploma on their resume will not be a complete barrier to options.
ROMANS: But for the typical American --
ROSSI: But for the typical American, it's true, median lifetime earnings are about $1 million higher for those with a B.A. versus only a high school diploma.
ROMANS: Gentlemen, fascinating. Andrew Rossi is the documentary filmmaker behind "Ivory Tower." Jeff Selingo is the author of "College Unbound." Guys, thanks so much. We will be talking about this more, I'm sure.
Coming up, one former treasury secretary calls it a wicked, cruel crisis. Another says companies should disclose this growing risk in SEC filings. Just what is it that has these two former stewards of America's economy so worried? That's next.
WHITFIELD: What if you knew the 2008 financial crisis was coming, you knew what was happening and knew how to stop it? Two men once in charge of safeguarding the U.S. economy, they say a moment like that is here. Henry Paulson and Robert Rubin served as treasury secretary under presidents George W. Bush and Bill Clinton respectively, a Democrat and Republican. In 2008 it was an excess of debt that threatened to destroy the global economy. Today these former treasury secretaries say an excess of greenhouse gases. Rubin and Paulson are members of the Risky Business Project, a who's who of billionaires, business leaders, and former cabinet members from both parties calling on business to take action on climate change.
ROBERT RUBIN, FORMER TREASURY SECRETARY: The pressures on business to think short term are tremendous in our system because markets tend to focus on the short term.
HENRY PAULSON, FORMER TREASURY SECRETARY: That is really what makes this such a wicked, cruel crisis because this --
ROMANS: The financial crisis in 2008, there are similarities, you say?
PAULSON: Of course, there are similarities because excesses are building up, and it's greenhouse gases. But don't forget the important difference, because as bad as the financial crisis was, the government could come in at the last minute and take action. And, of course, CO2 emissions is cumulative. And so the longer you wait you just are guaranteeing that you will have to deal with some of the worst outcomes.
RUBIN: Risks that are catastrophic, risks that can really change, and I mean this literally, not figuratively, change the way we live life on earth with respect to our economy is a risk we simply cannot take. Once those risks start to materialize, once the events actually start to happen, and that point you can't turn the process off.
PAULSON: Business, I believe, need to show more leadership of the actions they are taking to protect themselves from the more immediate impacts of climate change. We will have to invest in resilience, but also they are going to have to, I believe, that they should press their national government to take policy action.
RUBIN: Under current law, which has been the case for a long time, the SEC required exposure to material risks. This is a set of material risks that should be included in the disclosure requirements of the SEC, and if it was business would plan accordingly because they were being required to disclose and investors would have better sense of the risks that they face and they would act accordingly.
PAULSON: No one knows what the outcome will be. We are dealing with risks. And we need to take out risk insurance. And the fact that this study uses risk modeling methodology that is widely accepted by business I think will make a big difference.
ROMANS: Of course addressing climate change would add costs for companies at a time when the U.S. economy is underperforming. You might call it the barbecue economy, low and slow. Looks pretty good on the surface. Stocks not far from record highs. The S&P 500 up almost six percent this year. Horrific first quarter gross domestic product, but economists are predicting a solid second quarter snap back. And housing is back. Home re-sales climbed nearly five percent last month. New home sales jumped to a six-year high, but home prices aren't rising as fast as they were. It's the low and slow barbeque economy. Ask President Obama and he at least wants credit for making progress.
(BEGIN VIDEO CLIP)
BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: In the aggregate when you look at the country as a whole, by pretty much every measure the economy is doing better than it was when I came into office, and in most cases significantly better.
(END VIDEO CLIP)
ROMANS: A key part of his economic agenda for the next couple of years, to raise the minimum wage to $10.10 an hour, something the U.S. Chamber of Commerce, a powerful lobby for U.S. business, opposes. Here is Myron Brilliant, the chamber's executive vice president.
(BEGIN VIDEO CLIP)
MYRON BRILLIANT, HEAD OF INTERNATIONAL AFFAIRS, CHAMBER OF COMMERCE: Our economy is soft. We have grown but not growing at the rate we need to. We need to go up three, 3.5 at least percent. We're not there. And if we are going to take measures that would perhaps restrain companies from hiring people, that is not good.
(END VIDEO CLIP)
ROMANS: Brilliant calls the president's economic record mixed.
Coming up, that thing on your wrist, your smart phone, your car, all communicating with each other. Like it or not it is the hottest trend in tech. We are going to show you what is next for the Internet of things.
ROMANS: The Internet of things is the next mega trend in tech. That's according to new report from Goldman Sachs this week. Here's what that landscape looks like. Wearables, cars, and homes are at the core, with support from you, the connected consumer. As the trend grows entire cities and industries will also use the Internet of things to do business.
But this isn't some futuristic idea. It's already happening. This week two companies made big moves to advance the trend, one you know, and one you may not know. "CNN Money" tech correspondent Laurie Segall joins us, and "CNN Money" business correspondent Cristina Alesci. She is also here. Cristina, GoPro when public this week. The stock jumped the little tiny mountable cameras from a little startup to a billion-dollar company. You talked to the CEO. How does GoPro keep growing? CRISTINA ALESCI, CNN MONEY BUSINESS CORRESPONDENT: The GoPro story
really resonated on Wall Street. The shares sold at the top end of the proposed range. And then after that we saw the stock go 30 percent increase on the first day. That really speaks to the excitement on Wall Street about this company. But let's not -- remember, Wall Street bought this on backward looking data. We had $1 billion revenue in sales on this product, which is phenomenal numbers for an upstart company. But now the question becomes, how do you grow that going forward? One of the ways GoPro hopes to do that is by actually monetizing the content, the actual imagery in the film. So I asked CEO Nick Woodman, how did you make this idea, or how did you come up with this idea from transition from a hardware company into a media company?
(BEGIN VIDEO CLIP)
NICK WOODMAN, GOPRO CEO: When we looked at why GoPro was growing so quickly and exceeding our forecast we recognized that this phenomenon was happening where when our customers were capturing and sharing compelling content and crediting GoPro for it, tag, titling and describing their content as being captured by GoPro. That was virally driving awareness and enthusiasm for our brand and for our products.
(END VIDEO CLIP)
ROMANS: He is the founder, right?
ALESCI: He is the founder.
ROMANS: So he is super rich now.
ALESCI: Absolutely. On paper he has well over $1 billion still in the company. But he also took some money off the table, which is a little bit unusual, because when we see these very hot tech even Internet stocks, when we see these hot companies go public, investors generally don't want to see the founders selling on the first day. But even still this guy was able to sell, his family members were able to sell, and investors were still interested in the future of the company.
ROMANS: If you can make it from a wearable technology to something bigger, connected, more connections. Laurie, Google hosted its annual developers conference this weekend and unveiled a new smartphone, platform for cars, even some cardboard virtual reality goggles. Google is always pushing its innovation. Was there something there to change my life tomorrow or is this a big advertisement for all things Google?
LAURIE SEGALL, CNN MONEY TECHNOLOGY CORRESPONDENT: Look, this is their developers conference. They want to make a splash and want all their developers to build on this platform.
But you know they come out there and have the smart watch and say you will be able to order pizza from here and order a cab and it's going to connect to your TV and car. And that sounds interesting. Will people do that? That is to be determined. But what I think we can take away from here is Google wants to be the
platform for this connected trend. And this isn't a trend. This isn't going anywhere. Our lives are becoming more connected. Our homes, our cars are becoming more connected. And really what Google said here is we want to be the layer behind that. We want Android to be the layer that connects the world.
ROMANS: So interesting. Thanks guys.
Coming up, a nation known for producing oil is going green, really green. We'll take you to the world's most sustainable eco city, next.
ROMANS: You notice it when you drive down the street, walk into the airport, or take a train -- U.S. infrastructure has problems. It gets an overall grade of D-plus from the American Society of Civil Engineers. That groups says it will take $3.6 trillion to fix everything. Last week Commerce Secretary Penny Pritzker told me the big fix is crucial to our economic future.
(BEGIN VIDEO CLIP)
PENNY PRITZKER, U.S. COMMERCE SECRETARY: We do have to do some things. We do have to invest in infrastructure. We are on a trajectory to have 100 million travelers, foreign travelers to the United States, which also creates good jobs in this country, but we need to have airports that can handle that. We need to have roads that can handle the growth in goods and services.
(END VIDEO CLIP)
ROMANS: America isn't keeping up as other countries pour money in their infrastructure while saving millions on energy costs. The United Arab Emirates, one of those countries, oil money have driven the investments, but what is being built in Abu Dhabi is unlike anything in the world. CNN's Erin Burnett takes us to Masdar City.
ERIN BURNETT, CNN CORRESPONDENT: About 20 miles outside Abu Dhabi, Masdar City is striving to be the greenest city on earth.
TONY MALLOWS, MASDAR CITY DIRECTOR: I think the city of the future is going to be based on people walking to where they live, to where they work, and to where they play.
BURNETT: And if you aren't walking, city director Tony Mallows says you can take a magnetically controlled car wherever you need to go.
This is a little car.
MALLOWS: This is personal rapid transit. This is how you get around the city. It's driverless. It's electrical. It's solar powered. It comes you want it and takes you where you want to go, and you leave it alone. BURNETT: It is driverless.
BURNETT: Navigating the city's 2.4 square miles is relatively easy.
This is a dream of what the future can be. Is this really going to be more than a demo?
MALLOWS: It is the model for urban development, but it's really sustainable. It's not only environmentally stable, it's socially and economically.
BURNETT: Fewer than 500 people live here. That falls far short of the goal of 40,000 next year, a goal set at the peak of the economic boom. Right now about 1,200 people work here every day in buildings that are specially designed to help reduce water and energy consumption by as much as 40 percent according to city officials.
We have learned over time with some of the successes and failures that you have had that zero emissions is the goal, but, I mean, that is not extremely reasonable at this point.
MALLOWS: Zero emissions is being proven to be very, very difficult.
BURNETT: With more than 87,000 solar panels, the city produces its own electricity, offsetting 15,000 tons of carbon emissions a year. City engineers say that's the equivalent of taking about 3,300 cars off the road in Abu Dhabi. And walking around the city, innovations can be seen everywhere.
You are looking at wind power, which is a traditional Arabic design, to cool, right?
MALLOWS: Yes, absolutely. You take the traditional Arabic element on cooling, totally sustainable, and then you use modern technology to make it even more efficient.
BURNETT: The Masdar Institute is also partnered with MIT to develop new renewable energy resources, like making jet fuel from the seeds of a weed that grows here in the desert.
This is obviously happening here in the middle of the desert. You're ambition or what you are trying to prove is much bigger.
MALLOWS: Absolutely. I mean, globalization is the key to the future, not only because cities are going to attack global warming. We have to understand how to build cities that are low carbon. That's why Masdar City is such an important contribution to globalization and urbanization.
ROMANS: That's something.
Back here at home the U.S. men's national team is in the World Cup knockout round, go USA. And bosses, listen up. Here is a management tip from "CNN Money." Don't think of the World Cup as drain on productivity. Think of it as a chance to invest in your human capital. On Tuesday at 4:00 p.m., game on. Embrace it. It won't happen again for another four years. Your employees will thank you and will probably end up more productive and loyal when it is all over. But for some businesses the World Cup means revenue. Check out CNN MONEY for the latest for the business behind the World Cup, including why a $90 jersey is bringing Christmas in June to one sporting goods chain.
Thanks for watching CNN MONEY. You can find us here every Saturday 2:30 p.m. eastern, and on the web 24/7. Follow us on Twitter @CNNMoney and follow me @ChristineRomans. Have a great weekend, everybody.