From Debt to Career: Accounting Majors Burst Student Loan Bubble

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1 From Debt to Career: Accounting Majors Burst Student Loan Bubble Susan Cockrell, PhD, CPA Assistant Professor Department of Accounting, Finance and Economics Niesha Wolfe, CPA, MA Instructor Department of Accounting, Finance and Economics Pamela Sharp Meyer, JD, CPA Assistant Professor Department of Accounting, Finance and Economics Austin Peay State University College of Business 601 College Street P.O. Box 4416 Clarksville, TN

2 Abstract From Debt to Career: Accounting Majors Burst Student Loan Bubble Tuition and fees at colleges and universities and, consequently, student loan debt have been increasing dramatically each year. What does this mean to you, the student? How much is your education going to cost? How will this affect your accounting career choice? How will that additional CPArequired year impact the amount of student loan debt? Will you be able to get a job in your career choice? Will your investment in your accounting major pay off? Will you be able to pay off the debt? Is it worth it? This paper will examine and discuss these questions. We offer some thought provoking education, debt management and career suggestions for students to deliberate. This process should empower students with the knowledge needed to successfully manage their journey from debt to career.

3 From Debt to Career: Accounting Majors Burst Student Loan Bubble Unless you have had your head under a rock for the last few years, tuition and fees at colleges and universities and, consequently, student loan debt have been increasing dramatically each year. For the academic year, the average bill for tuition and fees at public, four-year schools increased by 8.3% over the previous year. i These increases, as well as other economic factors, have resulted in the student loan debt increasing by 8% annually. According to the Department of Education, two-thirds of you will graduate with student loan debt; 25% of you will have more than $30,000 and 10% of you will owe more than $44,500. What does this mean to you, the student? How much is your education going to cost? How will this affect your accounting career choice? How will that additional CPArequired year impact the amount of student loan debt? Will you be able to get a job in your career choice? Will your investment in your accounting major pay off? Will you be able to pay off the debt? Is it worth it? Student Loan Debt: How Much Is This Going to Cost? The average student loan debt for the May 2011 college graduates was $27,300 ii. For those of you graduating in three to five years (2014 to 2016), if you project a 7% increase per year then that average student loan debt will be $33,444 and $38,290, respectively. If you use the 150 hour requirement (a fifth year) in order to qualify to sit for the CPA exam, student loan debt would be approximately $34,125 in 2011, $41,805 in 2014, and in 2016, $47,862. Table 1 shows an approximation of the increase in

4 student loan debt through 2021 for both 4-year and 5-year degrees. The table also shows the average debt if both you and your parents have taken out loans iii. Table 1 Estimated Average Student Loan Debt (Using a 7% annual increase see endnote i) Student Loans Student and Parent Loans 4-years 5-years 4-years 5-years ,300 34,125 34,400 43, ,211 36,514 36,808 46, ,256 39,070 39,385 49, ,444 41,805 42,141 52, ,785 44,731 45,091 56, ,290 47,862 48,248 60, ,970 51,212 51,625 64, ,838 54,797 55,239 69, ,906 58,633 59,106 73, ,190 62,737 63,243 79, ,703 67,129 67,670 84,588 Accounting Salaries: How Much Can I Make When I Graduate? According to the Robert Half 2012 Salary Guide (roberthalf.com), companies have increased their hiring of accounting and finance professionals, with the certified public accountant (CPA) being the most requested certification. The recession did have an impact in recent years; however both large and regional public accounting firms are expanding their ranks again. Salaries have also increased, up approximately 3.5% in all positions. The accounting major opens the door to many professions, with various skills, interests, commitment, and, therefore, salaries. The array of possibilities has, at the top, chief financial officer with average starting salaries of $275,000 to $411,000 and, at the base, accounting clerks with average starting salaries of $27,750 to $36,500. For public

5 accounting, average starting salaries range from small firms at $41,500 to $50,000 to large firms at 50,000 to $60,500. Table 2 shows a sample of salaries for various accounting career choices. All of the accounting and finance positions, with the salary ranges at up to one year through manager, are detailed in the Robert Half 2012 Salary Guide. Table 2 Salary Highlights Medium-sized Companies (Robert Half 2012 Salary Guide) Up to One Year Manager Corporate Accounting Internal Auditor 44,000-55,750 78, ,250 Compliance 56,250-74, , ,250 General Accountant 37,500-47,000 65,500-87,000 Cost Accountant 40,000-49,000 67,750-89,750 Tax Accountant 41,500-51,000 71,750-96,750 Bookkeeper 28,500-38,000 42,250-57,250 Public Accounting Audit/Assurance 45,250-56,750 98, ,000 Tax Services 45,250-56,750 99, ,000 Accounting Demand: But, Will I Get A Job? As your professors have probably told you, accounting firms are increasing their hiring and demand is almost at an all-time high. Graduates with degrees in accounting are entering a field projected to see employment growth of 22% for the decade ending in 2018 (Department of Education). The 2011 AICPA report shows that hiring of accounting graduates by public accounting firms increased in 2011 to the second highest point since Hiring increased by 6% over 2008 for students with a Masters of Accountancy, with 37% of new MA graduates

6 being hired by public accounting firms. Public accounting firms are seeking students with the 150-hour requirement satisfied, so the hiring of new graduates with a Bachelor s degree only slightly increased. And the great news is that 90% of firms predict the same or more hiring of new accounting graduates, with 71% anticipate increases in hiring. Table 3 New Accounting Graduates Hired by CPA Firms (AICPA Trends Report iv ) Year Bachelor s Master s Total Demand ,270 3,555 16, ,985 4,720 19, ,025 8,087 36, ,110 6,378 25, ,870 13,451 33,321 What This Means for You So, is the investment in your accounting degree going to pay off? In other words, will the salary you can expect from your choice of accounting career pay off the student loan debt that you are accumulating? The figures (Table 4) are based on the low-end of the range for starting salaries of large public accounting firms through the corporate small companies. Then assume an average salary increase of 7% per year v. If you take 10% of your gross pay each year to pay off your student loans and you are lucky enough to get a job for a Big Four firm you will have about $69,082 to pay off your loans. And when you get a CPA, you will have approximately $77,718.

7 Table 4 Estimate of Pay-Off Year Public--Large Public--Medium Public--Small Salary 10% Salary 10% Salary 10% 1 50,000 5,000 44,250 4,425 41,500 4, ,500 5,350 47,348 4,735 44,405 4, ,245 5,725 50,662 5,066 47,513 4, ,252 6,125 54,208 5,421 50,839 5, ,540 6,554 58,003 5,800 54,398 5, ,128 7,013 62,063 6,206 58,206 5, ,037 7,504 66,407 6,641 62,280 6, ,289 8,029 71,056 7,106 66,640 6, ,909 8,591 76,030 7,603 71,305 7, ,923 9,192 81,352 8,135 76,296 7,630 $ 69,082 $ 61,138 $ 57,338 Year Corporate--Large Corporate--Medium Corporate--Small Salary 10% Salary 10% Salary 10% 1 38,500 3,850 36,500 3,650 34,000 3, ,195 4,120 39,055 3,906 36,380 3, ,079 4,408 41,789 4,179 38,927 3, ,164 4,716 44,714 4,471 41,651 4, ,466 5,047 47,844 4,784 44,567 4, ,998 5,400 51,193 5,119 47,687 4, ,778 5,778 54,777 5,478 51,025 5, ,823 6,182 58,611 5,861 54,597 5, ,150 6,615 62,714 6,271 58,418 5, ,781 7,078 67,104 6,710 62,508 6,251 $ 53,193 $ 50,430 $ 46,976 But, What About ME? Now, take your individual situation. How much do you have in student loans? What do you project your total student loan debt will be when you graduate? Now, compare to the potential salary. Will you be motivated enough and work hard enough to get that job with a Big Four firm? Do you prefer a job with a small business? If you manage your debt, the numbers will work for you.

8 As you are doing you calculations, here are a few more facts to consider: Starting in the 2012 borrowing year the interest rate on subsidized Stafford loans will increase from 3.4% to 6.8%. National unemployment rate in accounting remains at 3.5%. The national unemployment rate has been hovering around 9%. Default rate on student loans has increased to 8.8%. Total amount of student loans has topped $1 trillion. To aid you in this maze of calculations, facts, estimates, and approximations, here are some very helpful sites: FinAid.org FastWeb.com Cnnmoney.com/collegecosts StartHereGoPlaces.com ThisWayToCPA.com AICPA.org Final Exam! Here is your accounting take-home final. Take your university s tuition estimates including projected increases, your estimated future total student loan debt, and your projected salary, and compute the net present value for your personal situation. Does your investment in education result in a positive net present value for your accounting career choice? Robert Half 2012 Salary Guide. References Dell, K. I Owe U. Time. October 31, Vol 178, Issue 17. Economist. Nope, Just Debt. October 29, Vol 400, Issue Kantrowitz, Mark. FinAid.org and FastWeb.com Moore, S., R. Mahler, and R. Ashton Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits. AICPA Rehm, B.A. Student Loans Could Be the Next House of Cards to Fall. American Banker. November 10, Vol. 176, Issue 174.

9 i California, which accounts for about 10% of the nation s full-time student population, increased their tuition rates by 21%. This skews the national average. Without California, the increase in tuition and fees was 7%--still a very high number! ii FinAid.org iii FinAid.org iv The report does not examine every year, therefore, some years are not available. v This is an approximation using the low end to the high end of the salary range for each classification and extrapolating.