This online comment from a borrower is similar to the statement of a federal employee in Seattle quoted in a Zillow report who pays just over $1000 a month for debt from his bachelorâs and masterâs degrees: âI think of it as a car payment,â the borrower says. âInstead of a stupid car thatâs devaluating, itâs a degree that helps me increase my income down the line. Itâs a car payment thatâs paying me back.â 2I am a member of the six figure debt club! I donât mind much though. Coming out of college, I was working two jobs, plus odd jobs and making close to $1000/month. I was on food stamps and constantly afraid of everythingâa parking ticket or an especially cold month could put me over budget and prevent me from paying rent on time. I still have nightmares about itâŠNow, I make a stable, six figure salary working roughly the same hoursâwhich, surprise, surprise, is more than 40 hours a week. But thatâs fine by me! I like working!Will I be paying off loans for the next 10â25 years? Yeah, but my life is so much better now than it was before taking on the debt to go to school. 1
But comments like these are not easy to find in the popular press. Anecdotes about individual students distressed by their student debt are much more common.
The Stories We Hear
A 2014 public radio story began with a young woman who earned a bachelorâs degree from a public four-year university after transferring from a community college and graduated with $40,000 in debt. 3 What listener would guess that only about 12% of bachelorâs degree recipients from public institutions graduate with this much debtâeven though most spend all of their time at four-year institutions instead of starting at lower-price community colleges? 4 The article mentions that this young woman has deferred payment on her loans because her income is low. But it focuses more on her frustration that anyone expects her to be able to repay this debt.
Another borrower featured in this story earned a masterâs degree in history, with $110,000 in debt. This young man, the article notes, is in an income-driven repayment plan. In other words, he is not expected to make payments until his income exceeds 150% of the poverty level and then his payments will be a manageable percentage of his income above that level. But the article focuses on how overwhelmed he is by owing so much money.
Another story in the same public radio series gives an example of a young man who graduated from a highly selective private college in the Northeast with $30,000 of debtâa pretty typical debt level for bachelorâs degree recipients who borrow. However, his dream is to be an organic farmer, so he makes only $12,000 a year (after taxes). 5
These three examples, designed to elicit sympathy for the victims and anger at the position an unfair college financing system has put them in, reveal some significant problemsâas well as some of the ways in which the student loan system increases opportunities for students. They also reveal some of the ways most public discussions of student debt obscure important realities.
Most common is the highlighting of individual students who are in unusual situations in a way that suggests that they are typical. In the first example above, as noted, the young woman is an outlier among bachelorâs degree recipients. We donât know why she ended up borrowing so much. Perhaps she faced some hardship that made her situation particularly difficult; perhaps her parents were unwilling to contribute despite some ability to pay; perhaps she lived at a higher standard of living in college than many of her peers; perhaps she chose not to work for pay or was unable to find a job. In any case, she is quite likely to be able to manage her debt over the long run, particularly with all of the protections built into the federal student loan system.
The second example is of a graduate student. This is an important example, not because it is typicalâonly 7% of students who earned masterâs degrees in 2011â12 had borrowed as much as $110,000 for their undergraduate and graduate studies combined 6 âbut because it highlights the problems of students making questionable decisions and of public policies that encourage these poor decisions. As detailed in later chapters, the restrictions on how much graduate students can borrow from the federal government are very loose. There are not many jobs that require masterâs degrees in history, and it is hard to imagine under what circumstances it would make sense to go $110,000 into debt to earn this degree. How can we prevent this situation from occurring? Even if it is rare, it should be unheard of.
The nation now has income-driven federal student loan repayment plans that will make life bearable for borrowers in this situation. But as a bachelorâs degree holder, this borrower was hardly among the most vulnerable members of society when he made the decision to borrow. Under any reasonable income scenario, a significant portion of his debt will probably be forgivenâpaid for by the taxpayers. Surely preventing the borrowing in the first place would be a better solution.
This reality leads to another characteristic of these examples and the way they are presented. One borrower is in deferment. This means that she has been allowed to postpone her payments because her income is inadequate. Another is in income-driven repayment and will never have to pay if he canât afford it. If the problem is that former students are overwhelmed with debt and the payments are making their lives difficult, how can it be that the fact that they are not actually being asked to make these payments is not at the center of the story?
What about the elite college graduate who wants to farm? His $30,000 in debt is not atypical. His choiceâwhich he perceives as a rightâto immediately follow a path that does not involve earning even a subsistence income certainly should be atypical. Who should pay for his elite education? Is it unrealistic to ask him to get an extra job or take a non-dream job for a few years to pay back the money he borrowed? Would he ever have thought about organic farming without his elite degree in environmental science?
A New York Times story, with a headline indicating that âStudent Loans Make it Hard to Rent or Buy a Home,â focuses on a young woman who âfaced a daunting choice: pay rent or pay off her student debt.â 7 She had taken out loans to put herself through four years at a public four-year university and couldnâtâat firstâfind a job that would allow her both to pay basic living expenses and to make debt payments. She was apparently forced to be homeless. If, in fact, borrowers were expected to begin repaying their loans the day they graduated and there were no provisions for people facing financial hardship, many people probably would end up homeless for a while. But there is a six-month grace period before payments begin and, as already mentioned, there are options for deferring payments and for making payments proportional to income.
This list of examplesâunlike the opening examples of borrowers saying that despite the unpleasant burden of repayment, life is much better than it would have been if they had not borrowed and gone to collegeâcould go on and on. Headlines announce the intended message: âThe Unforgiven: How College Debt is Crushing a Generationâ 8 or âA Generation Hobbled by the Soaring Cost of College.â 9 The latter article profiles a student who graduated from a private, church-related four-year university with $120,000 in debt and another who borrowed $80,000 to get her bachelorâs degree in social work. Another dropped out of a for-profit institution with $100,000 in debt.
These examples are stunningly misleading about the circumstances of typical students. About 0.5% of 2011â12 bachelorâs degree recipientsâand 1% of those who earned their degrees at private nonprofit collegesâborrowed as much as $100,000; 1.5% overall and 3% from private nonprofit colleges borrowed as much as $80,000. 10
A Student Loan Crisis?
It is largely stories like the more frequent and more visible ones cited above that have put the idea of a student loan âcrisisâ onto the national agenda. The idea of a student loan crisis has taken hold in the media, in the blogosphere, and in the political arena. But the reality is that borrowing for college is opening doors for many students. It is helping far more people than it is hurting.
There are some voices questioning the idea of a âcrisis,â but they are unlikely to be heard by a sizable segment of the population. With the same attention-getting headline style of articles making the opposing case, a Forbes article, âThe Student debt crisis is being manufactured to justify debt forgiveness,â points out that less than 20% of young families have student loan balances exceeding $8500 per adult. Only about 1% of households headed by a 20- to 40-year-old have a student loan balance over $50,000 per adult without a graduate degree to show for all that debt. In other words, most of those with big balances have the earning power to pay those loans off. âThat does not sound like a crisis.â 11
Another Forbes column concludes that growing student debt levels are more related to the weak state of the economy than to rising college prices. Enrollment has grown; graduate students hold a very high percentage of the outstanding debtâabout 40% of the total 12 ; parents of traditional-age college students turned to student loans as the home equity and other savings they had counted on were undone by the market; and students and parents have realized that they can use lower-interest student loans to pay off higher-interest credit card debt. 13
These isolated stories read only by a small segment of the public are not enough. It is time to rein in the general panic about student debt and find solutions to college financing problems that will make horror stories about borrowing for education more rare than they now are, ensure that as many people as possible have access to the education and training they need, and guarantee direct public support to those who really need it and can benefit most from it.
Perceptions of a student loan crisis, with student debt ruining the lives of former students and having a serious negative impact on the economy, are leading to wide-ranging proposals to relieve the debt burdens of any and all students. Proposals for forgiving all outstanding student debt and for guaranteeing debt-free college for future students aim to totally eliminate the concept of borrowing for college. According to proponents, student debt is a poison that must be eliminated if we are to have a healthy society. For example, #Million Student March organized protests at college campuses across the nation in November 2015 to call attention to their demands for cancellation of all student debt, in addition to tuition-free public college and a $15 minimum wage for all campus workers. 14
This perception is not just overly simplistic. It is misguided and has the potential to significantly reduce educational opportunity in the USA. Even under the most optimistic scenario, where states increase their funding for higher education significantly and federal student aid becomes more and more generous, many people will be unable to go to college and complete degrees without borrowing. Young people...