Let’s Listen to Those Scary Tales about Student Loans

Writer Christopher Shea argued in the Washington Post that the problems associated with student loans – and by extension, the cost of college – are overstated. Contrary to many of the sob stories in the media, says Shea,

“…it’s almost always well worth what it does cost — assuming that you graduate and, if your  loans are largish, study something that actually helps lead to a job. Perhaps the biggest  problem: All the dire talk about debt overload can scare off young people for whom  education debt can have huge long-term payoffs.”

Shea’s argument largely rests on research conducted by two professors, Robert Avery of Harvard and Sarah Turner of UVA. Their recent study found that the financial returns on a college investment are greater than ever – $600,000 over the course of a lifetime more than a high school education. This figure is actually lower than the $1 million number that is usually reported. Turner and Avery show that the median debt burden for students at four-year public schools is only about $7500, much higher than the usually reported number of $25,000 per student. By extension, then, taking out student loans for school is usually worth it, right?

Sometimes. But there are a few caveats to this claim.

Shea is right to point out that one (usually) must graduate for your loans to be worth it. But 46% of all students who enroll in a four-year college drop out within six years. Undoubtedly, all of those students entered college with every intention of completing their degree, and perhaps took loans to that effect. But sans the accelerating force of a college degree to earn additional income, this group gets bogged down financially. And as Avery and Turner themselves note, “For those who attend college and do not receive a degree, outcomes are notably stagnant, particularly in the lowest two-thirds of the distribution.” So Shea is right to encourage loan-taking, provided that students graduate. The problem is that they increasingly don’t. 

Secondly, labor market trends are pointing toward diminishing returns for new graduates, even ones who studied viable subjects. More firms are hiring people with college degrees to fill jobs that traditionally don’t need them.

Combined with the growing technology-induced diminution of decent paying jobs, graduates will have an increasingly harder time finding decent paying entry-level jobs. The trend has already started – the Bureau of Labor Statistics reports that there are now 284,000 college graduates working minimum wage jobs – a 70% increase over the previous decade. And student loan defaults have already increased 36% from a year ago. Turner and Avery’s research only examined graduates up to 2008. It is possible that trends that didn’t seem as threatening up to then are already significantly worse. Turner suggests that “someone with a salary of $26,000 should be able to pay off a $20,000 debt in 10 years — with monthly payments of $210 or so — without undue strain” But not everyone is earning $26,000 per year out of school. What if you’re one of the 284,000 college graduates – 37,000 with advanced degrees – working in a minimum wage job? There’s no way that paying down your student loan isn’t a burden.

Shea also points out that the bachelor’s degree holder weathered the recession better than the high school dropout:  “the unemployment rate for those with at least a bachelor’s degree was 2 percent before the recession, rose to 5 percent and is now below 4 percent. In contrast, unemployment for people with only a high school diploma spiked to 11.9 percent and lingers at 8.8 percent, according to the Bureau of Labor Statistics.” That may be true, but a good portion of that can be attributed to either holding down part time work or finding lower-paying jobs that traditionally went to high school graduates.

Shea’s other major contention is that student-loan scare stories discourage poor students, who often don’t have an accurate estimation  of the cost of college, from applying to good schools.

Lemondre Watson, a senior at William & Mary, recalls thinking, as a high school student in Lynchburg, that the tuition figures he was hearing were surreal: “I don’t know where that money is coming from!” he said to himself. At the time, Watson’s mother did manual labor at a pipe-fitting plant, and his father was a retired bus driver. William & Mary costs $25,938 annually for in-state students, including room and board.

But at the urging of his teachers at Heritage High School, he applied: “They were pushing me to   apply to more ‘reach’ schools. My grades were good, and I was involved in a lot of things, but I told people even if I got into William & Mary, I wouldn’t go.”

What can be done to remedy such a problem? A recent op-ed in the New York Times, written by an English professor from a low-income family, suggested that colleges take a page from the military’s playbook, and go into high schools to recruit poor but high-achieving students.

The Army needs every qualified candidate it can get, while competitive colleges have far more applicants than they can handle. But if these colleges are truly committed to diversity, they have to start paying attention to the rural poor.

Until then, is it any wonder that students in Pahrump and throughout rural America are more likely to end up in Afghanistan than at N.Y.U.? 

Shea concludes, “More than a debt crisis, what poor students contemplating college face today is an information crisis. All those tales of baristas with $120,000 in outstanding loans only make the problem worse.” Poor students are underinformed about the costs and benefits of college. But the current trends of student loan defaults and recent graduate underemployment show us that everyone has been underinformed about a college investment. The media spotlight on the barista with $120,000 in debt is doubtlessly helpful in dissuading future enrollees from taking out those amounts of debt. The real solution doesn’t lie in running less horror stories, but meeting low-income students where they already are.

More problematically, encouraging students continue to take out loans, even if its financially viable for them to do so, is an affirmation that the system isn’t really dysfunctional to the point of needing reform. Even if a qualified poor student, or anyone else, takes a manageable amount of debt to pay for his education, that decision perpetuates a system that is still leaving thousands of his peers with bad betting slips. Or, as Kevin Carey put it on Twitter : “Saying most students don’t graduate $100K in debt is like saying most Pinto owners didn’t die in fiery rear end collisions.”

David Wilezol

David Wilezol is the co-author of "Is College Worth It?" with former U.S. Secretary of Education William J. Bennett.

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