For all the back and forth about student debt in America, the debate is too often evidence-free. Thankfully, earlier this month student aid expert Mark Kantrowitz added some much-needed analysis to the discussion.
Kantrowitz’s study shows that an increasing fraction of America’s college graduates are leaving school with what he labels “excessive student loan debt.” That is, many are leaving with debts large enough that their monthly payments will likely consume an unmanageable percentage – 10 percent or more under his standard – of their after-school income.
This might not seem like an earth-shattering conclusion: After all, don’t we all know by now that student debt is a growing problem? Amidst the hustle and bustle of the holiday season, it’s easy to simply file this study away as further evidence that student debt is a serious problem for graduates and the economy.
However, it’s worth taking a minute away from the holiday break to look more closely at the paper’s conclusions. While they do offer some reinforcement for the standard narrative around student debt, Kantrowitz’s findings also reveal the limitations of the conventional wisdom that is often on display in media coverage of this topic.
In his analysis, Kantrowitz looks at graduates’ debt balances compared to their initial incomes after school. In each case, he considers a debt excessive if a borrower’s monthly payments, for a 10-year repayment term, would consume more than 10 percent of his income. Classifying excessive debt in this way makes some sense: Graduates with high balances but also high incomes may do just fine, so it’s important to look at more than just a borrower’s loan balance.
Using this approach, he finds that the fraction of students graduating with excessive debt has grown steadily for several decades, starting at 6.5 percent in 1985 and climbing to 14.4 percent in 2007. These findings also track with the general direction of student borrowing overall: As Kantrowitz reports, college graduates who borrowed took an average of around $35K in 2014, up from roughly $20K in 2004 and $11K in 1994.
Sounds pretty bad, right? On some level, sure. An increasing number of traditional-age college graduates are struggling under the weight of student debt. This trend alone suggests that we need serious policy reform to address ever-rising college costs that are consuming more and more of young Americans’ future incomes.
But the paper also reveals ways in which this standard story is overstated. The 15 percent figure Kantrowitz estimates is still a distinct minority of America’s college graduates. Furthermore, borrowers with federal loans have a range of options to make their payments more affordable, including extended repayment terms and income-based options that offer loan forgiveness after 20 years. As a result, college graduates appear to default at a very low rate, relatively speaking.
Meanwhile, as the hand-wringing in the media and among policymakers bemoans the struggles of the freshly minted undergraduate with a six-figure debt – the exception to the rule, as only 2 percent of college attendees take on more than $50K – problems that are arguably far more significant haven’t received the attention they deserve.
While 15 percent of college graduates are said to be struggling, there is a huge, less visible swath of student borrowers who appear to have been made worse off for having interacted with our higher education system at all. As was highlighted in an influential paper released earlier this fall, these non-traditional, often low-income borrowers tend to be heavily concentrated in schools with relatively poor student outcomes, typically for-profit and two-year public schools. As of 2014, according to the paper, these students represented 40 percent of all federal loan borrowers.
Because many drop out, these borrowers don’t tend to have as much debt as your typical college graduate – half have around $10K or below. But for those leaving school in 2011 and finding a job in 2013, half earned less than $20,900 (for-profit graduates) or $23,900 (community college graduates), and 21 and 17 percent were unemployed, respectively. And while many of these borrowers also have access to federal repayment options, they seem to have a harder time navigating the bureaucracy that stands in the way of actually using them. As a result, more than 25 percent default within three years.
The point is not that policymakers should be indifferent to the challenges facing college graduates carrying excessive debt loads. These are clearly very real for a significant and growing fraction of young Americans, as Kantrowitz’s paper highlights. But in overhyping the issues facing this segment of the population, the media narrative around student debt often overlooks the struggles of other groups – like those with debt and no degree – who are often far worse off.
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