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February 25, 2013

The Student-Loan Crisis and an Attempt to Explain It Away

In an attempt to buck conventional wisdom, Nicole Allan and Derek Thompson of the Atlantic are tackling what they call "The Myth of the Student-Loan Crisis." In a neat little infographic, they argue that both the cost of tuition and student debt obligations are lower than we think, that college is always and everywhere a wise investment, and that students would be wise to take out more debt, not less. Fresh thinking, indeed.

Their figures on tuition, for one, are incomplete. They note that the average tuition for "first-time, full-time students" is $27,453 for four-year schools and $15,267 at two-year schools. By this they're essentially arguing that college isn't that expensive and therefore that student loan burdens are overhyped. However, a more honest assessment would break down tuition costs by type of institution. The National Center for Education Statistics shows that the average cost of college for students is $13,600 at public universities, $36,300 at private not-for-profit institutions, and $25,500 at for-profit colleges and universities. Once we think about student debt in terms of the types of institutions, the picture of student debt becomes more complicated than the way that the Atlantic paints it. Contrary to their implied argument, the burden of debt is heavier at the cheaper schools: the default rates at for-profit and public schools are significantly higher than those at private colleges, the most expensive of institutions. Therefore, the cost of college alone does not tell us very much about student debt. It is the financial background of the students attending these institutions that matter more. Indeed, the group of students with the most debt and worst default rates--students at for-profits--tend to be poorer than their peers at other institutions.

Let's now look at their claim that student loan obligations are blown out of proportion. They assert that "Horror stories of students drowning in $100,000+ debt might discourage young people from enrolling in college, but they are as rare as they are terrifying." This is true, but it is also a straw man. The observers of American higher-education do not devote their time to warning students about six-figure debts; rather, they are aware that the average loan obligation is around $27,000, and that this debt hampers opportunity for many young people, especially given today's poor job market for graduates. Moreover, numerous commentators have speculated that the burden of student debt might be impeding the recovery of the housing market, since college graduates are paying down their loans rather than spending earnings on their first homes. Student debt isn't a monster; however, it is an ever-expanding millstone that drags down our economy. The authors, who present only static figures, are uninterested in this point.

Indeed, the authors hope to reassure us that American higher-ed is doing just fine.  The authors thus assert that "the economic value of college...is indisputable" and that "as investments go, college is the best bet around." They then provide figures showing that college graduates have higher earnings and lower unemployment rates high-school graduates. Not only does confuse correlation with causation, but it assumes that a college degree will hold its premium in perpetuity. The fact that half of college graduates last year were un- or under-employed upon graduation does not faze them; neither does the figure that nearly half of college graduates hold jobs that do not require a college education. One wonders what would.  

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