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How Damaging Is Student Debt? How Damaging Is Student Debt?

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Education Insiders

How Damaging Is Student Debt?

Students in Los Angeles, California call for student debt cancellations. Photo by David McNew/Getty Images

photo of Fawn Johnson
February 24, 2014

Student debt in the United States rose $144 billion from 2012 to $1.08 trillion last year. Continuing the trends of the last several years, student debt is second only to the mortgage debt. (Mortgage debt, of course, is eight times higher.)

These figures, released last week by the Federal Reserve Bank of New York, provoked a predictable array of hand wringing. Is student debt going to hamper the housing market because young adults are hobbled with loan repayments? Will an increase in delinquencies hurt borrowers' credit when it's already not so great?

Sen. Kristin Gillibrand, D-N.Y., used the release of the debt data to plug her legislation that would allow people with student loans higher than 4 percent to refinance those loans at fixed rate lower than 4 percent.


I chafe a little bit at the alarm over the sheer size of the country's student loan debt. Yes, a trillion dollars is a lot of money. And yes, $29,400—the average debt burden for a bachelor-degree graduate in 2012—is higher than the annual salary lots of people make in their first job out of college.

But the picture is more nuanced than the initial sticker shock indicates. Debt, on its own, isn't an inherent evil. When it comes to schooling, student loans are an essential component of financial aid packages for people in the lower tiers of the economy. They are supposed to be a rung on the ladder up to the middle class, not a weight pushing people back into poverty.

If $29,000 in loans buys you a degree that puts you in a steady professional career for the next 40 years, it's probably not a bad deal, even if the initial repayments are painful with stingy starter wages. If $29,000 buys you nothing but a fancy piece of paper and an hourly job at Starbucks, it is obviously not a good deal. And if circumstances prevent you from finishing your degree, you would probably have been better off not starting at all.

This is where the debate needs to be focused. Investing in college isn't a bad thing, even if we acknowledge that the costs are skyrocketing (yes, at an unacceptable rate). But the concerns of high college costs can at least be mitigated with the following analysis: What are prospective students actually getting for their investment? Can they reasonably expect to finish their desired programs? Can they reasonably expect to make their monthly loan repayments when they're done? Can they get the same thing for less money?

These are hard questions to ask of the high school teenager who dreams of going to a prestigious private college to study art history, but the answers can make the difference between an impossible debt burden five years later and a manageable one. Recent figures compiled by the New America Foundation show that the average monthly loan repayment for bachelor's degree completers at private nonprofit schools was $343 in 2012. It was $50 bucks lower, $272, for graduates of public schools.

Increasingly, states and independent research organizations are coming up with more sophisticated tools to analyze the debt burdens of college students. Texas has a Web site where prospective students can look up the average debt levels and earnings of graduates from any public university, and they can parse the data by major. (I wrote more about Texas's higher education data system in last week's National Journal magazine.)

The Project on Student Debt, an independent research group, offers state-level data on the average student loan burden for students at each university.

And just to be sure the other end of the education equation isn't lost on prospective students, another research group called College Measures collects data on the earnings of public university graduates in a variety of states. It can tell you, for example, that a person with an associate's degree in child care in Florida earns an average of $25,000 after completing the program, while a person with the same degree in nursing can earn about twice as much in his or her first year.

Wouldn't these things be good to know if you're looking at a $300 monthly loan repayment after graduation?

For our insiders: What are the dangers of the current student debt levels? Can they be remedied by more available information about repayments and potential salaries? Is the sheer size of the student loan debt a problem for the country's economy, even if it is spread across more borrowers? What other resources are available for families and guidance counselors to help prospective students figure out their college finances? Where are the holes in the data?

(Note: This is a moderated discussion on education issues. Comments are approved on a case-by-case basis. Contact me if you want to become a regular commenter.)

From the Education Insiders

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