Sunday, April 29, 2012

On student loans

It's an election year.  Both Presidential candidates agree that the interest rate on Stafford loans should not be allowed to double on July 1.  In the meanwhile, one house of Congress passes a bill that cannot pass the other house -- but I bet they find a solution before midnight June 30.

Student loan debt is getting a lot of press attention these days.  One set of concerns is that too many young people are burdened with too much debt and this will hold them back from buying houses or starting families.  On the other end of the spectrum, we see columns complaining about too many future deadbeats who will stick the taxpayer for untold billions. 

With almost 20 years of experience in graduate program administration under my belt, plus twice as much experience as a labor economist and data analyst, a few observations:
  1. When you see a newspaper quote that the average student has a debt level of $29k, don't believe it.  Take the student load debt of all graduates and divide it by the number of graduates with debt and you do get the $29k figure.  But one-third of the graduates have zero debt.  If you take the total debt and divide it by the number of graduates (with and without debt) you get $19k. 
  2. Students take out loans for a wide range of reasons, not just educational expenses.  Suppose you want to build a new deck and a home improvement loan is 6 percent.  If you can get a student loan at a lower rate, what are you going to do?  Each year we see evening MBA students with great jobs and employers who cover their tuition expenses graduating with significant amounts of student loan indebtedness.  So the $19k figure overstates indebtedness due to educational expenses. 
  3. Student loans are available on the same terms to all majors at all qualifying schools (and just about all colleges and universities qualify).  Do we consider providing more generous terms to students in STEM disciplines where talent is in short supply?  Do we consider making the terms less attractive to students in disciplines with low wages and high unemployment rates?  Of course not. 
  4. Student loans subsidize the cost of college.  As with any subsidy, it results in more students going to college and a higher cost of education.  I have a hard time seeing student loans as a major driver of rising tuition costs, but they certainly play at least a secondary role.


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