A new Brookings Institution report on student loans created a bit of a stir yesterday. The chief point of contention is the authors' conclusion that "the reality of student loans may not be as dire as many commentators fear." This conclusion rests on a number of findings, each of which appear sound enough, on their own merits: that the share of students with huge debt burdens is still very small; that even with debt, college remains an incredibly good investment for graduates; and that the median share of borrowers' income going to student debt payments has held constant over the past 20 years.
Journalists and readers have an understandable tendency to focus on the debt stories at the margins – one guy with $150,000 of debt makes for a more compelling story than 150,000 guys with an average amount of debt. The Brookings report adds some much-needed context to these familiar narratives.
But the big story in student debt over the past 20 years is not – and never should have been – the few people taking on huge debt burdens, but rather that the share of all students graduating with any student debt has risen sharply. In 1989, 22 percent of households headed by twenty-to-forty-somethings with a degree were saddled with student loan debt. That figure more than doubled by 2010, standing at 50 percent. It's likely climbed even more since then.
That number is probably an underestimate, too. As Choire Sicha notes over at The Awl, "this data excludes all people living in households headed by, say, their parents, or other adults." And there are a lot of them - more than a third of Millennials, for instance, many choosing to do so precisely because of those growing debt burdens.
Another important consideration is that the data above only go back to 1989. If we could extend it further, to the 1960s and 1970s, when Boomers were graduating, we'd likely see even lower rates of student debt back then. This is the reason why it feels like student debt is everywhere these days – compared to the '60s and '70s, it is everywhere.
One of the more interesting findings of the Brookings report is that the median share of household income going to student debt has remained consistent, hovering around 3-4 percent. Akers and Chingos rightly attribute this to longer loan terms – instead of paying their student debts off in ten years, many borrowers are taking 20 years or more. But I think they underplay the significance of this shift – student loans are now looking more like traditional mortgages in terms of their repayment periods.
More spending on student debt necessarily means less spending – or at least delayed spending – on other big purchases, like houses and cars. The New York Fed's Liberty Street Economics blog has made a pretty persuasive case on this point. It's one thing to delay this spending for a decade in order to pay off student loans. But I don't think we fully understand what it means for the economy if workers are putting off those other big purchases for two decades or more – right into their prime earning years.
It's unclear what sort of policy response is due here, if any at all. A good start would be to ensure that the right kids are going to college. This means getting more of the low-income high-achieving students into four-year schools. It also means identifying those students at the highest risk of dropping out – those who leave school indebted and uncredentialed – and steering them toward other paths.
Second, we need to stop thinking about choosing a college as if it were the same thing as choosing a romantic partner. There's currently too much emphasis on "finding the right match," based on squishy and largely intangible qualities like "personal values," "learning style," "campus ambience." A college education is a purchase, and a big one at that. Yet a survey by Discover Student Loans out just today finds that nearly half of parents say they don't even consider cost when choosing a school with their children. If prospective buyers said the same things about cars or houses, we'd think they were insane.
Students and parents – especially parents – should understand that what you get out of an undergraduate education is largely a function of what you put into it. I've met plenty of people who spent four years at an Ivy and barely learned anything, and plenty of others who went to a state school and received a world-class education. How many times have you heard a parent lament that their child chose a pricey school over a more affordable one, for squishy reasons related to "best fits" and "perfect matches"? Getting more hard-headed about college selection won't solve the student loan crisis, but it would be a good start.