Wait, we don't have a student debt crisis?

Do we not have a student debt crisis? That's what The Atlantic's Derek Thompson says.

Attention: The Consumer Financial Protection Bureau wants you.

This week they called for consumers' suggestions for policies to ease repayment of student loans, which they say are preventing young borrowers from climbing the economic ladder. Last year, for the first time, the amount of student loans taken out passed the $100 billion mark. And this year, also for the first time, total outstanding student loans will exceed $1 trillion. That's more than the entire American population owes on credit cards. This is a crisis, right? Well, the Atlantic Monthly begs to differ. They argue that the numbers tell a very different story -- a story they illustrate with an infographic in the March issue of the magazine. Derek Thompson is a business editor for The Atlantic.

"So the sticker price of lots of school is $50,000-60,000 a year. I think one year at Harvard right now costs about $57,000, which is right in line with a lot of these elite, private institutions. But that's the sticker price and not a lot of people end of paying the sticker price. In fact, I think the average costs of these schools is much closer to $20,000 even after you include all the various amenities and the costs of living. What we wanted to look at was, OK, we know that people are afraid of this student debt crisis and that the number is especially big because in the recession a lot of kids went back to school and so student debt continued to rise. But when you look at exactly what students are getting in exchange for their debt. It does seem like a pretty good bet, especially when you compare it to all sorts of other investments that you can make with money," says Thompson.

 Thompson says he doesn't want to downplay the huge amount of money that students pay to attend college. Of course, education is expensive, but he notes that students do have a long time to pay back the money. "Getting student debt, essentially investing in an education, does tend to pay off down the line in higher wages, which you can use to pay off the student debt that you've acquired," says Thompson.

Forty-three percent of students owe $1,000-$10,000 after graduating, but tuitions are rising. At what point is the student loan too burdensome?

"One fact that I would look at is what economists call the college premium. You can basically think of it is as the bonus that you should expect to get from going to college. That college premium has stayed pretty strong throughout the recession and throughout the last 10 years," says Thompson.

And what about parents who are bankrupting themselves to pay off their kids' student loans? Instead of facing a student aid crisis, could we be facing a middle class collapse crisis?

"The thing that a lot of economists say is where do you start to fix the middle class crisis? You start with giving the middle class  more skills. You start with improving what they call the human capital of the middle class. You give them the capacity to start their own jobs and be smarter and more clever and skilled in the jobs that they're working in. And I don't know the best way to do that, except to say that we seem to have a college system that, for all of its faults, is still the envy of the world," says Thompson.




About the author

In more than 20 years in public radio, Barbara Bogaev has served as the longtime guest host of NPR’s flagship program Fresh Air with Terry Gross, as well as host of APM’s news and culture magazine, Weekend America and the weekly national documentary series, Soundprint.
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What Derek Thompson failed to recognize is not so much the numbers side of the student debt crisis, but the quality of the student debt situation. The majority of critical student debt is handled by private institutions & creditors which are usually inflexible. Currently, despite reforms to many mortgage and other financial products, there is little or no regulation of privatized student debt, particularly in regards to interest rates. Coupled with a tight job market, graduates usually encounter situations with relatively low-paying jobs and once their grace period has expired, often will defer until they cannot defer any longer and are forced to forebear at which point the interest on their debt is exceedingly high. The other factor here is the American higher education system which in recent years has become flush with accelerated-learning courses, colleges and degrees, often promising a trade or certification or degree in a shorter period of time at relatively the same cost as a four-year college or university. They provide the promise of a new career, but no guarantee of employment. While there have been new rules and standards set on these academic and technical institutions to ensure their value, there is still no set of controls regulating privately held student debt. And that is really where the crisis takes hold. In order for graduates and those changing skills in the job market to have a fighting chance to gain new, higher-paying employment, they require more consumer protections and options for negotiating and paying back their student loan debt.

Thompson missed the main point - college is overpriced. Yes, it *may* be a good value in the long run. But a much better one would be to get the same education at a fair price.

College costs more than it should. I have personally gotten a second degree (an associates in accounting) at a community college, which I later converted to a four year accounting degree at a four year state college. Having experienced the level of education at both, taking in some cases the very same courses (when they did not transfer), I can attest that the community college program was equal to the four year college program. This may not be true always, but it shows that a good education need not be so costly. Quite honestly I taught myself some of things I had to take classes in, which shows that a good education can even be free. So the problem is not about providing loans or somehow convincing students that 60,000 dollars of debt is a good deal, but about getting the skyrocketing costs of education back down to reality again, raising the standards of high school so that students aren't using their freshman year for remedial education, and creatively find ways recognize education when it comes in different ways (self-education, experience, training) so that students are not forced to pay for classes in subjects that they have already mastered.

I'm just a business guy with thirty years experience in hiring and being hired. This is what I see:

The key word in the Atlantic Monthly article is "aggregate." That's like saying "in the aggregate" your chances of dying in an auto accident are 1 in 100 during your lifetime, without taking into account how you maintain your car, whether you get enough sleep, how many miles you drive, whether you text or call while driving, etc.

To say that a college education has a premium attached also is based on what happened over the last thirty years or so, not what's going to happen from now on out. Thirty years ago you could graduate with a degree in history, take a few business courses and get a job in marketing and earn a pretty good living (that's my personal experience). Today a history degree will get you a lot of months of looking and applying only to get no reasonable job offers, unless you consider retail clerk, food service or pizza delivery as acceptable offers.

The aggregate analysis also doesn't take into account the very fast change of technology. Those pushing an expensive college degree want you to think they give you skills that will last a lifetime. This is silly. Maybe they teach you advance problem solving skills. But try to sell that idea to the guy hiring for a specific job. Even if you had training on how to use a specific type of scientific equipment twelve years ago, that technology is way out of date now. And your problem solving skills just mean you need a little less on the job training than someone else. Almost no one in the corporate, technology or finance world gives on the job training nowadays. They have a lot of people to choose from and hire for very specific skill sets. Your advance problem solving skills are worth little in this environment.

The aggregate numbers also don't take into account the devaluation of the college degree relative to its cost in the Internet age. There are dozens of online universities peddling over-priced degree programs and delivering little in the way of real job opportunities. As long as we have this triangular relationship where the student gets the government to be the financier and the private for-profit online universities can get by making lots of money off low value degrees, we'll have this bubble building. And I have to say that public universities aren't much better. As long as they continue to pass along double digit cost increases year after year, they will be building the pressure inside the bubble, also. This is exactly what we had in the recent housing crisis. Watch for the bubble to burst in the next ten years to the great ruin of a lot of great young people's lives.

For me this is the real problem with the nonsense of the aggregate numbers: They don't relate at all to the realities in the lives of real young people trying to find their way in the world and get a family started. Most young people today won't do what my wife and I did and have three kids before we saw our 28th birthday. But they may want to get married, buy a house, own a car, have a child and so forth before they turn 35. All of this is seriously threatened by carrying $50,000-$100,000 in student debt that must be repaid (the US Govt. won't ever forgive this repayment so plan on paying it off). And of course, the young people who carry these larger amounts of debt are those without other options - no money from mom or dad, already working a part-time job, little grant money - so their opportunity to have a middle class life-style is very narrow. And consider how having this much debt plus all the other strains of life as a young person affects your mental state day-to-day. Add to that the very weak economy with few opportunities for advancement, rising gas prices and all the other financial challenges and you get a pressure cooker environment.

So before you take on that college degree with a truckload of debt, think about your own employment picture in four years. Do a real cost benefit analysis for your own particular situation, not some aggregation of a general situation. Maybe a technical specialty or tradesperson training will pay back faster and give you peace of mind sooner. Consider a ten year payback not a twenty to thirty year payback. Given how technology is changing you will have to go through some major re-training again in ten years. You can always pursue your interest in liberal arts or some specialty subject on your own.

Most of the information about the value of a college or university degree is complete claptrap. Think hard before you strap yourself to the burden of trying to make it pay off for you. I'm not against advanced learning and great knowledge. I just want young people to dig deeper for a better understanding of what will work for them in particular. Good luck to every student who seeks a better life and a chance at a family.

In the U.S., about 60% of students who begin a four-year degree finish it. These former students end up repaying loans without the benefit of having earned a degree.
In addition, correlating unemployment rates with degrees is misleading. One, the market requires far fewer workers with masters and doctoral degrees than it does workers with college degrees. Two is the barrister as barista phenomena of the last five years. Lower unemployment rates for college graduates stems from the fact the they can also do jobs performed by high school graduates.
College graduates employed in service jobs are really in no position to repay loans.

Why are we only talking about the cost of attending a 4 year institution? I am bored by the number of stories about how overpriced college is. Colleges will continue to increase their fees because people will find ways to pay for it. Students and parents need to decide what they want. A degree or a college experience? If you want a degree, there are ways to get one without breaking the bank (think community college and then transferring to a 4 year university). If you want a college experience, go ahead, leverage your future, but lets not kid ourselves, a college experience will NOT get you a job. Your perseverance, determination, maturity and creativity, evidenced by a degree, will.

Leveraging our youth is akin to a lion eating his cubs. Disgusting.


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