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

Barbara Bogaev Feb 22, 2013
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Wait, we don’t have a student debt crisis?

Barbara Bogaev Feb 22, 2013
HTML EMBED:
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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.

 

 

 

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