How Big A Problem Is Student Debt?

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How Big A Problem Is Student Debt?

Leonhardt believes the problem is overblown:

In fact, the share of income that young adults are devoting to loan repayment has remained fairly steady over the last two decades, according to data the Brookings Institutions is releasing on Tuesday. Only 7 percent of young-adult households with education debt have $50,000 or more of it. By contrast, 58 percent of such households have less than $10,000 in debt, and an additional 18 percent have between $10,000 and $20,000. “We are certainly not arguing that the state of the American economy and the higher education system is just great,” Matthew Chingos, a Brookings fellow and one of the authors of the new analysis, told me. “But we do think that the data undermine the prevailing sky-is-falling-type narrative around student debt.”

Choire Sicha tears into Leonhardt:

All this data comes from the Survey of Consumer Finances, which is conducted by the Federal Reserve Board of Governors and the Department of Treasury. … Of all the households in that study, only about 1711 have “household heads” that are younger than 40. That’s what they’re extrapolating from. (And, intriguingly, a small number of those have a head of household younger than 18.) This is not a big sample!

What, obviously, does this data completely omit? Well, one obvious thing is…

households who are headed by someone who is not under 40. One thing we know is that, in 2012, 36 percent of Americans aged 18 to 31 were not their head of household, because they were living with their families. This survey also clearly combines family and non-family households. (Also, there’s some unknown amount of statistical imbalance from same-sex households; 31 percent of same-sex households are likely to have two college-degreed people, compared to 24 percent of opposite-sex married households and just 12 percent of opposite-sex cohabiting households.)

But Freddie questions Choire’s statistical know-how:

This is something I’ve written about before – people dramatically overestimate the sample size needed to make responsible statistical conclusions. A sample size of almost 2,000 isn’t just big, it’s enormous. The standard error of a sample of this size will be very low. Absent systematic sampling bias (as opposed to error), the odds of the underlying population being significantly different from a sample of this size is tiny. Saying that it’s not a big sample just displays ignorance about the standards applied in statistical research.

His take on the topic:

[T]he student loan crisis is indeed a crisis, a moral and practical problem of considerable size. But it’s not the size that most people think it is. And more, it doesn’t change this fact: that despite the endless concern trolling of almost our entire media, the constant tendency for the (college educated) professional writers in our culture to say that “college isn’t worth it,” a college education remains a very good investment for the large majority of graduates. American college graduates are, by essentially any international standards and in comparison to Americans with only a high school degree, in a very economically secure class.

At the same time, Derek Thompson makes the case that college isn’t actually getting that much more expensive:

One of the confusing things about college is that it’s hard to keep straight its price, cost, and value. The sticker price of college – that is, the published tuition – isn’t paid by most middle-class students, who receive grants, tuition breaks, and tax benefits. The average net price of a bachelor’s degree is still 55 percent lower than the sticker price today. For many students, tax benefits eliminate the full cost of an associate’s degree. College is much cheaper than advertised.

Meanwhile, Matt Phillips argues that “if you managed to rack up giant student debt loads, that’s likely because you’ve undertaken – and finished – the kind of extensive education that enables you to earn a good salary over time.” He adds:

The real student debt problem comes in the relatively modest amounts of borrowing done by low-income, first-generation college goers, who are four times more likely to leave school after the first year than students without those risk factors. Incidentally, this is also why increased funding of state schools is probably the answer. And, of course, most elites didn’t go to state schools. (Go SUNY Binghamton!)

Jordan Weissman concurs:

If you talk to people who study education policy for a living, they’ll tell you that the real victims of student debt aren’t English grads who took out a bit too much money to attend the University of Michigan or Oberlin. Those kinds of borrowers usually end up just fine.

However, there is a huge contingent of working-class and minority students – some of whom are among the first of their families to attend college – who are getting chewed up by student debt. These are young people, and increasingly older adults, who might not have gone to college 20 or 30 years ago, but do now because the economy is brutal for job-seekers without a degree. They borrow for school, often to pay the inflated tuition at an unscrupulous for-profit institution or little-known vocational school, then frequently drop out. Suddenly, they find themselves in debt, with no degree and no guidance on how to manage their loans.

Christopher Ingraham adds, sensibly:

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. … 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.