The current narrative about student debt makes us believe it’s a huge problem that is burdening young adults and hurting the economy.
Multiple government solutions have been suggested, ranging from loan refinancing and forgiveness to free tuition and Pay It Forward proposals.
But what if the underpinning narrative is wrong?
A new study from the Brookings Institution reports that student debt is indeed up, but increased earning power more than compensates for those who succeed in earning degrees. Those horror stories so common in media reports are outliers, according to this analysis, often because the students took on debt but didn’t earn degrees.
The researchers looked at two decades of data and found:
• Higher education levels are the cause of about one-quarter of the increase in student debt from 1989 to 2010. Those who seek a graduate degree had debt as much as four times higher (from $10,000 to $40,000) while those with bachelor’s degrees increased far less (from $6,000 to $16,000). Increased tuition is cited as the largest cause of increased debt.
• The increased income attributed to bachelor’s and graduate degrees more than compensated for the increased debt.
• Monthly payments were similar or even lower as a percent of income, at 3 percent to 4 percent, although the terms of repayment may be longer.
If Brookings is right, a sharply different policy response is needed.
First, we need to erase the growing perception that college may not be worth it. The study affirms what used to be conventional wisdom, that college is an outstanding investment. It found that in 2011, college graduates ages 23-25 earned $12,000 more than those with only a high school diploma. Moreover, they had employment rates 20 percent higher. Over 30 years, according to earlier research cited in the report, the added earnings for college graduates increased by 75 percent while costs increased 30 percent.
Solutions need to focus on college graduation rates. As The New York Times reported, many colleges graduate fewer than half of the students they enroll. Community colleges have low or no admission requirements. Marginal students are encouraged to go to college without sufficient calculation of their likelihood of success balanced against the risk of debt. Policies need to focus on sufficient preparation in high school and on sufficient standards of admission to college.