CAPPS - Avocacy and Communication Professional Development

California Association of Private Postsecondary Schools

Don't buy myth of student loan 'crisis'

10/02/2012

Columbia Daily Tribune - September 30, 2012

Some myths are harmless. The myth of President Barack Obama's Kenyan birthplace is annoying but harmless.

Some myths are not harmless. The student debt "crisis," sometimes known as the "bubble" or "bomb," is a myth that is inflammatory, misdirected and mischievous.

You might have seen dramatic stories in the media about students who borrow $200,000 and wonder how they are going to repay their loans. Fact: One-half of 1 percent of all students borrow that much, according to the College Board. Much less newsworthy are the 43 percent who borrow between $1,000 and $10,000 or the 30 percent who borrow between $10,000 and $25,000. Truly boring are the 33 percent of all college students who graduate with absolutely no debt. The average student debt at graduation is $20,000.

But what about the accumulated student debt — the "bubble," the "bomb" that threatens the American economy like mortgage defaults do? Currently outstanding student loans total $876 billion — a lot, to be sure. There is $22 trillion owed on mortgages, with $8 trillion lost in defaults since 2008. If all students defaulted on their loans, the impact on the economy would be only one-tenth that of mortgage defaults. (One student in six is currently in default.) The student loan bubble is simply alarmist hyperbole.

Are there real problems with student financial aid? Of course, just not the ones the media want you to believe. Student aid pays for tuition, which has gone up dramatically in inflation-adjusted dollars in the past 30 years: 181 percent for private not-for-profit institutions and 268 percent for public four-year schools. Public tuition has gone up so much because state and local support has gone down so much. In 1965, public funding covered more than 50 percent of costs; now it covers barely 30 percent. Public institutions have had to raise tuition to the point where private college tuition is a relative bargain. An out-of-state student pays $22,440 tuition to attend the University of Missouri; she pays $17,950 at Columbia College.

Why is higher education more expensive than in the past? Increased student aid is a factor. So is new technology for instruction and research, necessary if the United States is to remain the world leader. So are all the staff positions that have been added at colleges and universities in all sectors because of increased regulatory burdens and unfunded mandates from governments at all levels.

And there is one sector of higher education whose students bear a disproportionate debt burden: for-profit schools. Half of all student loan defaults are by students who attend for-profits. They leave school with, on average, 50 percent more debt than a private college student and 80 percent more debt than a public college student. Furthermore, for-profit college students graduate at about half the rate of students at public institutions and about 40 percent of the rate of students at private schools. Too many dropouts from for-profit institutions have the worst of worlds: big debt and no degree.

When I went to school in the 1960s at a nearby private college, my parents took out a personal loan to pay for part of my tuition. It was unthinkable for me to borrow enough money to allow me to live in a fancy off-campus apartment, buy a nice car and take exotic spring breaks. Times have changed, and today student loans pay for many things, some of which have little to do with getting a good college education.

Maybe the student loan crisis is not economic. Maybe it's cultural.