Report belittling student debt woes misses the point, experts counter

A Brookings Institution report released this week says that media reports about the problem of Americans being saddled with enormous student loan debts are greatly exaggerated, and that graduates’ increased earnings often outpace the amount they owe.

But some experts say the Washington-based think tank’s report overlooks the fact that the rapidly rising costs of college are making it increasingly difficult for many students to graduate, which is exacerbating income inequality between those who earn degrees and those who don’t – and leaving many students with a large debt and no degree to show for it.

Outstanding student debt among U.S. college and graduate students surpassed $1 trillion in 2012, and inflation-adjusted tuition and fees have more than doubled at four-year public colleges over the past 20 years, Brookings fellows Beth Akers and Matthew Chingos wrote in their report.

However, they said, media reports of students with debts in excess of $100,000 do not paint an accurate picture of the broader student loan scenario, because just 4 percent of student loan balances exceed that amount. “The debt picture for the typical college graduate is not so dire,” they said.

Using data from the Federal Reserve Board’s Survey of Consumer Finances, which tracks household incomes and education debt levels from 1989 to 2010, the report said one-quarter of the of the rise in outstanding student loan debt during that time is directly linked to more Americans seeking out higher education, particularly in graduate programs.  

Also, the average graduate school student borrows about $40,000 today, up from $10,000 in 1989. That’s compared with the $16,000 that bachelor’s degree students borrow on average today, up from $6,000 during the same time period, the authors pointed out.

The Brookings report said that the average lifetime incomes of college-educated Americans have “more than kept pace” with increases in student loan debt. For example, between 1992 and 2010 the average household with student debt saw an increase of about $7,400 in annual income, with $18,000 in total debt, according to the report. “In other words, the increase in earnings received over the course of 2.4 years would pay for the increase in debt incurred,” the authors wrote.

They added, “these data indicate that typical borrowers are no worse off now than they were a generation ago,” and that high payment-to-income ratios have in fact declined over time.

But some experts said the Brookings report misses a key point: The cost of tuition in higher education is ballooning at rates vastly disproportionate to inflation. 

The average published tuition and fees at public four-year colleges and universities increased by 19 percent beyond the rate of inflation during the five years from 2003-04 to 2008-09, and by another 27 percent between 2008-09 and 2013-14, according to the college access non-profit The College Board.

Because of those tuition increases, students are taking almost twice as long to pay off their loans. Today’s students take an average of 13 years to pay off their debt, compared to the average of seven years it took them 20 years ago, according to Mark Huelsman, senior policy analyst at the liberal Demos think tank.

“Student loan delinquencies are the only type of debt that has risen coming out of the Great Recession,” Huelsman said. “I think that that’s a signal that it’s not rocket science to say that there are more people struggling with student debt than there were 20 years ago.”

What’s more, he said about six in 10 students complete a bachelor’s degree program within six years — meaning that the 40 percent are not completing their degrees, and often end up dropping out.

“People have trouble meeting the financial obligations, or in order to meet the financial obligations of college, they’ll work longer hours” to cover higher tuition, and that leads them to have to drop out, Huelsman said. “We’re requiring almost everyone to borrow if they want to graduate with a four-year degree. That means that the stakes of dropping out are much higher.”

At the same time wages for college grads have stagnated, and the income disparity between graduates and those without college degrees is the highest it has ever been. Millennial college graduates between the ages of 25 and 32 earned an average of $17,500 more than employed high school graduates annually, according to a February 2014 study from Pew Research.

So while he agrees that there may not be huge numbers of students saddled with six figures in student loan debt, Huelsman says the student loan crisis is still very real. This study doesn't address how students taking on debt today are going to fulfill the long-term obligation of paying it off, he said.

“Just because most students are acquiring less than $50,000 in student debt doesn’t mean it isn’t a huge problem,” he said. “Every piece of evidence we have is that this is a real problem, so I think the takeaway that student loan debt isn’t that big of a deal is not particularly accurate.”