The Debt Problem – Part II

Student debt has risen dramatically. But is $26,000 in debt unreasonable if the payoff is $1 million?

Last week, I commented on Charles M. Blow’s March 9 column in The New York Times, which focused on the problem of student debt. I discussed the factors that contributed to the sudden growth of educational debt and steps that are necessary to rectify the problem (or would at least prevent it from becoming worse).

I ran out of room before I could get to the issue of assessing how big a problem student debt really is – hence, Part II this week.

On the one hand, student debt has increased dramatically: roughly $1 trillion in total debt, more than twice what it was just eight years ago, and larger in size than the total of all credit card debt. On an individual level, approximately half of the student population borrows to finance their education, and they graduate owing an average of about $26,000.

Making matters worse is the fact that almost half the students who start higher education do not graduate within six years, and a sizable percentage of the non-graduates nonetheless have taken on debt – but now don’t have the credentials to secure a job that will pay them enough to allow them to discharge their debt. And there are some students who have over $100,000 in debt, a staggering sum. Finally, about half of the graduating class of 2012 are classified as “underemployed” – they are in jobs that don’t require a college degree (and generally don’t pay particularly well, making it more difficult to pay off their debt).

On the other hand, higher education is an investment in one’s future, and just on economic grounds alone, consider the fact that college graduates earn approximately $1 million more in lifetime earnings than do high school graduates. Is taking on $26,000 in debt unreasonable if the financial payoff is $1 million? The horror stories of students drowning in six-figure debt are real, but not representative. Less than 5 percent of student borrowers owe that much, and most of those have borrowed to finance graduate or professional degrees, in addition to having accumulated debt for their undergraduate degree.

As to the much-vaunted figure of 50 percent of the graduates being “underemployed”: what is actually happening is that, in a tight job market, employers have the luxury of only considering college graduates for any position (“It Takes a B.A. to Find a Job as a File Clerk,” The New York Times, February 19, 2013). Some college graduates are being offered jobs that, in more robust economic times, would have gone to high school graduates – but they are getting jobs, while large numbers of those with only a high school diploma find themselves not underemployed, but unemployed.

Moreover, the problem of underemployment is far from universal. At Roger Williams University, 100 percent of the 2012 graduates from the School of Engineering, Computing and Construction Management are employed and in positions that require a college degree. High levels of employment are typical of graduates in professional programs. It is the liberal arts students who tend to struggle, at least initially. But this is not a new phenomenon: it has always been the case. Liberal arts students are broadly educated and change jobs frequently in the years immediately after graduation. In surveys taken 10 or 15 years after graduation, however, liberal arts graduates are often the alumni who are most satisfied with their lives.

Finally, there is the issue of matching cost with ability to pay. There is certainly nothing wrong with an individual with limited financial means applying to an expensive private college – one never knows what level of financial support the college may offer. The danger, however, is in overreaching financially. The usual rule of thumb is that one’s student debt at graduation should not exceed one’s expected first-year earnings. Rather than taking on significant debt to attend an expensive institution, many students would be better served attending a public institution, or a college within commuting distance (or both), as a way of limiting expense (and, therefore, debt).

A compromise position we are increasingly seeing at Roger Williams University is the student who attends a community college for two years, to save money, and then transfers for her junior and senior years to the private institution. This student still receives a degree from the private school, but does so at much less cost.

In an ideal world, private colleges and universities would work to become need-blind, meaning that they would fully cover whatever financial shortfall a student might have – and they would direct all of their financial aid dollars to meet need, rather than making merit awards to students with the capacity to pay the sticker price – and they would work to control their price to increase affordability for all students. But we don’t yet live in an ideal world. In the meantime, prospective students are best served by finding an institution they can afford to attend without having to borrow more than about $30,000 for their education.

Students would also be well served if, in choosing a major that did not lead directly to a specific type of job (that is, most liberal arts majors), they added a minor (or double major) from one of the professional programs, in order to have two areas of strength, not just one. This is the educational model we are strongly advising our students to follow at Roger Williams University.

The professional minor lets you arrive job-ready and makes you a very attractive job candidate for that all-important first job. The capacities and skills you receive from your liberal arts major allow you to climb the organizational ladder in ways that employees with just a professional major may not be capable of doing. (For that reason, we encourage students with professional majors to minor in one of the liberal arts.)

In short, student debt is only a problem if you aren’t making enough money to pay it off. Maximizing your skill set while broadening your world-view – making the most of your undergraduate years, while keeping debt under control – is the best option.