Is the Student Loan Crisis Really a Crisis?

Or have hyperbole and hysteria created a misperception?

For the past 18 months, the media (and, subsequently, the politicians) have been focused on the rising tide of student debt. Two issues have attracted particular attention: first, the fact that total student debt has (a) exceeded $1 trillion, or, expressed alternatively, (b) exceeded the total of credit card debt; and second, the fact that some individuals have accumulated more than $100,000 in student debt.

News stories have become increasingly frantic. For example:

  • In a March 9 editorial, The New York Times cited a federal analysis from 2009 that “found that 10 percent of borrowers with private loans were spending more than 25 percent of their incomes in monthly payments.” But of the 60 percent of students who borrow, only about one-third (20 percent) have private loans – so the 10 percent of private borrowers who are spending more than 25 percent of their incomes in loan payments represent just 2 percent of all graduates. Those large payments are a huge problem – but only for a very small number of individuals.
  • A post on May 7 was headlined “Bankers Warn Fed of Farm, Student Loan Bubbles Echoing Subprime.” That’s a pretty scary headline – but the article conflates a meeting of the Federal Advisory Council on February 8, 2013, relating to farmland prices, where the term “bubble” was in fact used, with a meeting of the same group a year earlier (February 3, 2012) relating to student loan debt, where “bubble” was not used.

There is no question that student debt is a serious matter – but hyperbole and hysteria don’t help. Consider the following:

  • Adjusted for inflation, the average debt for graduates in 2002 was $23,400 – not a great deal less than the class of 2011’s average debt of $25,300. (Both figures are from the College Board’s 2012 study, Trends in Student Aid.)
  • Those figures refer to the 60 percent of graduates who borrow at all. Average debt for all graduates (borrowers and non-borrowers), expressed in inflation-adjusted dollars, was $14,600 in 2002, and $15,100 in 2012.
  • For students who enrolled in the 2003-04 academic year, only 1 percent graduated with more than $75,000 in debt; another 1 percent had between $50,000 and $75,000 in debt.
  • Student debt is by no means a uniquely American problem. The average student debt in England in 2012 was between £16,000 and £26,000 (roughly $24,000 to $39,000). In Canada it was $27,000. (, Dollars and Sense: A Global Look at Student Debt)

Higher education is expensive, and the public is rightly concerned with the escalation in tuition prices over the past 30 years. For the good of our democracy, it is past time that colleges and universities addressed their moral obligation to create affordable access to higher education for students with the ability and commitment to obtain a college degree.

Yet higher education remains one of the most productive investments one can make in his or her future – and taking on a manageable amount of debt (no more than about $30,000), should such an action be necessary to finance one’s education, is a sound economic strategy.

Of course, that kind of statement doesn’t sell newspapers. On the other hand, these days, what does?