Elitist Higher-Ed Propaganda
UPDATE: Follow the money.
David Leonhardt recently published an article for the New York Times entitled "The Reality of Student Debt Is Different From the Clichés." In the article, he eloquently pushes back on warnings about increasingly burdensome student loan debt by examining a study from Beth Akers and Matthew Chingos, both of the Brookings Institute, entitled "Is a Student Loan Crisis on the Horizon?" There are numerous flaws in the article and the research, which ironically attacks unidentified "commentators in the media" to deliver a controversial punchline. The conclusions drawn by Leonhardt, Akers and Chingos simply don't match the data.
The study primarily draws upon a cross section of SCF data where the subjects were heads of household with degrees from 1989 to 2010. The problems with extrapolating conclusions from this data is that the authors have widdled the data subset from a limited survey down further and eliminated necessary variables. For example, the type or level of college degree is not specified, it is simply stated "college degree" or "some college" (which was not included.) Heads of household favorably represent the charts they are wanting to show and does not include statistics that would drag earnings rates down and debt rates up, i.e. the growing number of students that are moving back in with their parents, or are claimed as dependents, after they receive a degree (perhaps even a 2-year degree.) The authors note that debt rates were listed as the amount initially borrowed instead of the amount owed and does not include any consideration for compounding interest rates that would likely negatively skew these numbers. Another potentially alarming inconsistency is the age range of subjects.
"In this analysis, we build on the limited existing empirical evidence on student loans by using data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) to examine how and why education loan balances have evolved over time. Previous research has used the SCF to report trends in education debt for the U.S. population and various subgroups (see, e.g., Fry 2012). We contribute to this line of research by focusing on households led by adults between the ages of 20 and 40 (those most likely to be paying off their own student loan debt) and measuring the extent to which changes in degree attainment, tuition, demographics, and borrowing behavior have contributed to the observed increase in student debt. We find that changes in educational attainment, particularly the rising share of households with graduate degrees, explain about a quarter of the rise in loan balances. Increases in tuition are likely the largest driver of debt increases, but data limitations make it difficult to accurately quantify that impact." (Page 4)
The chosen age range for the subjects is especially curious considering that most students do not graduate until they are 22 (at least) and most loans allow for a 6-month grace period after graduation, ages 20-40 seem arbitrary and meaningless. Additionally, the SCF data doesn't deliminate age statistics based on the criteria chosen. Instead, statistics are listed for respondants younger than 35 and between 35 and 44. Perhaps I'm not looking at the right data? Finally, the data range is especially unfortunate. The 2010 SCF data limits the study substantially, it predates the CFPB $1 Trillion milestone by two years, and the doubling of the stafford loan interest rate by more than three years, which is clearly ballooning total debt amounts. For a better model about the effects of loan debt using the exact same data, see this excellent article by Robert Hiltonsmith.
Charts & Content
Here are the generated charts from the article without commentary.
Not exactly the "not so bad" portrait painted by the authors of the study and the article. Pay close attention to the date range and general trends, i.e. debt rates are climbing steadily, a trend visible even in 2010 among the ideal data presented here. The authors claim that the amount of payments as a percentage of income is has come down and/or remained steady, this is because of the success of income-based and income-contingent repayment programs, NOT an example of how the situation is less dire. It simply means that payments are stretched out and accumulate much more interest. Instead of repayment based in a few years, decades are the new normal. The study attributes importance to the ratio of large-debt to median to small-debt holders, but this metric is largely meaningless because debt levels will always vary between schools and individual student need... doctors will always need to borrow more to complete school than teachers. It is irrelevant to the "crisis of debt" conversation. Leonhardt conveniently does not mention total debt amounts for individuals and nationally. This is also left out of the executive summary of the Akers/Chingos study and burried in the content with numerous questionable caveats.
Why these researchers/authors have chosen to deliberately mask the reality and economic detriment of the issue is beyond the scope of my little blog (track record of pro-loan lobby? see update) The truth is that debt amounts are ballooning due to increased costs and increased interest rates. The total american student loan debt amount has surpassed 1 Trillion, a 3-fold increase in less than a decade and Stafford loan rates have doubled to 6.8%. Since 1978, tuition rates have increased 1120%. After healthcare, the student loan/cost-of-education problem is the next most pressing crisis for the United States. It is not cliche. It is a real and significant reality for MANY prospective students and former students. Understandably though, it can be hard for elitist ivy-league graduates to grasp reality for the majority of us struggling with loan debt and college costs.
Image Credit: https://flic.kr/p/b5B5iD