Don’t believe the student loan crisis hype

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Google “student loan crisis” and you get 58 million results. Over and over and over again, we are told that today’s college students, particularly those who pursue a four-year degree, are saddled with debt so large that they are more likely to be paupers than prosperous.

So as conventional wisdom goes, high school graduates (except for our own kids, of course) are better off forgoing a four-year degree and learning a trade at a community college or in an apprenticeship program.

There is one problem with this oft-told story: It is simply not accurate. America does not have a student loan crisis. And that’s not to mention that the behind-in-payment rate for those with a bachelor’s degree is substantially lower than for those who have an associate degree or no degree, including those with non-degree credentials.

Compelling evidence of the absence of a student loan crisis comes from The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2020. An entire chapter of the report is devoted to student loans.

The Fed’s key findings

  • The share of adults who were behind on their payments is much lower when accounting for all borrowers, including those who had completely repaid that debt. Among those who have ever incurred debt for their education, 9% were behind on their payments at the time of the survey, 42% had outstanding debt and were current on their payments, and 49% had completely paid off their loans.
  • The median amount of education debt in 2020 among those with any outstanding debt for their own education was between $20,000 and $24,999.
  • Among those with outstanding debt from their own education, 18% were behind on their payments. Those who did not complete a degree were the most likely to be behind. Thirty-one percent of adults who had education loans outstanding and who had less than an associate degree reported being behind. This compares to 22% of borrowers with an associate degree. The delinquency rate was even lower among borrowers with a bachelor’s degree (9%) or graduate degree (8%).
  • Repayment status also differed by the type of institution attended. More than one-fourth of borrowers who attended for-profit institutions were behind on student loan payments, versus 10% who attended public institutions and 5% who attended private not-for-profit institutions.

It is accurate that for student loan borrowers under 40, first-generation students and Blacks and Hispanics have higher shares of adults behind on their payments: 16% for first-generation students vs. 4% for non-first generation students; 23% for Blacks and 20% for Hispanics, compared to 4% for Asians and 6% for whites.

The most important finding may well be the self-reported well-being of 18-39-year-olds by education attainment and student loans status:

  • Of those who never took out a student loan, 93% of those with a bachelor’s degree or more say that they are doing at least OK financially, compared to 74% of those with some college or a technical or associate degree.
  • Of those who have paid off their student loan, 92% of those with a bachelor’s degree or more say that they are doing at least OK financially, compared to 65% of those with some college or a technical or associate degree.
  • Of those 18-39 still paying off a student loan, 80% with a bachelor’s degree or more say they are doing at least OK financially, compared to 52% of those with some college or a technical or associate degree.

When asked about changes they would make to earlier education decisions, only 5% of those with a bachelor’s degree or more said they would not attend college or get less education and 35% said they would have completed more education. This compares to 65% of those with an associate degree who said they would have completed more education and 71% of those with some college or technical degree. So large majorities of those who attended college but without a bachelor’s degree say they did not get enough education. They also don’t believe the oft-told story that pursuing more education is no longer worthwhile.

All of this adds up quite conclusively to there is no student loan crisis. Nine percent behind on student loans does not add up to a student loan crisis. A typical loan of $20,000 to $24,999 does not add up to a student loan crisis.

Even more clearly, we do not have a student loan crisis among recent college graduates with a four-year degree or more. The report shows delinquency rates for those with a bachelor’s degree or more are far lower than for those with an associate degree or less. And well-being rates are significantly higher for those with a bachelor’s degree compared to those with an associate degree or less for both those who have paid off their student loans and those still with debt.

Lou Glazer is president of Michigan Future Inc.

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