How Bad Is It?

The student debt problem is not as bad as hysterical headlines might make you think, nor as benign as some make it sound, writes Jacob P.K. Gross. It is most serious for some vulnerable groups.

November 8, 2012

Just how bad has the student loan burden become? Rhetoric of crisis dominates the current popular discourse, while a few voices call for calm, noting that the average amount of student indebtedness is roughly equivalent to the price of a new car. Obscured by the dueling perspectives and the attention-grabbing headlines, though, is a more disconcerting picture revealing that all groups and types of students do not carry the growing debt burden equally: Lower-income households, women, and students of color are most affected by the mounting debt. 

There is no shortage of alarming news stories. A recent headline in an article from the Gannett News Bureau raised the specter of a generation being threatened by debtor’s prison. Rohit Chopra, the ombudsman for the Consumer Protection Financial Bureau, has likened the current student loan situation to the mortgage crisis, a sentiment echoed by Michelle Singletary in The Washington Post. Even Defense Secretary Leon Panetta has sounded an alarm, noting that service members should not have to struggle to pay off college debt given their sacrifices. 

Financial aid experts call such stories sensationalist, rightly noting that they often focus on outliers. For example, according to Mark Kantrowitz, for students who graduated with a bachelor’s degree in 2011, the average debt was about $27,000, roughly the cost of a new car. So, are we on the precipice of another economic crisis or has exaggerated reporting warped our sense of perspective about a lifelong investment (which is actually cheaper than the Forbes-reported average new car price of $30,303)?

Kantrowitz and others are right to try to restore our sense of perspective on the matter. Nonetheless, there is something unsettling to me about the focus on cumulative national student loan debt, average debt, or those statistically rare students with six-figure burdens. As a student of postsecondary education concerned about economic and social stratification, I wonder what types of students might be missing from the national debate. A review of recent reports including those that disaggregate the data more finely is telling.   

A report by the Consumer Financial Protection Bureau, which has been widely reported, indicates that the $1 trillion and growing debt amount has surpassed credit card debt. Private student loans are estimated to make up about $150 billion of the total. However, this figure does not include capitalized interest, which according to Kantrowitz likely increases the total debt by about $50 billion. The average amount of debt was $26,682, while the median was $13,410, meaning the majority of households owed less than $14,000. However, about 10 percent of households owed more than $62,000. About 850,000 loans are currently in default.  Total national student loan debt grows by roughly $2,853.88 per second, based on calculations done by Kantrowitz.

Analysis of data from the Consumer Finances Survey by the Pew Research Center illuminates finer-grained contours of the student loan landscape. First, younger households are bearing the brunt of the debt burden. About 19 percent of households carried student loan debt in 2010, the latest year for which data are available, compared to nearly 40 percent of households headed by someone under 35. Over all, households under age 45 held 70 percent of all debt. Younger households tend to have lower incomes and less wealth than older households. However, households with heads who completed college hold most student loan debt (about 70%), suggesting that the debt burden might in part be mitigated long-term for this group by greater lifetime earnings (although this remains to be seen).

Student debt has grown for all income groups, but it is a greater burden for the lowest-income and least-wealthy households. For example, between 2007 and 2010, the lowest-income households saw an increase in the proportion of annual income represented by student loans. In 2007, student loan debt constituted about 15 percent of household income, whereas by 2010 it was 24 percent. This compared to 1 percent and 2 percent in 2007 and 2010, respectively, for the highest-income households.  In terms of assets, student loan debt represented 2.2 percent of total household assets for the lowest fifth of households compared to 0.2 percent for the richest tenth, according to the Pew report. 

Student loan debt may affect women and men differently. A 2009 report from the American Association of University Women found that women and men borrowed about the same amount. However, women earn less on average than men, so more of their income was needed to repay the loans. In 2009 about 47 percent of women were paying more than 8 percent of their salary to student debt compared to 39 percent of men. Similarly, 20 percent of women were paying more than 15 percent of their salary for debt compared to 15 percent of men.

A synthesis of data by the Center for American Progress (CAP) also indicates that students of color may be disproportionately affected by loan debt. Students of color tend to borrow more and to have higher unemployment rates, and they are less likely to graduate compared to white peers. For example, about 27 percent of African-American bachelor’s-degree recipients had debt of $30,500 or higher compared to 16 percent of their white peers, according to a 2010 study by the College Board Advocacy & Policy Center.

These data show that while the average debt burden may not be an enormous crisis, the burden is being borne disproportionately by some groups whose access to education remains limited. This alone is cause for concern.

The growing clamor over loan debt should be tempered, though, with a clear-eyed focus on at least three points.

First, the so-called debt crisis is at least partially a consequence of a deliberate policy shift away from grants and toward loans as a tool for students financing their postsecondary education. As recently as 1991-1992 grants constituted 64 percent of total financial aid funds for all undergraduate students compared to 34 percent for loans. In 2011-12 grants and loans made up 51 percent and 40 percent of total financial aid funds respectively, according to data from the College Board Trends in Student Aid Report. These averages likely obscure differences among groups, but the point remains that to some extent this is a manufactured crisis.

Second, earning a postsecondary credential is worth incurring some debt. Anthony Carnevale and colleagues at the Center on Education and the Workforce concluded in their recent study "The College Advantage: Weathering the Economic Storm" that people with bachelor’s or associate degrees fared better during the recent recession than those with a high school education or less. In fact, during the economic recession bachelor’s-degree holders as a group lost no ground in terms of overall employment, and they gained 2 million jobs during the recovery. Earnings of bachelor’s-degree recipients fared similarly, dipping during the recession somewhat but then recovering afterward.

Third, higher education is often surrounded by talk of crises. Robert Birnbaum and Frank Shushok Jr. pointed out in their study a decade ago that claims of crisis swirl almost constantly around higher education. Looking at periodicals from 1970 to 1994, they concluded that concerns about college finance rise to the level of a pandemic crisis. It was the most frequently cited, accounted for 27 percent of all references to crisis, and occurred every year. To some extent, contemporary coverage of student loan debt appears to be the latest iteration of the pandemic.

How bad is the student debt burden? The answer to this question is not simple. Recent coverage is sensational and overlooks context. Likewise a focus on averages obscures subtle but important differences in who bears the heaviest burden. The level of concern being exhibited now is healthy. However, we could do with less rhetoric and fewer car comparisons, and instead couple thoughtful debate with sound research and a commitment to action.


Jacob P.K. Gross is an assistant professor of higher education at the University of Louisville, with a focus on financial aid, diversity policies and student mobility.


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