Day: 2012/03/07

NY Fed Researchers Believe High College Tuition is Necessary

Data on student loan debt isn’t easy to come by. Rightly or wrongly there’s much reliance on’s student loan debt clock, and wrongly, there’s over-reliance on ED’s two-year cohort default rate. That’s why I hope people take a good long read of the NY Fed’s report on student loan debt based on data supplied by one of America’s three favorite credit reporting agencies, Equifax! Oh don’t make that face; its name is cool!

Some facts:

  • As of Q3 2011, the NY Fed calculates outstanding student loan debt at $870 billion. This is lower than the debt clock.
  • Of the 241 million people whose credit Equifax tracks, 37 million (15.4 percent) have student loans. I’m guessing this is an accurate tally of the total, for the people who’re least likely to have credit scores are too old, too poor, or too young to have any debt. I could be wrong though.
  • 40.1 percent of those under 30 have student loans as opposed to 25.1 percent of those aged 30 to 39 and 7.4 percent over 40.
  • Yet, 14.7 million people under 30 have $294.93 billion in student loan debt (a third of the total). The average 20-something with student loan debt has about $20,000, which is lower than the total average, but importantly these figures include many current students who are just starting college and will take on more debt as they advance towards their degrees.
  • The median student debtor has $12,800 in debt, which is about half of the average ($23,300). Again, this also excludes the fact that many people whose debts are in the low end are either current students who will originate new loans to complete their degrees or older borrowers who are close to retiring their debts.
  • 75 percent have less than $28,000; 10 percent have more than $54,000.
  • 1.1 million people have more than $100,000 of debt; 167,000 (0.45 percent) have more than $200,000. Lord knows how many of them went to law school. I’m guessing it’s an unusually high proportion.

Here’s the researchers’ image of the distribution:

  • Only a quarter of the 10 percent of student loans that are “past due” by conventional definitions is held by people under the age of 30. This is damning evidence that the cohort default rate shouldn’t be relied on. Pray that the young will avail themselves of IBR.
  • Although some of their definitions are questionable, the researchers found that 47 percent of loans were in deferment or forbearance, and 27 percent of the adjusted number of borrowers (20 million) had student loans that were “past due,” well north of the rates for credit card and mortgage debt. That’s 5.4 million people that are or in or near Default Country, where flavor is king and debt is permanent.

These findings are about what I expected. The researchers claim they’ll update us quarterly, which is good news because it’ll allow us to see who’s taking on the inevitable increases in student debt. If the percentage of high debt holders increases faster than the low end, then we’re watching the tuition/debt disaster unfold. Conversely if the number of low-end holders increases more rapidly it means people are paying it down or taking on less debt for college (or more people are enrolling in cheaper undergrad programs relative to more expensive ones). Either way, so long as the ratio of student loan debt keeps increasing faster than GDP with no jobs or salary payoff in sight and low inflation—as it’s projected—then this will be an embarrassing disaster for the government, with some wrecked lives as a bonus.

However, the researchers don’t see the connection between access to debt causing tuition hikes.

“In addition to worries about the volume of outstanding student debt, there is concern about having enough federal aid to support the large number of students taking up postsecondary education. Federal and state governments are deeply involved in the student loan market, either directly originating student loans or indirectly guaranteeing them … [A]dvocates for students clamor for more to be done to increase the availability of student loans. Further, state budget cutbacks to higher education amid tight fiscal circumstances may result in higher tuition.”

Lack of sufficient aid isn’t the problem, tuition is, but the Fed researchers think education must be expensive. Furthermore, I’d like to know who these “advocates for students clamoring for increased availability for student loans” are. I do know of plenty of advocates who think that tuition should be cut or that cheap student debt shouldn’t be readily available.

Then the LA Times picks up the story and runs in precisely the wrong direction.

W. Norton Grubb, a professor at UC Berkeley’s School of Education, is worried that rising debt levels are forcing some students to drop out. Only 40% to 50% of those enrolling at universities such as the California State University schools end up completing their degrees, he said.

Such figures have helped bolster a long-held belief by scholars that America’s declining or stagnant college graduation rates have become an Achilles’ heel in the competitive global economy.

Again, high tuition is the problem, not high debt forcing people to drop out. Notice also what the professor isn’t saying. He isn’t saying that dropouts are suffering under debts with no degrees to show for it. Nor is he saying that tuition is too high, perish the thought. (Edububble occasionally accuses UC of packing its seats with out-state students so it can charge them at the out-state rate for at least a year. Hey, those UC police lieutenants aren’t going to pay themselves $100k to pepper-spray nonviolent, seated protesters.) Rather, he’s saying we need to send even more people to college to compete in the “globalized economy,” which really means running a trade deficit to borrow money to buy oil, land, consumer goods, and budget deficits wasted on tax cuts for rich people and endless warfare. If you’re curious about the “globalization” angle, read Peter Wood instead.