College education in America is an increasingly expensive investment. The full sticker price (tuition, fees, room, and board) of a bachelor’s degree from an elite American college is quickly approaching a quarter of a million US dollars. More and more students are borrowing to pay for college, and the average debt per borrower is increasing. According to June 2014 report from the White House, 71% of bachelor’s graduates finish college with debt averaging almost $30,000. Defaults on student loans are rising. A few years ago Bloomberg ran an influential series called “indentured students” about the student-loan “nightmare” that is “imprisoning students in a lifetime of debt.” Want to join the chorus about crippling student-loan debt? Try StudentDebtCrisis.org among others.
I won’t be joining the chorus of voices espousing the student-debt “crisis,” though. Naturally, I wish that no one had to borrow to go to college. I wish that college education was free for everyone. I also wish that no child ever grew up hungry; no one was ever denied adequate medical care; that we could live without injustice and oppression; and so on. But the reality is that we live in a world with overwhelming social issues. And compared to the social-issue mountains, American student debt is a molehill.
Average student debt compared to average earnings
The debt number noted above and in recent media articles (almost $30,000) somewhat overstates average student loan debt. The number is for four-year graduates only, and it is the average debt of student borrowers, not all students. If we include the 29% of four-year students graduating debt-free, the average student-loan debt is nearly $21,000. Still, $21,000 of debt for an average new bachelor’s graduate is daunting.
Or is it? The average new bachelor’s graduate (not counting those going to obtain advanced degrees) can expect to earn $1,383,000 more over their lifetime compared to an average high school graduate with no college. This nearly $1.4 million does not include any wage inflation (it is in 2012 dollars), and it takes into account four years of forgone earnings while in college. In fact, this estimate errs on the conservatively low side for several reasons. For example, it does not include the value of employer-paid fringe benefits such as contributions for health insurance and retirement programs. Nor does it include any of the important nonmonetary benefits such the better health and longer life expectancies associated with college attainment.
On average, the imprisoning indentured student debt is 1.5% as large as lifetime college earnings premium, conservatively measured. If $21,000 of debt and $1,383,000 additional future earnings is crippling, then I wish this infliction on more Americans. Indeed, I am actively encouraging this infliction on my own children.
Not everyone is average
A risk of comparing averages is that it glosses over non-average outcomes. What about the graduates with more-than-average debt and less-than-average post-college earnings? This is the nightmare scenario. Although we hear about these truly unfortunate situations, they are less common than suggested by the averages. That is, the average (median) graduate faces a student debt that is even less than 1.5% of the additional earnings noted above.
Nearly 70% of Americans with student-loan debt owe less than $25,000, while less than 4% owe $100,000 or more. The large borrowing by a small proportion of borrowers skews the average upward. And who are the largest borrowers? Mostly those obtaining advanced degrees (in law, medicine, etc.), who have a much larger college earnings premium than the $1.4 million mentioned earlier.
Examination of student-loan default rates is revealing. Default rates are the highest for those dropping out of college (and with the least debt) and are the lowest for those obtaining advanced degrees (with the most debt, on average).
The real issues are college access and persistence
The rhetoric about rising student debt, and on rising college costs, casts the spotlight on the wrong enemy. Rising student debt and rising college costs are not preventing most young Americans from a college education. About two-thirds of high school graduates enroll in college right out of high school, despite the rising costs and borrowing. The real enemy to greater social prosperity and greater equality are the barriers to college attainment.
The barriers to greater college attainment are inadequate college preparation for disadvantaged youths and the net price of college education facing low-income households. This is where we should focus our attention.