Student debt: not a crisis but certainly a growing problem

by Grace

A recently published study by the Brookings Institution, supported by David Leonhardt’s commentary in the New York Times, downplays the growing student loan problem.  But other commentators have raised issues about the study’s data, and even questions about conflicts of interest have surfaced.

The Brookings report asked “Is a Student Loan Crisis on the Horizon?”, and the authors found that “the impact of student loans may not be as dire as many commentators fear”.  Fair enough, but criticisms about the study’s sloppy data analysis include:

  • The statistic that only 7% of borrowers have student debt balances greater than $50,000 is challenged by findings from the New York Fed.
  • Measures of student debt exclude borrowers living in households “led by anyone over 40”, effectively missing young borrowers living with their parents.
  • Borrowers who were not making payments on their student debt were also excluded from the findings.  Interesting, since this would include cases where loan payments were postponed as a way to avoid defaulting.

The role of the Luminara Foundation’s donations to Brookings and to the study’s authors looks a little suspicious to Malcolm Harris .

… When the Obama administration nationalized 85 percent of higher education lending in 2010, executives like the ones who now sit on the Lumina Foundation board were the big losers. Since then, college costs have continued skyrocketing, but the tens of billions in profits have gone to the Department of Education instead of private lenders. If you were them, and you were angling to get back in the game, the first step would be to edge the government out, either by getting the feds to withdraw or by keeping costs rising faster and higher than DoE loan limits. Graduate loans are a great place to start in a divide-and-conquer strategy, so it’s no surprise that Delisle concludes in favor of shrinking the government’s role. Nor is it surprising that Akers and Chingos can’t find a cost crisis, even though theirs is a fringe minority opinion among higher education analysts and investors.

Most people probably agree that the student loan issue is a not a crisis, but is a slowly growing problem.

… The student debt bubble isn’t going to explode like the housing bubble. Instead, it’s going to fill slowly as it grows over decades, burdening borrowers further and further into the future….

It’s certainly worth paying attention to it, and trying to find ways to diminish its negative effects on college costs and on the economy in general.

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Beth Akers and Matthew M. Chingos, “Is a Student Loan Crisis on the Horizon?”, Brookings Institution, June 24, 2014.

Choire Sicha, “That Big Study About How the Student Debt Nightmare Is in Your Head? It’s Garbage”, The Awl, June 24, 2014.

Malcolm Harris, “The college-cost denial industry”, Al Jazeera America, June 27, 2014.

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