Student Debt Is Growing but Is Not a National Crisis, Speakers Say

August 09, 2012

Warnings of an impending student-loan-debt bubble are sensationalized and overblown, said panelists at a national higher education conference here on Thursday, and those false alarms are distracting policy makers from real problems that are plaguing student borrowers.

Although the overall amount of student debt is on the rise, that increase is largely due to the growing number of borrowers and the rising cost of college tuition, said Kelly D. Edmiston, a senior economist for the Federal Reserve Bank of Kansas City. "The typical student borrower is not in crisis," said Mr. Edmiston, who was among the panel members speaking to the annual policy conference of the State Higher Education Executive Officers.

In fact, he said, the typical student borrower has a much different profile than is often portrayed in news-media reports on student-debt trends. In a study he conducted, which is yet to be published, Mr. Edmiston found that the median student debt—the middle range for all borrowers—is less than $14,000.

The average student debt is significantly higher, at more than $24,000, due to the 25 percent of borrowers who owe at least $30,000 for their college education.

Still, another quarter of student borrowers owe less than $6,000, Mr. Edmiston found, and less than 3 percent have debt exceeding $100,000.

Nearly 11 percent of student borrowers are now delinquent on their payments and, according to the most recent federal data, nearly 9 percent of student loans were in default in 2009, Mr. Edmiston said. Although the number of defaults is on the rise, it is nowhere near the 22-percent level of 1989 and still represents a tiny fraction of the federal budget.

While the level of student borrowing is not yet at crisis levels, speakers said, there are problems with the number and amount of college loans, and serious policy considerations that need to be made, such as how to better inform students about the amount of money that they really need to borrow and what kind of loan they are receiving.

In particular, the kind of students being targeted for debt has raised concerns about fraud and misrepresentation, said Michele A. Casey, an assistant attorney general in Illinois. In January, for instance, the Illinois attorney general filed a lawsuit accusing Westwood College of deceptively marketing a criminal-justice program that left Chicago-area students with up to $70,000 each in debt for degrees that failed to qualify them for the jobs they were seeking.

The suit alleges that Westwood, a for-profit chain with several campuses in Illinois, falsely convinced students they could pursue careers with agencies such as the Chicago Police Department, Illinois State Police, and suburban police departments. Those agencies do not recognize a Westwood degree because the college is not regionally accredited, according to the attorney general's office.

In order to think clearly about student loans, policy makers also need to consider the different short-term and long-term factors that are causing students to borrow, said Sandy Baum, a higher-education analyst at George Washington University. The economic downturn, for example, is causing an uptick in the number of students borrowing to got back to college, she said. But the increase in delinquencies and defaults may be more related to the quality of a college, whether students complete their degrees, and what kind of jobs they can get with the credentials they earn, she said.

"There are some very real problems, The but the headlines divert us from the real issues," Ms. Baum said.

Some of the ways to remedy thoese problems are for states and institutions to do a better job of informing students about their financial-aid options and the kinds of earnings they can expect when they graduate, panelists said.