Student-Debt Debate Is Stoked by Caveats About Data

A debate is raging about whether rising student-loan debt constitutes an existential crisis in American higher education or the natural outcome of more Americans’ pursuing a college degree.

That debate was stoked this week by the release of Andrew Rossi’s new documentary film, Ivory Tower, and a report, by Beth Akers and Matthew M. Chingos of the Brookings Institution, that made waves on the Internet after David Leonhardt wrote about it in The New York Times on Tuesday. Here’s some of the debate:

To summarize, Mr. Rossi and several of the commentators are squarely on the side of crisis, while Ms. Akers and Mr. Chingos, along with Mr. Leonhardt, come down on “natural outcome.”

Mr. Rossi, who previously looked at the crisis in journalism in Page One: Inside The New York Times, focuses on the fact that total outstanding student-loan debt now exceeds $1-trillion and that average debt at graduation is now $33,000 per borrower, up 35 percent since 2005. Those oft-cited statistics paint a stark picture that, even accounting for the fact that more people are going to college, points to what Mr. Rossi calls the “unsustainable financial model of higher education.”

Ms. Akers and Mr. Chingos paint an entirely different picture with their report, titled “Is a Student Loan Crisis on the Horizon?” Their answer, for the most part, is “no.”

“All else equal, households with student-loan debt today are in a better financial position than households with debt were two decades ago,” they write.

To make their case, Ms. Akers and Mr. Chingos cite the ratio of monthly student-loan payments to income. The median borrower spent 4 percent of monthly income on student-loan payments in 2010. According to the report, the figure has stayed relatively constant over the past two decades.

In addition, the authors cite data that average annual household income grew $7,411 from 1992 to 2010 in inflation-adjusted dollars while average total student debt grew $18,000. In other words, the authors write, for a household with average debt and average income, “the increase in earnings received over the course of 2.4 years … would pay for the increase in debt.”

Ms. Akers and Mr. Chingos note that the relatively flat monthly student-debt burden is likely to be a result of historically low interest rates, which lower monthly payments, and longer repayment periods. The average repayment period rose from 7.5 years in 1992 to 13.4 years in 2012.

So while the monthly burden may be the same, graduates are repaying their debt for longer periods of time. That may be part of what has led other researchers to claim that people with outstanding student loans are less likely to start a small business or buy a home.

So who is right? As with many topics, the devil here is in the details, and the details, in this case, are in the numbers. The difference in the two positions is largely a matter of which data you look at and how. And as you might expect if you’ve been reading this blog, none of the data are without caveats.

Average debt at graduation, a ubiquitous figure in this debate, doesn’t account for borrowers who don’t graduate, and therefore may have lower average debt that they struggle to repay because of their lack of a college degree. It also doesn’t capture the different ways that people repay loans—some will repay on time or ahead of schedule, while others will incur additional debt by failing to pay enough on a monthly basis to cover the interest.

The monthly-debt figures cited by Ms. Akers and Mr. Chingos, by contrast, are based on households headed by 20- to 40-year-olds who are currently in repayment on educational loans. Those data come with problems of their own: They don’t include young college graduates with student debt who are living with their parents or other adults. They also exclude those who have defaulted or have received deferment or forbearance, an estimated 24 to 36 percent of all households with student debt, according to the report.

Clearly, no one data point will tell us everything we want to know about as complex an issue as student-loan debt. Together, though, the data—even with their weaknesses—help paint a more accurate, if more complex, portrait.

What the data suggest is that asking whether the American higher-education system is in crisis, or whether we are seeing the natural outcome of more students, is the wrong question. It may be better to ask: Is all this debt worth it to the students and to society?

To answer that question would require—you guessed it—more data.

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