All posts by Lance Lambert


The Hidden Portion of Student-Loan Debt

More than six years after the 2008 financial crisis, American families have reduced household debt by about $900 billion.

But one type of debt has been difficult to clear: student loans. That debt continued to grow during and after the downturn, and is now greater than both auto-loan and credit-card debt.

As of the end of 2014, outstanding student-loan debt topped $1.3 trillion. About $1.1 trillion of the total came from federal student-loan programs; the remainder was from private lenders.



How Corinthian’s Student Body Measured Up Against Other For-Profits: 4 Takeaways

Corinthian Colleges Inc. made waves in higher education this week when it announced it would abruptly close its remaining campuses, displacing 16,000 students. The campuses — operated by the Corinthian subsidiaries Everest College, Everest Institute, Heald College, and WyoTech — were located mostly in California and other western states.

Corinthian’s collapse followed years of government scrutiny and plummeting enrollments across much of the for-profit sector. The last few years have been rough …


How Lots of Community-College Data Fall Through the Cracks

Community colleges have recently been thrust to the forefront of higher-education policy. From state lawmakers pushing new ways to answer work-force needs, to President Obama’s proposal to make the colleges free, the attention on community colleges is sharpening.

Coverage of issues regarding community colleges has included a sprinkling of community-college statistics, some of which may be skewed by leaving out certain institutions that are traditionally thought of as community colleges.

For inst…


Student Loans Are Poorly Aligned With Graduate Earnings

Student-loan payments are the bane of many new graduates. A recent analysis by the Brookings Institution explains why: The typical new graduate is likely to devote 14 percent of his or her paycheck to student loans. That’s about half of what the average American spends on housing each month.

It’s even worse for students who graduate with fine-arts or therapy degrees. They can expect to put more than 20 percent of their pretax income toward paying off student loans. Good news for nursing and engineering majors, though. They’ll need to dedicate less than 10 percent of their initial income to student loans.

Of course, over the typical 10-year repayment plan, those percentages should drop for most graduates. According to the Brookings analysis, the share of a typical graduate’s income devoted to student-loan payment drops to 6.5 percent a decade after graduating.

That’s because the median graduate’s earnings climb 65 percent in the five years following graduation, the researchers found, while student-loan payments stay fixed. For many graduates, that pay jump makes hefty loan repayments more manageable.

A lower percentage of income going toward student-loan repayment might help a recent graduate make ends meet, but it’s still a substantial burden. For comparison, the most recent U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey reports that the average person in 2013 spent 7.1 percent of his or her income on health care, 17.6 percent on transportation, and 33.6 percent on housing-related expenses.

Possible Solution; Restructure Repayment

It might be better for graduates, the Brookings study’s authors say, to structure student loans so they aren’t so burdensome immediately after graduation.

“The timing of paying back the debt, and the payoffs or benefits of college are off,” says Brad Hershbein, a researcher at the Hamilton Project, an economic-policy initiative at Brookings, and co-author of a report on the study.

College graduates pay off almost all of their debt during the first 10 years after they graduate, when they have the lowest income of their career. An income-based repayment plan might make more sense, Mr. Hershbein says, especially for those whose degrees pay less out of the gate but increase over time. For example, such a plan could benefit graduates who majored in art history and criticism and who face initial loan payments equal to about 16 percent of their median earnings before dropping to 8 percent a decade after graduation.

But for mechanical-engineering majors, the traditional repayment method may make more sense because the median graduate will put about 7 percent of his or her income in the first year toward student loans.

That’s because income-based repayment plans come with a big downside: Graduates end up paying more interest.

To help students figure out which plan would be best for them, the Hamilton Project created an interactive calculator.

Students enter their majors, projected student-loan debt, and interest rates on their loans. The calculator then shows how much of the income earned by a typical graduate with that major will go toward student-loan payment.

Business Cycles Can Play a Role

However, the calculator cannot take into account economic shifts. The timing of a student’s graduation and the economy the student graduates into can have a major impact on what repayment plan makes the most sense. For example, the median annual earnings for 25-to-34-year-olds with bachelor’s degrees was $55,000 in 2007 (adjusted to 2012 dollars). However, as the economic downturn worsened, wages fell for four straight years, and as of 2012 earnings for that group were $8,000 below pre-recession levels, based on data from the National Center for Education Statistics.

As a result, people who graduated during that period probably devoted a higher percentage of their income to student-loan repayment (on top of lower career earnings).

The Rise of Income-Based Repayment Plans

Income-based repayments plans are increasing in popularity, according to the Education Department. The latest data show that in the 18 months from April 1, 2013, to September 30, 2014, participation in the federal Income-Based Repayment plan more than doubled, to $102.5-billion in loan volume.

During that same span, the number enrolled in the Pay as You Earn program grew eightfold, to 320,000 direct-loan borrowers, with $12.2-billion in outstanding debt.

President Obama expanded the Pay as You Earn option in 2011 to include more graduates who face financial hardship. Qualified graduates can have their student-loan payments capped at 10 percent of their discretionary income and, depending on qualification, can have the loans forgiven after 20 years. There is also the Income-Contingent Repayment plan, which is a income-based repayment plan that does not have a not have an initial income eligibility requirement.

None of the plans cap private loans, and most Parent PLUS loans are not eligible.



Free Fall in For-Profits’ Enrollment May Be Slowing

Between government investigations and plummeting student numbers, for-profit colleges have had a rough few years.

Dozens of colleges saw double-digit drops in enrollment, and in 2012 a U.S. Senate committee released a damning report on the for-profit-college sector, concluding that some colleges had dropout rates above 50 percent and that the industry was spending more on marketing than it was on instruction.

However, new enrollment data suggest things may soon be looking up for the sector. Anal…


Underemployment Hits Recent Graduates the Hardest

Stories of college graduates working as baristas and taxi drivers have played into a narrative about how college-degree recipients are struggling to find work that uses their education.

At the same time, the U.S. Bureau of Labor Statistics reports that the jobless rate for workers with at least a bachelor’s degree fell to 2.9 percent for the month of September. How can both be true? Many of those with jobs are considered “underemployed,” since they are in jobs that don’t require a college degree…


Is a Degree Still Worth It? Yes, Researchers Say, and the Payoff Is Getting Better

One could be excused for thinking the value of a college degree is in a downward spiral. With overall student-loan debt topping $1-trillion and tuition racing upward, to college graduates facing high levels of underemployment and stagnating wages, it might appear college simply isn’t worth it.

However, a study released on Tuesday by two researchers with the Federal Reserve Bank of New York concludes the opposite is true: The value of a bachelor’s degree is near an all-time high.

The researchers,…