The latest student debt figures are out, and they’re not pretty.
American college students owe more than $1.5 trillion, a total that grows about $80 billion a year. About 11 percent of that debt is either delinquent or in default, which is more than four times the delinquency rates for credit cards and residential mortgages.
Student debt is ballooning so badly that politicians on both sides of the aisle are looking for ways to address it. Sen. Bernie Sanders, I-Vt., has pushed to make public colleges “free.” Sen. Lamar Alexander, R-Tenn., wants colleges to prove whether their graduates are paying off their loans.
As usual, our elected leaders have missed the forest for the trees. They have decided that they have to “do something” about the student debt burden, but they haven’t asked whether borrowing to go to college is a good idea in the first place.
Whether taking on a student loan is a good idea largely depends on the amount by which a college education increases the student’s value on the labor market. Borrowing $80,000 to pay for a degree that increases a student’s expected lifetime earnings by $5 million is clearly a wise investment. But borrowing $80,000 to pay for a degree that increases a student’s expected lifetime earnings by $80,000 is, just as clearly, not.
Of course, a college education offers more than monetary value. But everything beyond the monetary value accrues to the person holding the degree. When discussing whether society should subsidize a student’s education, what matters is the value to society of the student’s education. The best measure we have of that are the wages employers are willing to pay the graduates.
Of the more than 400 college majors appearing in Payscale.com surveys, the average 45-year career earnings for college graduates range from almost $7 million (adjusted for inflation) for petroleum engineering majors, to about $1.5 million for piano performance majors. At first glance, even at the low end, a college degree seems well worth its cost.
But this ignores the alternative. The average high school graduate earns half what the average college graduate earns and faces a higher unemployment rate. But the high school graduate starts a career four years sooner and doesn’t rack up the around $88,000 average cost of a four-year degree. Adjusted for inflation, the average high school graduate earns more than $2 million over the course of a 49-year career. Compared with this, a number of college majors begin to look like poor financial investments. Majors in photojournalism, musical theater, elementary education, conservation biology and piano performance leave the student up to $500,000 worse off than if the student hadn’t gone to college at all.
We’ve been here before. A decade ago, the government interfered in the housing market by shielding private lenders from the consequences of making bad loans. Through the Community Reinvestment and Riegle-Neal Acts, Congress pushed banks to extend mortgage loans to high-risk borrowers. In 1996, the Department of Housing and Urban Development instructed Fannie Mae and Freddie Mac to buy high-risk mortgages from banks, enabling banks to make even more high-risk loans, and leaving taxpayers on the hook for any unpaid loans.
Always able to learn the wrong lesson from a painful experience, Congress repeated its errors in 2010, when it directed the Department of Education to do for the college loan market what Fannie Mae and Freddie Mac had done for the housing loan market. Through the Department of Education, the federal government now lends directly to students. Once again, Congress is forcing taxpayers to bear the consequences of borrowers’ decisions to take on debts that the borrowers might not be able to repay.
And now some elected leaders want to make college “free,” while others want to make colleges “accountable.” None of them seem to ask the basic question, which is the only question that actually matters: What is college worth, and to whom? They don’t ask these questions because they know the answers are complicated, and that they will yield neither a compelling sound bite, nor a clear one-size-fits-all policy. But sometimes, seeing the difficult forest means looking past the easy trees. And $1.5 trillion in student loan debt is a very difficult forest.
Antony Davies is associate professor of economics at Duquesne University in Pittsburgh. James R. Harrigan teaches in the department of political economy and moral science at the University of Arizona in Tucson. They wrote this article for the Philadelphia Inquirer.