While an average debt number that high is unnerving, it turns out that median debt, as Andrew Rotherham has pointed out, is much lower at $12,800. So what to make of the difference between the average and the median debt loads?
And sitting in tension with the supposed crippling cost of college is another thing everybody knows: college is a really good investment. This second bit of conventional wisdom turns out to be correct. As the Washington Post has reported, the difference in annual income between college grads and those who finish high school but never go to college is more than $20,000 per year, which translates to hundreds of thousands of dollars over the course of an earner’s lifetime. And the gap is even bigger between those with professional degrees and those high-school-only grads, at just under a $60,000 difference in annual income. To put that in perspective, as the New York Times has pointed out, the return on investment from college is greater than stocks, gold, and 10 year treasury bonds.
The president’s remarks about college highlight these conflicted feelings about the value of higher education. For example, over the summer, he told an audience in Buffalo, “A higher education is the single best investment you can make in your future...On the other hand, college has never been more expensive.” That we simultaneously believe college to be such a valuable investment and way too expensive ought to show us just how exaggerated our concerns over college debt have gotten.
But if you still have some leftover anger that you would like to direct at something related to higher education, let me suggest one little-discussed feature of student loans: their treatment under bankruptcy law. Traditionally, most types of debt are forgiven when you declare bankruptcy. But that is not true for student loan debt. As Xiaoling Ang and Dalié Jiménez explain in their paper on the subject, although the inability to discharge student loans in bankruptcy has been true for federal loans for quite some time, it wasn’t the case for private student loans until 2005.
Private loans are pretty shaky business before you even begin to talk about their bankruptcy treatment. In this summer’s debate over student loan interest rates, much was made of the difference between interest rates of 3.4 percent and 6.8 percent. It is in that context that you should understand the interest rates that Ang and Jiménez cite for private loans in 2011 of between 2.98 percent and 19 percent. And many of these are variable rates. But as the authors explain, the federal government gives a loan to virtually every US citizen at a qualifying institution who asks for one and therefore uses nondischargeability to protect itself from the additional risk of default that comes with letting everyone borrow. By contrast, private lenders are free to reject potential borrowers they see as too risky and so don’t deserve the same protections in case the students they lend to default.
This combination of unfavorable repayment terms and no forgiveness in bankruptcy leaves borrowers especially vulnerable to a lifetime of debt with no possibility of escape. But when compared with the exaggerated concerns over student loan debt, that is something really worth getting angry about.
CJ Libassi, a former teacher, is a public policy graduate student at the University of Michigan. Reach him via email or Twitter.