Student Debt is Soaring. Here Is What We Can Do About It

The cost of a college education has soared in recent years. Unsurprisingly, as Joseph Lawler reports for the Washington Examiner, student loan debt has skyrocketed right along with it:

Student debt has nearly quintupled since 2004, when it was just over $250 billion, according to Federal Reserve Bank of New York data taken from credit reports. It has eclipsed credit card debt and auto loans to become the largest category of non-housing-related consumer debt. While mortgages make up 69 percent of household debt, student loans account for 10 percent.

Student debt is growing because more people are borrowing and because borrowers are taking out bigger loans. The number of borrowers grew by half between 2005 and 2012, according to the Federal Reserve Bank of St. Louis, and their average student debt grew by a third.

Now, the average student can expect to graduate with just under $30,000 in student loans, according to the Department of Education. The share of borrowers with more than $100,000 in debt has doubled since 2005, from 3 percent to 6 percent.

Meanwhile, it appears students are having more trouble shouldering those balances. In 2004, just 6.3 percent of loan balances were more than 90 days late, but about 11 percent are now. That is higher than the 9 percent delinquency rate for mortgages at the peak of the housing crisis.

Lawler goes onto explain why, despite the explosion in debt, the student loan problem does not rise to the level of a “bubble.”

“[T]he evidence suggests that the value of a diploma is outstripping the rising cost of college,” he explains.

That statement is perfectly true, it’s also unquestionably misleading. The real reason that a college degree is “more valuable” than ever before has nothing to do with increasing wages for graduates and everything to do with the declining fortunes of non-graduates.

Research shows that the median, inflation-adjusted income of 25- to 32-year-olds actually hasn’t changed much since it peaked in 1986. In fact, the so called “Late Boomers” had median earnings of $4,770 in 2012 dollars while Millennials only earn $45,500. In other words, annual wages for college graduates has only ticked up by $730 in just under 30 years. On the other hand, wages for those with only a high school diploma peaked in 1979 and has since fallen by $4,299 to $28,000.

Let’s be clear: This is not progress. For college to truly be “valuable” or for its graduates to truly have a “wage premium” relative to other education options, the measure must be college graduates earning more, not high school graduates earning less.

All of this is especially troubling because redefining the value of college education threatens to undermine one of the most important policy debates happening in the halls of Washington right now: How to reduce the cost of college and improve the quality of higher education.

As of now that debate seems to be limited to Republicans. For instance, Governor Rick Perry (R-TX), for example, has proposed that public colleges and universities adopt plans for a $10,000 bachelor degree. Governors Bobby Jindal (R-LA) and Scott Walker (R-WI) have led the way in proposals tying funding for public education to performance standards like graduation and employment rates. And Sen. Marco Rubio (R-FL) has a bill that would repeal the federal ban on collection of student-level college data to allow prospective students to be able to find and compare colleges based on certain statistics. Sen. Rubio also has a plan that would allow creative financing schemes like “Student Investment Plans,” in which investors pay tuition in return for a percentage of income for a set period of time after graduation.

One thing we know is not the solution is increased government subsidization, a fact even President Obama acknowledges.

“The problem is that even if the federal government keeps on putting more and more money into the system, if the cost is going up by 250 percent, tax revenues aren’t going up 250 percent – and so at some point, the government will run out of money,” Obama recently said.

Unless something is done, and soon, young adults struggling to keep up with their student loan payments in the face of a tough job market will also run out of money.