College debt acceleration and income-based repayment

Brad Hargreaves somewhat exaggerates the role of student debt in Occupy Wall Street, but it is true that student debt has played a role in both the comments of protesters and the changing dynamics of social mobility (or at least social stay-in-same-placeability). On the one hand, college graduates have been less vulnerable than others to unemployment during and after the financial crisis. On the other hand, I suspect we’ll see a long-term pattern of underemployment for about half a decade compared with the prior cohort of graduates, and student debt load is going to be a persistent part of the debt overhang given the inability to discharge student loans in bankruptcy. ((In addition, the benefits of graduating from college do not eliminate student debt for students who never finish college. And if I understand the structure of the policy, the creation of income-based repayment plans for loans is probably more useful for students who started college in the last few years than those who graduated before 2009.))

Even before the current recession, the dynamics of college financing had been shifting, according to a NCES report this year on medium-term trends in undergraduate tuition and borrowing. ((An economics major at USF is responsible for bringing this to my attention in her undergraduate research project.)) If you delve into the tables (I think Table 2.1B-2.1D are the keys), you’ll see that borrowing touched more undergraduates and touched them more extensively towards the end of the last decade. A good part of that is the shift in public college costs from public tax support to student tuition and fees. But that’s not all of it, since the debt acceleration in the second half of the past decade is markedly different from previous patterns.

That debt acceleration is both an intellectual puzzle and a practical problem. For undergraduates, especially, it is important that debt be a “good” investment insofar as one can think of it: more likely to lead to degree completion, less likely to lead to bankruptcy or contribution to personal (and broader social) debt overhang. At the same time, colleges have a keen interest in avoiding high default rates. So it seems an obvious first step is for colleges to actively push all graduates with loans to enter the income-based repayment program. Want to know how much it could benefit new college graduates in a tough economy? Here’s the table of payments:

How many colleges and universities plaster this table in dorms? Hmmn… In any case, you can head over to the IBR calculator or send a friend there now.