On Thursday, Valerie Strauss published a commentary on college-debt debate by Don Heller, the dean of Michigan State’s College of Education. The gist of Heller’s remark is that it is hyperbolic and unproductive to term the status of college-student and -alumni debt a crisis because the total indebtnedness that is allocated to college loans has crossed a nominal threshold of $1 trillion or because total college-student loan debt has overtaken other forms of debt, such as credit cards.
I agree with Heller that nominal sums and debt-category comparisons are not sensible bases on which to claim a policy crisis. They are used to sensationalize an issue — you could do the same thing in the way President Ronald Reagan used in one speech: if you pile all the dollar-bills that current and former students owe on student loans in the United States, it would reach more than one-quarter of the way from the Earth to the moon. Maybe this is an indication of a crisis, while student debt that reaches only one-tenth of the way to the moon isn’t. Or maybe if we can pile up dollar bills to the edge of space, that’s a problem, but beyond the International Space Station is a crisis. As someone who wrote my first book on the construction of leaving high school as a social crisis, I am deeply sympathetic to Heller’s point: it’s hard to see how crisis-mongering is either accurate or useful.
On the other hand, there are serious reasons to be concerned about the accumulation of student debt, Heller’s assurances notwithstanding:
- Unlike other debt, student loans are not dischargeable through bankruptcy. The rationale for this restriction is that unlike with homes or cars, a lender cannot repossess your education. But a permanent, nondischargeable debt not only affects the current/former student, it also affects the economy as unpaid and punishing debt grows. Thus, growth in student loans can become a debt overhang that eventually affects the whole economy. (For a primer on the difference between so-called “recourse” and “non-recourse” loans in housing, see Planet Money’s spring 2011 podcast on the subject.)
- College debt is not incurred just by college graduates who took out loans for their undergraduate programs. College debt is incurred by college dropouts, by graduate students, and by parents. Especially for college dropouts, we are privatizing risk when we minimize or fail to pay attention to college-student debt.
- Also hidden in the college-loan data is the way students cope with having insufficient cash, in addition to taking on federally-guaranteed student loans. Students may be paying off significant amounts of college by working long hours, or by taking on additional debt through circuitous routes, all of which can affect both their chances of completing a program and their long-term financial outlook.
- Student debt has accumulated significantly since the start of the Lesser Depression. College-loan debt is thus heading in the direction opposite that of other debt. Given the total loan debt, this should be a warning flag about the viability of student debt in the long term. College-loan debt is dangerous not primarily because of the total amount but because of its base now and the direction it is headed, in contrast with other credit avenues. Think the direction of health-care costs over the two decades prior to the passage of Obamacare.
- Student debt is the canary in the coal mine for higher-ed policy more generally. In his column, Heller points to state disinvestment in public higher education as an unchangeable fact of life. I could add the existence of poorly-targeted and classist structures such as American Opportunity Tax Credit, as well as institutional merit aid, the lack of negative “expected family cost” (or EFC) in policy, state-funded aid structures such as Florida’s Bright Futures, and a bunch of others. The problem is not just that there is cost-shifting from the public onto families, but that decent people like Don Heller view this as an unchangeable inevitability. Instead, it should be treated as a nasty tangle of interests, and one that will take work to figure out how one might disentangle these compromises on individual issues. To point to a nasty tangle of interests does not mean we should not try to resolve it.
I generally do not panic. I do think it is highly rational to worry about the accumulation of student loans.