Good Debt: Why Student Loans Are Better For You Than You Think

America's "Back to School Week" is here, and for many families, it means another huge batch of borrowing to cover the rising cost of college. It's important to remember how that investment can really pay off.

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In April total student loan debt passed the $1 trillion mark, a mind-boggling milestone that drew heavy news coverage. All the major TV news magazines have covered the story, and this summer, the New York Times had a front-page story about Kelsey Griffith, a young woman who just graduated with a four-year degree from Ohio Northern University (an expensive private school) with, $120,000 in debt, and few prospects for a high-paying job. These sorts of stories, along with the increasing levels of student debt, have led some to call for more government support for higher education aimed at reducing tuition or even making higher education free.

While there are arguments on both sides with respect to increasing state support for higher education, student debt is an important and reasonable part of the funding system for institutions that prepare two-thirds of young people to become productive members of our economy and active members of our society. But the poor state of the economy leaves recent graduates with many fewer employment opportunities than they expected when they took on their debt. If history is any guide, these new graduates are likely to find appropriate employment in the next few years. This means that some temporary programs may be necessary to help students deal with these difficult times.


First, let's put that $1 trillion dollars of student debt in perspective. Americans carry over $10 trillion in housing debt to finance the ownership of assets worth significantly less than the total value of education capital produced by our universities and colleges.

Next, let's acknowledge the premise that there is no such thing as a free lunch. We currently spend $1.1 trillion a year on all levels of education, and the government covers 80 percent of the costs. Few doubt that the $650 billion that we spend on primary and secondary education (grades one through 12) is a necessary expense for our society. (The public debate over this K-12 spending is over whether the money is being spent wisely, not whether it should be spent at all.) As for post-secondary education, tuition and fees cover less than 20% of public college costs and less than 30% of private college costs.

Two-thirds of our work force does not stop at high school, with slightly more than half attaining a certificate, or an AA, BA, or graduate degree. A large number earn a combination of these awards from public two-and four-year schools, four-year private not-for-profit colleges, and two-and four-year private for-profit colleges. Each step past high school increases the earnings potential of these graduates, and each of these educational paths costs money.

The least expensive options are provided by public two-year colleges that award mainly occupational certificates and two-year degrees. The direct costs to students typically run only a few thousand dollars each year. So few students have debts and fewer default on their debt.

Graduate debt is at the opposite end of spectrum, as medical students and law students typically have debts that run up to $100,000 or more. But most of these students are quite able to handle this level of debt, as I'll explain below.


Much of the discussion of debt revolves around debt in pursuit of a BA degree. But few people realize that 35% of BA graduates have zero debt when they graduate. All of the debt figures that are publicly bandied about only refer to the 65% who have taken on debt. Among those in debt, the average at graduation was $28,000 in 2010.

In terms of high debt levels, less than one-half of one percent - about four in a thousand -- have run up more than $100,000 of undergraduate debt. And just over one-tenth of one percent, or one in a thousand, have debts of $120,000, like Ms. Griffith, the former student the New York Times wrote about. Some people will misuse debt, and some people will find themselves in unexpected trouble after taking on debt. We accept this with housing and consumer debt. If we want to allow wide access to higher education without a significant increase in cost, we need to accept it here as well.

Presented by

Stephen J. Rose is a research professor at the Center on Education and the Workforce at Georgetown University. He is a co-author, with Anthony P. Carnevale and Ruy Teixeira, of the monograph “Education for What."

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