The Student Debt Crisis We Don't Talk About

Here's a true story about college in America. In a world of unsure investments -- where home prices rise and fall by 30% and hedging can lose you $2 billion in a jiffy -- college remains perhaps the last sure(-ish) bet. The typical college graduate earns $570,000 more than the average person with only a high school diploma over her lifetime, Michael Greenstone and Adam Looney concluded in their remarkable report on the value of a higher education. With an annual rate of return of 15.2 percent, college has outpaced just about every other general investment category, including gold, corporate bonds, U.S. government debt, and hot company stocks.

But here's another true story about college in America. It's crazy-expensive and getting more so every year while middle-class incomes stagnate or worse. As states cut back on support, families are having to pick up the tab. This has sent student debt skyrocketing past $1 trillion. The share of students taking out loans to attend public college has increased from 46% in 1992 to 62% in 2008. In 1993, about 2 percent of students at nonprofit private colleges took on more than $50,000 (2008 dollars) in debt. In 2008, it was 8.6 percent.*

Both of these true stories played loudly in my head when I read the New York Times' wonderful and comprehensive front-pager on student debt. That we have record-high student debt in this country is a sign of both true stories, the good and the bad. More people investing in a college education? Great news. More people too deep in college debt to take the jobs they want, buy the cars they want, own the homes they want, and start the lives they want? Really bad news.

The long article begins zoomed in on Kelsey Griffith, a graduate of Ohio Northern University, who owes $120,000 in student debt. That is a shocking sum, the kind of debt that distorts a life. It's also not typical. It is, in fact, decidedly atypical. Half of all indebted college students owe less than $12,500. Ninety percent owe less than $50,000. Griffith is the 3%.

This graph, courtesy of our Jordan Weissmann, tells the rest of that story:

[Average student debt has grown to $25,000. But median debt is a much more manageable $12,500, and 43% of indebted students owe less than $10,000.]

I don't present this information to discredit Griffith's debt crisis, but to frame it. Extremely expensive private schools like Ohio Northern and George Washington graduate students with average debts above $30,000. Among for-profit schools, one in four families owes more than $50,000 in debt. A concerted effort to name and shame schools high-debt schools would send important signals to administrators to slow tuition inflation. Colleges set prices that families agree to pay. Colleges can independently decide to control their prices, or families can collectively reject higher-debt education for cheaper alternatives.

But, at the risk of wheeling out my favorite dead horse, the other part of the student debt crisis is all of the debt that students aren't taking on because they're not going to college. College grads still earn more, work longer, and are employed at higher rates than everybody else. Their investment -- that is, their debt -- benefits the country at large in the form of a more-skilled workforce, higher productivity, higher GDP, more taxes, and so on. Newspapers can't report on this part of the student debt crisis, because there is no headline statistic to report on. You can't put a number on how much money some promising inner-city student is giving up in lifetime earnings by not attending college or how much it's taking away from federal income taxes through 2030. But just because those statistics are invisible don't mean they're not real.

Here's a statistic that is real: More than 50% of 21-year-olds in America today have dropped out of the college-graduation track, either by not finishing high school or by not going on to college. That is a blight worth talking about. This group, too, is hobbled by a great debt.

*Update: Edited to reflect corrections printed by the New York Times, per an email from the Education Department. Also see this piece, passed along by Jason DeLisle at the New America Foundation, which points out that (a) 34% of graduates from 2008 had no loans to begin with and (b) the typical borrower owed about $20,000 one year after graduation -- more than the $12,500 average cited by the New York Fed study graphed above, but less than the often-cited $25,000 figure, which represents average, rather than median, debt for current student borrowers.