"I feel I kind of ruined my life by going to college," Jackie Krowen said. She first took out student loans at 19, to go to community college in Oregon. She borrowed more when she transferred to Portland State University, and even more to go to nursing school at the University of Rochester in New York. Now, more than $150,000 in debt, Krowen told Consumer Reports that she cannot buy a house and fears the specter of her non-dischargeable debt will follow her for the rest of her life.

I read Jackie’s story earlier this summer, and I thought about it constantly while reading the student debt report from the White House's Council of Economic Advisers, which was released today. There’s no doubt that Jackie’s situation is disturbing and sad. It’s not unique: There are many students for whom college is not that promised ticket to the middle class, but rather an albatross that punishes their early adulthood. They are tens of thousands of dollars in debt, in jobs paying half what they expected to earn after college. They cannot buy a home, start a business. They are even afraid to get married and have a kid.

But the student-debt crisis is subtler than the sum of $100,000-debt stories. In fact, the crisis is most acute among students whose debt burdens are much smaller—more like $5,000 or even zero, meaning they never enrolled in college in the first place. The media often pays closest attention to the biggest student debt numbers; it should pay closer attention to the small ones.

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This is a complicated story. So, let’s begin with a familiar question: Why has college in the United States gotten so expensive?

For all the hand-wringing about glittery new medical centers, administrative bloat, and Bowdoin’s lobster dinners, the price of public college has gone up principally because public support from states has gone down. During the Great Recession, state income and sales revenues plummeted just as college enrollment increased. The CEA reports that “between 2008 and 2013, state revenues per full-time equivalent student at public colleges declined from $7,400 to $6,000.” Tuition rose, but young people, families, and even adults going back to school couldn't afford the new sticker prices, particularly in a recession. So they tapped the federal government for help. Pell Grants and other forms of government assistance increased by about $1,000 per student. This has fed another theory, the so-called Bennett hypothesis, that some schools—particularly for-profit institutions—saw that they could capture more money by continuously raising tuition and relying on the federal government to provide aid at any cost.

These stories are interconnected. As state spending on college dropped, the price of public colleges increased, driving more low-income students into the arms of for-profits. The share of college students attending for-profit schools tripled between 2000 and 2011.

When many people imagine a college student, they see a 19-year-old kid from a middle-class family who graduates on time, give or take a few years. But the typical for-profit student is a 24-year-old from a first-generation family earning less than $40,000, who eventually drops out of school. The completion rates for two-year and four-year for-profit institutions is about 40 percent and 25 percent, respectively.

In the final analysis, declining state support for public college fed the rise of for-profit schools, many of which served as factories for dropouts with relatively small amounts of outstanding student debt. These are the people most at risk of default—not the college graduates with $100,000 loan burdens, but rather low-income students who took on a few thousand dollars in debt and didn’t even get a degree.

The result is this highly counterintuitive and absolutely crucial chart from the CEA, showing that students with the smallest loan burdens are the most likely to default.


Share of Borrowers Who Default, by Loan Size

CEA


This is, at first blush, so paradoxical so as to seem like a math error. Adults with student debt under $5,000 are eight-times more likely to default than adults owing more than $40,000? This figure simply does not compute in a narrative driven by the largest student debt numbers—like six-figure balances and $1.3 trillion total student debt. The most-quoted statistic I see about student debt is that the “average” burden is nearly $30,000. But this one is more important: Loans of $10,000 account for two-thirds of all defaults.

This is particularly tragic, because these debt-without-degree adults chased the American dream into a dead end. Almost all of the evidence available to economists suggests that college graduates are more likely to be employed and make more money than non-grads.

Naturally, it is impossible to know for certain if college is worthwhile for every single graduate. Some people attend college and struggle to find meaningful and lucrative work. Other adults were perhaps smart and networked enough at 18 to succeed with or without a degree. But studies comparing students from low-income families found that graduating from public college has "sizable increases" in earnings compared to those who don't attend. Even after accounting for typical debt burdens, college is largely one of the best investments a young person can make. For that reason, a student debt burden of zero is, for many high school grads, far more dangerous than being thousands of dollars in debt.


Value of Lifetime Earnings vs. Student Debt

CEA

But instead of having these benefits, debt-without-degree adults have locked themselves out of the middle class. For example, young people who are delinquent on student debt basically have no shot at a mortgage.


Which Student Debtors Buy Homes?: Rate of Mortgage Originations, Ages 25-30, by Loan Status

CEA

National news organizations don’t often produce reports about students with, say, $2,000 in debt. Media organizations alight to the large numbers. But the heart of the student debt crisis is all about the smaller numbers, $5,000 or zero—the dropouts and the people who didn’t continue to college in the first place.