Student Loan Debt – A Manufactured Crisis?

With the news that American has now topped $1 trillion dollars, more even than credit card debt, journalists and presidential candidates are pelting us with freak-out stories, as if this is the only educational issue that matters. Certainly, if you owe more than $100,000 in loans, that is a big deal, no question about it. The problem is that, lost in the fine print, that one trillion dollar number is not a result of scads of graduates in debt that amount.

Of course, the New York Times is going to lead off their story on the topic with an example of a student recently graduated from Ohio Northern University with $120,000 in student debt. Buried deeper in the text, however, was the statistic that only 3% of borrowers owed more than six figures and only 10% owe more than $54,000. The Times goes on to say that the median debt for the two-thirds of students who borrow to finance their education is $12,800.

What’s that hissing sound? Sounds suspiciously like the air leaking out of the latest hype balloon.

To our eye this seems to constitute something less than an apocalyptic crisis. A debt of $12,800 in return for a college education and presumed increased job prospects doesn’t seem to be a bad trade-off. That’s less than many people pay for a car. Government data shows that this number is also less than difference in annual earnings between those with a college degree and those with only a high school diploma.

The real reason for the cumulative rise in is less spectacular. In this era of high unemployment, more people are returning to school in order to acquire in-demand skills. Of course the level of borrowing is going to rise. This is a natural result of more borrowers, not a crisis. And we shouldn’t forget that a relatively low percentage of six figure borrowers can severely skew the overall average.

So, is it an educational crisis or just another election year bone to be chewed upon by our presidential political dogs? Decide for yourself.

The American Monetary Association Team

Flickr / Meathead Movers

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