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Is Student Debt Really A Crisis? These Surprising Facts Suggest It’s Not


Calls for Joe Biden to force taxpayers to pay off some or all student loan debt upon assuming the presidency have elicited strong opinions on all sides. While a broad consensus says the cost of higher education in the United States is too high, a large number of Americans deem it a great injustice to have to pay off debt others have willingly taken on.

Another large number of Americans feel their student debt has stunted their economic and financial viability, preventing them from purchasing homes and starting families. For others, there remains a stinging regret that the costs were simply not worth the benefit.

As with most hot-button topics, there’s a lot of hyperbole and overheated rhetoric about student debt. In truth, many of the relevant facts run counter to conventional wisdom surrounding the issue. For example, most Americans might be surprised to learn the college-graduate-turned-barista isn’t a thing.

Few People Owe Six Figures in Student Debt

We’ve all heard the story: In a futile attempt to better one’s future potential, a 20-something is now drowning in more than $100,000 in student debt without the salary to pay it off. It’s certainly a compelling narrative, and stories like these form a central cog in the push to erase student debt. After all, in an age of chronic underemployment, being $100,000-plus in debt is daunting, to say the least.

According to the left-leaning Brookings Institution, however, only 6 percent of borrowers owe $100,000 or more, and many who do incur these debts have pursued post-graduate degrees. Altogether, they comprise one-third of all student debt held in America.

Some things aren’t complicated — the more schooling one pursues, the more likely one is to incur debt. Since those with advanced degrees comprise a minority, high levels of student debt is a problem that affects a relatively small percentage of Americans.

A Give-Away to the Upper-Class

“The fact that households in the upper half of the income distribution and those with graduate degrees hold a disproportionate share of that debt almost never makes it into the narrative,” says Brookings. “But who owes education debt is as important as how much debt there is.”

Just as those with more schooling owe more money, so do those who earn more money, with the fourth- and fifth-highest income quintiles holding almost 60 percent of student debt. While these numbers cannot account for each experience, they certainly make sense — most who have mountains of debt were not only willing to take it on but calculated they could afford to. The lower classes, comparatively, do not have the financial flexibility that allows them to take such risks.

This means so-called “debt-forgiveness” plans like the ones championed by Sens. Bernie Sanders and Elizabeth Warren will mostly benefit those in higher-income groups. One study estimates the bottom 60 percent would receive only 34 percent of the benefit in Warren’s plan, a thoroughly unprogressive outcome. By comparison, those with post-graduate schooling own 27 percent of all debt but would receive 37 percent of the benefit.

There’s no getting around it. Debt bailouts not only benefit those with more schooling but also those able and willing to take the risk in the first place. Coupled with the fact most Americans aren’t college graduates, a bailout doesn’t just look like a moral hazard, but a potentially regressive policy.

Yes, Your Major Matters

Recent statistics show that at least one-third of college graduates in the United States are “underemployed” — working a job that typically does not require a degree — with the mismatch especially acute among recent graduates. But just as it matters who the debtors are, it also matters what they’re studying. As of July 2020, the top five most underemployed fields of study are:

  • Criminal justice (73.2 percent)
  • Performing arts (63 percent)
  • Leisure and hospitality (59.8 percent)
  • Liberal arts (59.5 percent)
  • Business management (58.5 percent)

It’s beyond the scope of this article to delve into or speculate why these fields are so stunningly underemployed. It’s clear, however, that while some majors simply don’t deliver much return on investment, many students are still borrowing money to pursue these degrees. As Brookings scholar Adam Looney observes, “The people who are borrowing heavily to attend programs that offer no real labor market value — that is troubling.”

What should be apparent is that a college degree alone does not guarantee lucrative employment. A variety of factors, including the job market and the particulars of the field of study, ultimately determine whether attending college is worthwhile. The combination of rising costs and consistently significant levels of underemployment is sure to generate some level of buyer’s remorse, especially as an increasing number of degree-holders compete for a limited number of high-paying jobs.

No Risk, No Reward

Those in favor of canceling student debt often favor free college, citing European examples to argue that providing higher education for little or no cost is not only possible in the United States, but beneficial to the economy and society more broadly.

Such a takeaway, however, is a shallow reading of what is an equally complicated matter in Europe. In Germany, for instance, after briefly experimenting with tuition in the late-2000s, Germany reverted to providing college for free.

But, while it stands to reason most Germans would prefer free college, studies show a more nuanced picture. A 2016 survey revealed that while most Germans do prefer free college, they did so by a slim margin. More surprisingly, when told college graduates earn more than non-graduates, public opinion flipped, with an overwhelming majority favoring requiring individuals to pay their own tuition. Although it hasn’t come to pass, the re-imposition of tuition is always lurking in Germany.

So, how is it that Germans, who have known little else besides a robust welfare state since the days of Bismarck, could ever prefer tuition? Perhaps it comes down to simple economics — what is provided for free is, typically, of minimal benefit.

Certainly, not everyone who attends university will excel equally, let alone graduate. Furthermore, not everyone will take advantage of the free opportunity, and data suggests higher participation rates require students to put skin into the game.

Still, it stands to reason that socialized college produces more graduates with bachelor’s or even master’s degrees. Yet a job market flush with applicants holding four-year degrees will undoubtedly erode the value of such credentials. As we’re starting to see increasingly here in America, once considered a must-have to achieve gainful employment, college degrees are well on their way to becoming the next high school diploma.

Can We Just Forgive and Forget?

Given the facts, is student debt a genuine crisis? Or, is it just a case of millions suffering a collective buyer’s remorse? There’s no question there’s lots of debt out there acting as an impediment to better livelihoods. It’s also indisputable that black Americans and those who attended for-profit institutions are suffering disproportionately from debt and may have the most compelling argument for at least some type of relief.

But, when looking broadly at who holds the debt, how much, and how it was incurred, the student debt issue looks less like a crisis and more of a logical — and predictable result — of choices made throughout various levels of society. America has become more educated (at least formally) than ever before, but the jobs simply aren’t there to deliver the pay-off. So it’s easy to understand why so many Americans are convinced they’ve been had.

The question of debt forgiveness pertains to whether society holds any obligation to relieve others of their contractual obligations. The real crisis demanding redress, however, is why college costs so much while delivering diminishing returns. Forgiving debt might score political points in the short run, but should never be confused with solving the underlying problem.