Thursday, April 26, 2012

Trillion Dollar Debt Day

Bias alert:  I graduated college with a LOT of debt.  It was nearly ten years ago, but I was still far above the current average widely reported in the media.  In 3 years, I had paid off all but one loan that was locked at 2.3% interest.  I paid that off two years later due to the fact that Sallie Mae is an absurdly evil company and I was sick of dealing with them.  All in all, I was debt free 20 years earlier than projected and today have zero debt from either my bachelor's or master's degree.

Now, all that being said, I guess I can't feel too left out that I didn't get invited to the student protest that was Trillion Dollar Debt Day.  Apparently yesterday was the day that total student loan debt in this country hit $1,000,000,000,000.  Want to see it in real time?  Here you go: 

Anyway, student debt is a complicated issue with lots of statistics ripe for dissection.  Actually, the debt really isn't that's there because college costs have gone up far more than average household income has, and more people are going for both grad and undergrad degrees.  What's complicated is how people interpret what to do with these statistics.  For example (from the clock website above):  "Student loan debt, on the other hand, as been growing steadily because need-based grants have not been keeping pace with increases in college costs." Not hard to see what that websites solution would be to this issue.

The 1 trillion number is impressive, but it is not often mentioned how heavily the increase in debt level correlates with how sharply the number of students have gone up.  According to the National Center for Education Statistics "enrollment in degree-granting postsecondary institutions increased by 9 percent between 1989 and 1999. Between 1999 and 2009, enrollment increased 38 percent, from 14.8 million to 20.4 million."  Nearly 6 million people extra people in 10 years, combined with rising costs and a recession...that will make that number shoot up in a hurry.

In the past 5 years, the average debt per graduating college student (bachelor's level) has only gone up by about $4000, unadjusted, or $2500 in adjusted dollars.

YearAverage DebtAverage Debt (2010 $)Median EarningsMedian Earnings (2010 $)Debt:Earnings (inflation-adjusted)
Sources: Project on Student Debt, U.S. Census American Community Surveys (1-year estimates, 2006-2010), Bureau of Labor Statistics CPI Inflation Calculator.

  You multiply even that amount over 20.4 million however, and the levels start reaching crisis proportion.  Additionally, these "average" numbers, while reported very exactly, are all self reported by the schools.  Also, out of the 2,300 schools they asked, 500 were tossed for identification reasons, and about 300 just didn't report anything.  This makes these numbers highly suspect.

Overall, I'm not saying there's not a crisis.  I work in health care, and it's totally ludicrous to me that while we're all scrambling to cut costs as fast as we can, higher education is not doing the same. I've also had a mortgage for nearly as long as I had my student loans, and I can tell you that my mortgage company has not once pulled any of the disgusting shenanigans that Sallie Mae pulled with my student loans.  I used to have to save my receipts because they, I kid you not, used to ADD small amounts of money to my balance at random.  I would then have to spend 45 minutes on the phone with them proving that this had happened.  I was always right, they would merely "apologize for the misunderstanding".

However, with this issue, as with so many others, watch the numbers when emotions run high.  People love to throw data at others in these moments, knowing it won't be questioned.  Business Insider, for example, claims that "For many of you, your degrees won't matter. One-third of you will land full-time jobs that don't require them."  They don't mention that's 33% of 500 people who just graduated.  Check back in 5 years, BI, then show me the numbers.


  1. I did not get any student loans when I was in college. My father was a reasonably high wage earner for the early 70's, but no where near a "1%". We paid as we went. One year of room, board and tuition at UNH represented about 8% of his annual income. Fast forward to your first year at BU, admittedly not a public college. Your first year of room, board & tuition represented about 70% of my annual income. How did that happen?

    My income has gone up since then and North Park currently costs less than your first year at BU, but it still represents about 30% of my annual income. We could not do it without help.

    The simplest answer I have seen to the skyrocketing costs is the fact that the ratio of full time administrators to full time faculty has become ridiculous. And the compensation of said administrators has grown, inflation adjusted, much faster than faculty salaries. I thought this was supposed to be about getting an education!

    Law school tuition was less than $10,000 (total for 4 years evening division) for my time at Suffolk. I just looked up current tuition, evening division, and it is just under $33,000 per year, or $132,000 for 4 years. If a graduate borrowed all of that money and got a job in my office, they would have trouble meeting the remainder of their expenses. Is the education they are getting worth 13 times what mine was worth? I just did an inflation adjustment calculator and my $10000 from 1980 would be worth just under $28000 today. That means that the current tuition is about 5 times higher than can be justified by inflation.

    This all gets to your one of your points. Why haven't colleges had to cut costs? Mainly because the government has given them an endless source of money to tap into. Why go on a diet when the food is free?

    End of rant.

  2. Well stated, Michael. (clap, clap, clap...)

    In addition to education, the other area of the economy where costs have increased substantially over time is healthcare. I'm well aware that there are many causes for this, but I don't think it's a coincidence that healthcare costs are also greatly subsidized by the government...

  3. What Michael said about administrative bloat and cutting college costs. Has the ready availability of tuition loans has enabled colleges to jack up tuition?

    There needs to be some incentive put into the system to encourage/force colleges to cut costs.

    Subsidizing student loans is NOT going to encourage colleges to reduce costs

    1. The other issue is that student loans (federal and private) are not dischargeable in bankruptcy. So basically, lenders have no incentive to stop loaning, colleges have no incentive to watch their costs, and students get to act like Veruca Salt (daaaaaaaaaddy I want it noooooooooow). And we wonder how this all spun out of control.

  4. And it's even hard to get rid of them if you die. It took a year to discharge my late husband's part of the loan. I had to use deferment at that time. I wound up behind and couldn't get Sallie Mae to do a damn thing to help me with it, even after I'd made payments on time for 8 months straight. They told me that they could not move the due date from the 1st to the 5th so that I could set up auto debit and qualify for an administrative forbearance. I finally contacted my congresswoman for help. Mysteriously, the next time I called Sallie Mae, they had no problem at all with changing the due date. Evil is not an evil enough word for these folks. And there is no reason to grant student loans special privileges. They should be dischargable in bankruptcy, if permanently disabled, or due to death of the person with the loan. (It seems Sallie Mae refused to discharge a loan after the student died, because his dad had co-signed for it. That one had to go to court.)

    1. Teri - I'm sorry for your loss. I'm also sorry you had to go through that.

      Sadly, I can completely see Sallie Mae being like that. When I dealt with them, they couldn't put me in to deferment fast enough....but I had an interest rate tied to me continuing to make payments. If I missed one (even if it's because it was in deferral) they could charge me more. They pretty much put me in to deferral twice a year or so, at random, then would tell me I'd requested it. When I'd ask for proof, they'd back down....but as soon as they took me back out I owed another payment. Good thing paying them was my first priority, because otherwise that extra payment twice a year would have been tough.

      I also had a coworker whose father died with some student loans (he was going back to grad school to change careers post retirement). Sallie Mae turned them over to a collection agency when the wife didn't pay and sadly, they found the collection agency more understanding. Seriously.