As the total outstanding student loan debt continues to climb, many have questioned whether the struggle is amounting to a crisis for schools, students, and society.
On Wednesday, the University of Michigan’s Gerald R. Ford School of Public Policy hosted a discussion on the topic with Susan Dynarski – a professor of public policy, education and economics at the university – and Rohit Chopra, who recently joined the Department of Education (ED) as a senior advisor, and previously served as a senior fellow at the Center for American Progress and as the student loan ombudsman for the the Consumer Financial Protection Bureau.
Setting the stage for the discussion, Dynarski said that if indeed there is a student loan crisis, it’s important to think about which students are reflected in that population. Federal data shows, she said, that students who go on to graduate from a four-year university with a bachelor’s degree, or those who earn a graduate degree, are not representative of who would be affected in a student loan crisis. While they may have higher average amounts of debt and make for good headlines, they’re less likely to default on their loans than others.
The “face” of the student loan crisis, Dynarski said, are students who attend school for a short period of time before dropping out. They’re more likely to be low-income and to be first-generation college students attending nonselective schools, for-profits, or community colleges.
“They enter poor, and they leave poor,” she said, noting that these students also typically have lower average amounts of debt, between $5,000 and $10,000 total. Yet they are more likely to default on their loans because they don’t finish their degrees, and make low wages after leaving school.
“If there is a crisis of any sort, it’s a crisis of low earnings,” Dynarski said.
Chopra also pointed out that someone defaulting on a relatively small amount of student loan debt is probably indicative of a larger problem. During the financial crisis, he said, family wealth eroded, and state budgets were hit hard. The combination of those two factors resulted in tuition – at least at public colleges and universities – increasing dramatically to the burden of students and families, who were less able to take on the cost of higher education.
“We’re at a place that we need to keep helping people go to college, but we need to remember that the macro environment, as well as some poor performing programs, are leading to many people being in very high levels of distress,” Chopra said.
The widespread concern over student loan debt has become so acute that many have compared it to the subprime mortgage crisis, while others have suggested there’s an economic bubble about to burst.
While there are similarities to the mortgage crisis, the two are not directly comparable.
“The term ‘bubble’ connotes an economic term that something will pop and be very quick and dramatic,” Chopra said. “I do not think what we’re seeing … is one that’s going to create rapid, systemic risk because there is not close interconnectedness with big financial institutions that could reverberate across the country.”
While it might not be a crisis on a larger economic level, Chopra said, it’s a personal crisis for many people throughout the country.
Dynarski also noted the many ways defaulting on student loans can affect individuals through their credit. Many landlords do credit checks, so borrowers who have defaulted can get shut out of parts of the housing market. Similarly, they might not be able to get a reasonable loan to buy a car to drive to work.
“Add to that the psychological stress [of debt collectors calling] on a daily basis,” Dynarski said. “It is a man-made crisis.”
Publication Date: 1/28/2016