The Student Loan Crisis That Isn’t About Kids at Harvard

Huge student debts are tied to elite schools. But what about kids who attend state schools? Their debt has shot up too, and here’s why.

Student debt is poised to become a huge issue in the 2016 political season—which we’re basically already in—along with all of the other pressures financially squeezing the middle class so tightly right now. Eighty-two percent of Americans support providing lower-cost student loans for college education, and giving students more time to pay them off. In fact, these ideas received the most support of any issue surveyed in an NBC/Wall Street Journal poll this month.

Some of the concern over student debt is likely driven by the startling headline numbers. In six states, the average student graduates with more than $30,000 in debt after earning a bachelor’s degree, according to a report released this month. Nationwide, the average is more than $28,000.

As David Leonhardt points out in The New York Times, these averages can be misleading. They are driven by the huge amounts of debt—both in federal and private student loans—that a relatively small percentage of students take on to go to the most expensive schools. Most graduates—58 percent—have less than $10,000 in debt. For the most part, the roughly one-third of Americans who earn bachelor’s degrees are going to earn more over their lifetimes and do better financially than their peers without degrees. They would be better off if their loan repayments were delayed, since their earnings will grow in the years after they graduate, and capped to their income, but the debt they take on is ultimately rewarded with higher earnings.

How risky it is to take on such debt depends a lot on students’ majors, where they go to school, and how much their parents can help. Which brings me to the biggest concerns about student loans. It’s the huge numbers of students who go to college but do not finish, and take on debt to attend increasingly expensive public universities that used to be almost free. These students are more likely to be low-income to begin with, and if they don’t get their degrees, most of them won’t have the higher earnings that will enable them to pay off their debt. The challenges they face getting to and staying in college and repaying their debts are big drivers of broader economic inequality. If they struggle to earn the degrees that will get them better-paying jobs, how are they going to move higher up the income ladder from where their parents were?

And why has tuition risen so sharply at public universities? Chiefly, because state governments are spending so much less on higher education than they used to. In 1984, public institutions received more money from state governments, and income from tuition accounted for only 22 percent of their operating budgets. Then, as the movement for lower taxes took over state houses, states began sharply reducing the amount of money they spent on higher education, which was largely discretionary. Now, tuition accounts for an average of 36 percent of their operating budgets. States pulled back funding even more sharply in the Great Recession, when budgets were hit hard by lower property and sales tax revenues.

Tuition at public institutions has increased by half in the past 10 years, which means that many students no longer have low-cost, quality options for college educations. And the students who most need low-cost options are those whose parents don’t have the money to pay for their tuition. These low-income students take on debt and are also the least likely to finish.

All of these changes to college financing occurred at exactly the time when college education became a necessity. Not only are more people going to college, they are also getting a two-year degree for the kinds of jobs—like being a plumber or an electrician—that they once would have been able to do an apprenticeship for. Overall, the number of people who get some type of education after high school has increased to 40 percent, double what it was in the 1970s, which means more people are taking on debt just to get into the job market in the first place. Competition from those with post-secondary education is also driving the people who have no education after high school into lower-level jobs, with less pay, than they might have had access to before.

The political solutions floated now, by liberals like Senator Elizabeth Warren, concentrate on the kinds of options that will make it easier for students to repay their loans at a fixed percentage of their income, and to pay later, when they can more easily afford it. Some politicians, including President Obama, have argued that colleges should be held accountable for their graduation rates and the employment rates and earnings levels of their graduates, which would hopefully encourage them to make sure their students finish and are qualified for good jobs. The state of Oregon is studying an idea that would allow graduates to pay tuition not up front but after they graduate, at a fixed rate of their income for a set period of time.

But almost no one (save for Obama, who bumped up the budgets for community colleges in his stimulus plan) is fighting for state governments to simply spend more on higher education as they once did. Which is bad, because we all have an investment in making college affordable and accessible to everyone. Even people who don’t go to college benefit from having a robust public higher education system in their states, which would bring higher quality jobs into their areas and build up the economy overall.

It’s another symptom of how the costs of public goods are being shifted away from the government, which can most easily bear the risks of high up-front investments that pay off to varying degrees, onto individuals who can be wiped out by one bad event or easily derailed by one life change. And if we want college to provide a path to upward mobility, then we need to talk less about student loans and more about government spending.