Anxiety about student debt helped power the insurgent candidacy of presidential dropout Bernie Sanders and has now transferred to Democratic nominee Hillary Clinton.
But the conventional wisdom on debt is not quite right, according to a new study from the White House Council of Economic Advisers:
Defaults are concentrated among borrowers with small-volume loans, in large part because these borrowers are less likely to have completed their degrees. Loans of less than $10,000 accounted for nearly two-thirds of all defaults for the 2011 cohort three years after entering repayment. Loans of less than $5,000 accounted for 35 percent of all defaults. Thus while there is significant public attention on high debt burdens among traditional students attending four-year institutions, default is concentrated among a different group of borrowers.
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Washington Post economics columnist Robert Samuelson picks out some of the more surprising parts of the 78-page report, including the possibility of selection bias in college attendance (i.e., those who attend college would do better than others even if they never went to college, making heavy taxpayer subsidies a huge waste).
There’s also an odd relationship between how much you borrow and how easily you can pay it off:
Although the average loan balance — after correcting for inflation — rose 25 percent to 30 percent from 2009 to 2015, the “debt owed by the typical student remains modest,” the report asserts. For undergraduates who attended two- and four-year colleges, more than half of loans were less than $20,000, 42 percent were less than $10,000 and only 10 percent exceeded $40,000.
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Graduate students incurred the largest debts; 43 percent of loans exceeded $40,000. But their repayment record was the best of any group, mainly because they took better-paying jobs and were “better equipped to manage [their] debt.”
The worst default rates – calculated as “five years out of school” – happened at community colleges, with 23 percent in 2012, closely followed by for-profit colleges at 18 percent.
Read the White House report and Samuelson’s column.
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