Google student loan crisis and you get to choose from 58 million results. Over and over and over again we are told that today’s college students, particularly those who pursue a four-year degree, are saddled with debt so large that they are more likely to be paupers than prosperous. So as conventional wisdom goes high school graduates (except for our own kids) are better off forgoing a four-year degree and learning a trade at a community college or in an apprenticeship program.
There is one problem with this oft told story: it is simply not accurate. American does not have a student loan crisis. Not to mention that the behind in payment rate for those with a B.A is substantially lower than for those who have an associate degree or no degree, including those with non-degree credentials.
Compelling evidence of the absence of a student loan crisis comes from The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2020. An entire chapter of the report is devoted to student loans.
The Fed’s key findings:
- The share of adults who were behind on their payments is much lower when accounting for all borrowers, including those who had completely repaid that debt. Among those who ever incurred debt for their education, 9 percent were behind on their payments at the time of the survey, 42 percent had outstanding debt and were current on their payments, and 49 percent had completely paid off their loans.
- The median amount of education debt in 2020 among those with any outstanding debt for their own education was between $20,000 and $24,999.
- Among those with outstanding debt from their own education, 18 percent were behind on their payments. Those who did not complete a degree were the most likely to be behind. Thirty-one percent of adults who had education loans outstanding and who had less than an associate degree reported being behind. This compares to 22 percent of borrowers with an associate degree. The delinquency rate was even lower among borrowers with a bachelor’s degree (9 percent) or graduate degree (8 percent).
- Repayment status also differed by the type of institution attended. More than one-fourth of borrowers who attended for-profit institutions were behind on student loan payments, versus 10 percent who attended public institutions and 5 percent who attended private not-for-profit institutions
It is accurate that for student loan borrowers under 40 first generation students and Blacks and Hispanics have higher shares of adults behind on their payments. 16 percent for first generation students vs 4 percent for non first generation students. 23 percent for Blacks and 20 percent for Hispanics compared to 4 percent for Asians and 6 percent for Whites.
The most important finding may well be the self-reported well being of 18-39 year olds by education attainment and student loans status:
- Of those who never took out a student loan 93 percent of those with a B.A. or more say that they are doing at least okay financially. Compared to 74 percent of those with some college or a technical or associate degree.
- Of those who have paid off their student loan 92 percent of those with a B.A. or more say that they are doing at least okay financially. Compared to 65 percent of those with some college or a technical or associate degree.
- Of those 18-39 still paying off a student loan 80 percent with a B.A. or more say they are doing at least okay financially compared to 52 percent of those with some college or a technical or associate’s degree.
All of this adds up quite conclusively to their is no student loan crisis. Nine percent behind on student loans does not add up to a student loan crisis. A typical loan of $20,000 and $24,999 does not add up to a student loan crisis.
Even more clearly we do not have a student loan crisis among recent college graduates with a four-year degree or more. With delinquency rates for those with a B.A. or more far lower than for those with an associate degree or less. And self reported well being rates significantly higher for those with a B.A. compared to those with an associate degree or less for both those who have paid off their student loans and those still with debt.
For those interested in further exploration of student loan realities check out this post by our former colleague Patrick Cooney.
