Sunday, May 13, 2012

Student Loan Nonsense


The NY Times has a ridiculous story on student loans this morning. , "A Generation Hobbled by the Soaring Cost of College." It starts with these lines, "Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents."

Why is it ridiculous? Because it is  the archetype of the overwrought, mis-leading attempt to justify a policy masquerading as reporting.

I'm not going to comment (here) on whether I think the Federal Government should make loans to students. Nor will I comment (here) on whether the Federal Government should guarantee private loans. I will say, in my opinion, it is more than a coincidence the three major areas of massive inflation we have seen over the past fifty years, in higher education, housing and health care, are areas where federal government involvement has increased.

A Federal Reserve Bank of New York study, "Grading Student Loans," looks at student loans as of Q3 2011. According to this study, there are 37 million student borrowers in the US. Of this, 14.6 million are under 30 years old. That's a little over one-third of the total number of people in the US between the ages of 20-29, according the 2010 US Census.  So even if a generation is "hobbled," it would be more correct to say one-third of a generation is "hobbled."

But are they hobbled? Hardly.

The same Federal Reserve Bank of New York study shows 14.6 million borrowers with student loans under the age of 30. The total balance owed by these borrowers is $294 billion. This is about $20,000 per borrower.

Let's put this in perspective. A Honda Accord starts at about $23,000. We don't gnash our teeth over young people borrowing $23,000 to buy an entry level car, even though the car will last about 10 years and depreciate in value, while a college education lasts forever and appreciates in value.

And it's still worth it to take on those loans. The Census Bureau's Current Population Survey details earnings by level of educational attainment. The high school graduate's median earnings is $17,037. The median earnings for a college graduate (with a BA) is $47,973. The difference in median earnings between a college graduate and a high school graduate is over $30,000 per year, or 1.5x the average loan balance. Hobbled?

Why are we wringing our hands over student loans?


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