Student debt is a vexing issue, because it’s a legitimate problem, but not the problem that many people assume.
The
common narrative about debt involves a recent graduate from a top
college with $50,000 or $100,000 in loans, working as a barista or not
working at all. Yet people fitting some version of this tale are vastly less common
than media coverage sometimes suggests. The unemployment rate for 20-
to 24-year-olds with a four-year degree is 5.4 percent, and it’s only
3.2 percent for 25- to 34-year-olds. The college pay premium is also at a
record high, which means that many of today’s baristas with fancy
degrees will end up as tomorrow’s well-paid professionals.
The real problem are people who tend to have less debt — say, $10,000 or $20,000 — but who never graduate from college or who earn a degree or certificate with relatively little value.
Many of these students don’t understand what they’re getting into when they enroll in college. They don’t realize that the medical-assistant certificate program
in which they’re enrolling won’t do much to improve their job
prospects. Or they don’t understand that the two- or four-year college
that they have chosen has a dreadfully low graduation rate.
Compounding the problem, these students also tend to underestimate how they much debt they will take on, according to a study released today by the Brookings Institution.
Only 24 percent of first-year students with federal loans were able to
estimate their loan amount within 10 percent of its actual value.
Instead, 51 percent underestimated the amount, and 25 percent
overestimated it.
The
misunderstanding was similar among students at two-year and four-year
colleges, according to the study, which was based on both survey results
and administrative data for individual students.
“College
students do not have a firm grasp on their financial positions,
including both the price they are paying for matriculation and the debt
they are accruing,” write the authors, Elizabeth Akers and Matthew
Chingos. “Without this information, it’s unlikely that students will be
able to make savvy decisions regarding enrollment, major selection,
persistence and employment.”
But
the study also came with a fascinating wrinkle. In addition to looking
at national data, Ms. Akers and Mr. Chingos also studied one “selective
four-year public university in the northeastern U.S.” They don’t
identify the college but do describe the students as having “relatively
strong SAT/ACT scores (about 300 points higher, on average, than for all
public, four-year institutions)” and coming from “more affluent
families.”
This
college, no doubt, has a higher graduation rate than most colleges do.
Its graduates would be the type of graduates who fit the barista
narrative. And it turns out that these students don’t underestimate
their debt: More of them overestimate it. Among freshmen, 28
percent thought they had more debt than they actually did, while only 19
percent had less debt. (Thirty-eight percent offered an accurate
estimate, and 16 percent said they didn’t know.)
Not
only are these students likely to emerge from a college with a degree.
Many of them also seem likely to emerge with less of a debt burden than
they realize. Most of them will do just fine.
There is no question that the weak economy of the last 15 years has been hard on virtually every demographic group, including college graduates. But they are still doing much better on the whole than people without degrees. Some of them may even be doing better than they realize.
