“How college debt ate my parents’ 401k”

The Wall Street Journal ran a particularly sobering story recently (February 2-3) about how “Older Americans are being crushed by a mountain of student loans—their children’s and their own.”  How badly crushed, exactly?  Some numbers from the article, “Student Debt at 65,” by AnnaMaria Andriotis:

  • “One generation of Americans owed $86 billion in student loans at last count. Its members are all 60 years old or more.”
  • “On average, student loan borrowers in their 60s owed $33,800 in 2017, up 44% from 2010.”
  • “The federal government disbursed $12.7 billion in new ‘Parent Plus’ loans during the 2017-18 academic year, up from $7.7 billion a decade prior and $3.3 billion in 1999-2000.”
  • “Roughly 93% percent of all new private student loan dollars extended to undergraduate students during the current academic year also included a parent or other adults’ signatures on them, up from 74% in the 2008-09 school year.”

Where has all this parental borrowing led?

  • The federal government “garnished the Social Security benefits, tax refunds or other federal government payments of more than 40,000 people aged 65 and older in fiscal year 2015 because they defaulted on student or parent loan debt.”

Such data are surely leading to increasing numbers of parents growing increasingly concerned and frightened about tapping into their retirement accounts and other savings to help pay for the often-exorbitant tuition and other expenses at four-year colleges – regardless of how much they dearly love their children.  This, in turn, is accelerating interest by parents and students in non-four-year postsecondary options and the solid, middle-class jobs and careers they lead to.

All this is a good lead-in to three discussions I had with Ben Wright, the former president of Dunwoody College (formerly Dunwoody Institute), as I was writing a new book coming, out in April, Education Roads Less Traveled: Solving America’s Fixation on Four-Year Degrees.   More than once he elaborated on how, “for the first time in maybe 15 years, people outside the world of vocational technical education were paying some attention to the economic opportunities” made possible by such programs, and the “incredible job opportunities that exist for people with technical skills.”  The fact that Wright holds a doctorate in history from the University of Wisconsin, not any technical degree from anyplace, deepens what he had to say.

“For many years, we have been encouraging everyone to go to college, which always meant a four-year as opposed to a two-year college, with the expectation that all sorts of opportunities would open to them.  And I’ve seen more and more young people following that path, often taking more than four years to complete their degree but then not employed in jobs commensurate with their education and its expense.  So, after feeling as though I had been crying in the wilderness, it has begun to feel as if other people are paying attention, too.”

I reminded Dunwoody’s former president that he had been quick to say several months earlier that a significant reason for society’s shifting view was that so many kids were going into debt and so many parents were eating up their retirement savings. “One of the truisms of selling higher education,” he went on, “has been that people with four-year degrees do better economically.  But increasingly I’m wondering if that data is really old, because we have to include the mounting size of individual and family debt in assessing economic payoffs of four-year degrees, and I’m not convinced that researchers have been doing that.”  There’s certainly no incentive, he added, “for people employed in higher education to look at data which might discourage young people from pursuing traditional four-year degrees.”

“Especially if faculty are not tenured,” I added, with equal parts glibness and seriousness.

A few moments later, historian Wright emphasized that he “definitely was not anti-liberal arts and definitely not anti-four-year institutions.”  If young people choose to pursue such an academic path, “I just think they need to do so with their eyes open, knowing what they want to get out of it. This idea that education should be separated from vocation is a phony one, even where the liberal arts are concerned.  It’s not one or the other.  It’s important to think very intentionally about both getting a good education and preparing yourself for financial independence after you’re done.  That means keeping an eye on that debt. ‘What’s going to help me pay it off?’”

As it happens, two very good recent return-on-investment studies have taken student debt explicitly into account.  Does this represent a change of course compared to what Wright contended has historically been the case? I would suspect yes.

One study was conducted in 2017 by Amanda L. Griffith, an economist at Wake Forest University, “No Four-Year Degree Required: A Look at a Selection of In-Demand Careers in Minnesota.” This superb paper, commissioned by Center of the American Experiment, as part of our “Great Jobs Without a Four-Year Degree” project, showed how Minnesotans who choose two-year degrees, one-year certificates, and apprenticeships often do better than counterparts with four-year degrees when it comes to lifetime earnings. A major reason is the lower costs of entering non-four-year technical jobs and careers, especially when much smaller student debt routinely associated with them is accounted for.

A second, national study that takes account of student debt is, “Are College Costs Worth It?  How Ability, Major, and Debt Affect the Returns to Schooling,” by Douglas A. Webber, a Temple University economist, published in 2016.  It, too, is first-rate and essential.

Two final WSJ horror factoids: People 65 and older comprise a growing portion of people filing for bankruptcy.  But “unlike most consumer loans, student debt is rarely dischargeable in bankruptcy.”

Stay tuned for an announcement about a signing party, in April, for Founder Mitch Pearlstein’s newest book, Education Roads Less Traveled: Solving America’s Fixation on Four-Year Degrees.