Nuances of College Debt

As an integral part of American Experiment’s multi-year project, “Great Jobs Without a Four-Year Degree,” my colleagues Katherine Kersten, Catrin Thorman, and I have written a lot about how college debt poses major problems for many young, and not-so-young men and women—and quite often for their parents. What we’ve reported is quite true, though not necessarily as detailed or nuanced as fuller treatments would allow.

Let me catch up and add some detail and nuance to the issue by drawing from a book of mine to be published in early 2019, Education Roads Less Traveled: Solving America’s Fixation on Four-Year Degrees, to be published by Rowman & Littlefield. The following is a brief, edited portion of Chapter Four, “The Growing Power of Debt,” and opens with the extra-deep financial hole veterinarians often find themselves in.

And then there is the business owner who talked about how “debt is a big deal; it’s a lot of stress.” He was referring not just to the difficulty or inability of a husband and wife buying a house but to “what it does to a person’s life, whether they meet somebody, or even whether they’re able to conceive. I mean there’s a whole bunch of things going on.”

The man who said this, Mitch Davis, owns a dairy operation in southern Minnesota with 20,000 animals. He added another dimension to matters of debt by noting how the academic and training demands on veterinarians are the equal of those of medical doctors, with educational expenses for both groups similar. “But when veterinarians get out of school, they get $65,000 and they probably have $250,000 to $300,000 in debt. And you wonder why we’re short of large animal vets, which is a big thing in terms of world imports and exports of food.”

Having a hard time grasping such a huge cleavage between income and student debt, I did some checking, and Davis was fundamentally right. According to one website, it’s not uncommon for veterinarians to leave school up to $250,000 in debt, and that includes just loans taken during their four years of vet school; it does not include any debt from their undergraduate years or whatever post-doctoral work they may have had.[1] According to another website, veterinarians in the United States earn about $72,000 a year.[2] Let’s just say the repayment challenge facing veterinarians is as frightening as for any group I know.

Time to take a breath. College debt is not necessarily an out-of-bounds burden for most people, much less a “crushing headache,” as one interviewee described student debt levels. Average college debt across the nation hovers around $30,000, which surely is not sofa change and may intimidate. But I start from the premise that something is wrong if a person doesn’t value his or her education as much as the price of a modest Ford, which the last time I checked was between $20,000 and $30,000 for a Fusion.

As for the possibility of intimidation, and in fairness, I appreciate how it can be inversely related to a family’s income and wealth.  Though it’s also true that very bright, low-income students frequently win financial aid packages, even at the most expensive private schools, that entail little eventual debt.

But what about interest? When it’s written or said that a person has taken out $30,000 in loans, is it commonly assumed that $30,000 is the total to be paid back, with interest already factored in? Or is interest not yet accounted for, meaning the borrower is on the hook for measurably more than $30,000? I may be wrong, but after reading a lot of popular and other accounts about student loans, my sense is most references to student debt ignore the reality of interest, thus underplaying how difficult making good on loans may be.

A key complication: What about postgraduate studies these days? While approximately $30,000 in undergraduate loans does not worry me if a person has no plans of pursuing a graduate or professional degree, it does if they do. Tori Roloff, an exceptionally talented young woman who served as my intern for a summer and who was entering her sophomore year at the University of Virginia, framed matters well. I had just asked what she saw herself doing about three years hence.

“I think I eventually want to go to law school,” Roloff said, “but I don’t want to do that right away, because I don’t want to go from one debt to another right away. It’s a huge investment to make, so I want to first see if I’m happy with what I might be doing without a law degree. If I am, I wouldn’t need to go and get one.” Suffice it to say, she would make a quality contribution to justice if she did go.

One more caveat, an important and particularly subtle one: It would be a mistake to assume that students graduating with the biggest debts usually wind up with the toughest financial plights. They generally don’t, because they tend to graduate from the most-respected institutions, win the best-paying jobs, and contend with unemployment less often. This is the case for men and women earning both undergraduate and graduate degrees.

Counterintuitively, students who wind up in the most trying financial holes are disproportionately those who enrolled in community colleges—the very places I’ve been applauding. To what extent might this community college fact of economic life undermine my argument? Little, if any, as note I use the words “enrolled in,” not “graduated from” above. The difference can be immense.

I also didn’t say anything just now about what kinds of community college programs students chose. Did they take only or mostly general courses which left them largely bereft of marketable skills, perhaps along with resumes announcing they might do poorly following through if they left school before graduating?

Or did they take the kinds of technical and career-focused courses I’ve been talking about, finishing with the kind of two-year degrees or shorter certificates that employers value? The answer is manifest: There’s an ocean of difference between pursuing the kinds of community college programs that lead to solid middle-class careers and then graduating as opposed to doing neither.

Susan Dynarski is a professor of education, public policy, and economics at the University of Michigan.[3] She wrote in 2015 that loan defaults are “concentrated among the millions of students who drop out without a degree, and they tend to have smaller debts.” Or similarly, “Students who attended a two- or four-year college without earning a degree are struggling to find well-paying work to pay off the debt they accumulated.” Or, as my adviser once advised, “The idea is to finish.”

As for students who do earn bachelor’s degrees, Dynarski added, the “vast majority” of are doing very nicely. “Only two percent of undergraduates borrow more than $50,000, and they also aren’t the ones who tend to have problems with their debt.” Might this latter conclusion by Dynarski undermine my argument that debt is, in fact, causing many students and parents to rethink post-high school plans?

No, again, as just because the “vast majority” of loan holders with baccalaureates are “doing very well,” as she puts it, that doesn’t mean that acquiring tens of thousands of dollars in debt is an attractive prospect for most people. Her conclusion, moreover, at least as captured in a couple of sentences, does not speak to the fear many high school students have about picking up a ton of debt, even if they are otherwise confident they will eventually succeed greatly. Now imagine parents’ possible fright if they have more than one child in college at the same time, or on the cusp.[4] I trust Dynarski understands that fear is frequently robust.





[3] Susan Dynarski, “Why Students With Smallest Debts Have the Larger Problem,” The New York Times, August 31, 2015. Also helpful is Dynarski’s article, “New Data Gives Clearer Picture of Student Debt,” The New York Times, September 10, 2015. As are Adam Looney and Constantine Yannelis in, “A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising loan defaults,” Brookings, Fall 2015.

[4] After writing this, I was informed by my colleague, Prof. Kent Kaiser, that the “way federal aid works, there is an expected parental contribution.  It is divided by the number of kids in college.  Therefore, it makes sense to have kids one right after another – twins or triplets, if possible – to make the family contribution the smallest possible and to obtain the greatest financial aid.  People think they’re being fiscally smart by spacing out their children, but that’s the worst thing to do.”  While this qualification, I trust, is all true, it doesn’t mean that parents wouldn’t still be hit with intimidatingly big college bills. While not as huge, they might be hardly less scary.