A substantial amount of attention has been focused on student debt this fall, especially by President Obama and each of the frontrunners for the Democratic ticket. In their view, debt is due primarily to the rising cost of a degree, a byproduct of the failure of colleges and universities to exercise effective management and control costs. The administration, and Secretary Duncan in particular, see in this a need for “greater accountability.”
In taking a closer look at these assumptions, a different picture emerges. For instance, current student debt ($1.2 trillion) may have less to do with the cost of tuition than the state of the economy. Multiple studies, including one conducted by the New York Federal Reserve this past spring, support this argument.
These factors include:
1) The inclusion of graduate student borrowing in aggregate debt totals. While graduate students account for only 10 percent – 12 percent of borrowers, they hold by some estimates around 40 percent of outstanding loans. Needing to attend school full-time, these future doctors, lawyers, dentists and future university professors borrow to cover their living costs, as well as their higher rate of tuition.
2) Using student loans to pay off other debt. The number of students enrolled in college remains near an all-time high, and, due to the Great Recession, many of these borrowers have had to use their student loans to bridge the gap created by the decline of savings, investments and home equity. The New York Federal Reserve reports that from 2004-2014, there was an 89 percent increase in borrowing and a 77 percent increase in the amount borrowed. Interestingly, those over 40 have increased the rate of borrowing at twice the rate of younger students. This is consistent with the growth in graduate student debt.