Earlier this year on the presidential campaign trail, Senator Elizabeth Warren of Massachusetts laid out her higher education platform, including a student loan jubilee and free college. In the Medium article announcing her vision, she claimed that “the result [of rising college costs] is a huge student loan debt burden that’s crushing millions of families and acting as an anchor on our economy.”
Soon after, Senator Bernie Sanders of Vermont followed with a generous plan of his own, echoing the alarm conveyed by Warren. He explained: “[My plan] forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the ‘crime’ of getting a college education.”
These presidential hopefuls are promising to spend trillions of taxpayer dollars to bail out a generation of young people drowning in debt. A worthy aim — if it were true.
The reality is that the underlying premise is entirely overblown. Millennials are facing plenty of difficulties, but a widespread student debt crisis isn’t one of them.
First, 66 percent of millennials have no student debt at all. That’s because they haven’t gone to college or because they managed to get through without having to borrow. Those who argue that student debt is crippling an entire generation completely overlook this fact.
Second, those who do have student debt tend to have modest burdens relative to their income. Typical four-year-degree graduates will borrow a total of $28,500. That can be paid back with monthly payments of less than $200, which is a relatively small share (4 percent) of the median monthly earnings for these graduates ($4,762).
Third, eye-catching six figures of student debt we often read about in the newspaper are surprisingly unusual. Only 6 percent of borrowers have more than $100,000 in debt. And they tend to be people who have high earning power thanks to a graduate or professional degree. That’s why default rates are lowest among borrowers with the highest levels of debt. It’s actually the borrowers with small balances who struggle the most with repayment because they’ve often dropped out of school and don’t have the extra earning power that comes with a degree.
Of course, not everyone with a high balance lands in a high-paying job. Perhaps these are the folks who need a bailout. But policy makers have already taken care of them with repayment plans that ensure affordable monthly payments and forgive debts that are ultimately unaffordable after 10 or 20 years.
Unfortunately, many borrowers aren’t aware that these options exist and will needlessly default on their loans. That’s one consequence of the overheated rhetoric on student debt: Borrowers who can’t afford their payments on the standard repayment plan wrongly believe they are stuck.
Policy makers should be realistic about the burden student loans are putting on our nation’s young people. Rather than the blunt approach of forgiving all student debt, they might explore innovative policies to address a very different set of challenges.
A smart platform for higher education would shore up the existing safety nets for student borrowers and ensure that borrowers know they exist and how to use them. Many of these programs are far too confusing, frustrating borrowers and keeping them from accessing the resources they need. Beyond educating borrowers about a convoluted system, we need to streamline our lending program. We should eliminate the variety of lending programs in operation today and replace them with a single loan program. Doing so will help students understand what they’re borrowing while they’re in school, which will help them make smart choices on where to enroll and how much to spend and will pressure schools to keep price in line with value.
Most millennials aren’t drowning in student debt — but some are. Rather than rationalize tremendous expenditures of taxpayer dollars on politically popular policies like free college and student loan jubilees, our leaders should be focusing on those who truly need help. There’s plenty of work to be done.
This piece originally appeared in The Boston Globe (paywall)
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