College Guide


March 06, 2012 5:07 PM Debt Study vs. Debt Study

By Daniel Luzer

Student debt is becoming a huge problem, according to a study recently published by the Federal Reserve Bank of New York. The crisis, the bank makes clear, is not just a matter of how large the debt is (Americans now hold $870 billion in student loans) but the way people don’t seem to be making payments on it. But another study, published at the same time, seems to indicate the opposite. The true story depends on the assumptions you’ve got.

According to the Federal Reserve study:

We find that 27 percent of the borrowers have past due balances [of 30 days or more], while the adjusted proportion of outstanding student loan balances that is delinquent is 21 percent—much higher than the unadjusted rates of 14.4 percent and 10 percent….
In sum, student loan debt is not just a concern for the young. Parents and the federal government shoulder a substantial part of the postsecondary education bill. Moreover, the student loan delinquency picture is not fully captured in the broad statistics since a significant proportion of borrowers and balances are not yet in the repayment cycle. The implications of this last fact for future changes in the student loan delinquency rate are a very important area of research.

But not everyone seems to think this is a problem. The Wall Street Journal, for instance, helpfully ran a story yesterday by Christopher Shea suggesting that college students should borrow more money. Shea:

But what if the greater problem were that some people who should be taking out educational loans are failing to, or that borrowers aren’t borrowing enough?
A new analysis of student debt… stresses that most current educational borrowing is wise. An overemphasis in news coverage of students drowning in debt, argue Christopher Avery and Sarah Turner, in the latest issue of the Journal of Economic Perspectives, is scaring people away from taking on healthy debt. Art-history majors who are $100,000 in the red and unemployed exist, to be sure, but accepting them as typical amounts to a species of “cognitive bias,” Avery and Turner argue.

As Avery and Turner explain, “there is little evidence to suggest that the average burden of loan repayment relative to income has increased in recent years.” Overall, apparently, the ratio of student loan payments to income has “held steady at between 9 and 11 percent.”

And therefore, student loans are fine.

This is a little questionable, at least in part because the sourcing for this rosy information all comes from studies published from a period between 2003 and 2006, before the Great Recession.

The great big problem with this evidence, however, is that the ratio of student loan payments to income appears to take into account only people actually making student loan payments.

The Federal Reserve Bank study, however, indicates that some 27 percent of borrowers aren’t making payments on time. And 21 percent of of them just aren’t making payments at all.

Avery and Turner conclude that there’s no reason to think students are borrowing too much. “The claim that student borrowing is ‘too high’ across the board can—with the possible exception of for-profit colleges—clearly be rejected,” they write. Well, perhaps in some aggregate sense, but come on. At what point would there be a problem then?

At what level of average non-payment on student loans would student borrowing be too high?

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer


  • Ron Mexico on March 07, 2012 6:57 AM:

    An excellent point, especially since student borrowing has been driven by increases in tuition. The WSJ is of course going to be ok with huge student borrowing since they believe that there are no social benefits to anything except for low taxes for rich people and corporations.

  • PQuincy on March 07, 2012 9:11 AM:

    A misleading economic analysis in the Wall Street Journal? I'm shocked, I tell you, shocked. Next thing, we'll be hearing accusations that Murdoch tabloids paid cops and politicians for scoops and hacked cell phones...

    To base a discussion of student loan debt burdens on 2003-206 is not simply misleading, it's provocatively mendacious. Public universities across the United States have drastically raised tuition since 2006, turning a relatively minor part of the total cost of higher education into an enormous albatross, largely financed with non-dischargeable debt, around the neck of current students and recent graduates.

    But since the real and aspirational 1% who read the WSJ are doing fine and want to pretend all's well with the economy (if those pesky socialists in Washington and at the Fed would stop intervening aside from all of the rents and corporate subsidies they need to keep paying), the student debt problem is clearly something to sweep under the rug permanently, or at least until it can be taken out as a bludgeon against public education. Just wait for the WSJ article showing that all of the student loan defaults at for-profit debt mills is the fault of socialism and the public universities. I'm sure they'll find some great data from 1983 to prove it.