Are student loans succeeding? The Roosevelt Institute thinks not.

In the United States a major way we fund higher education is through student loans.  This strategy has become central as prices soared, states reduced funding to public universities, and as more people flocked to campuses (until around 2012).  So how is this strategy working out?

Roosevelt Institute logoA new paper from the Roosevelt Institute argues that the focus on student debt has ultimately failed in its purposes, and is now actively harming American society.

Why and how do they see this?

One reason can be found in the context of rising economic inequality.  Overall, the report finds that worker “earnings have been either stagnant or declining for every level of educational attainment during the last 18 years…”  In fact, “as student debt burdens have increased, wages have remained stagnant or fallen…”   This is a huge claim, damning the student loan effort as a failure, at least in economic terms.  Simply stated, “[r]ising levels of student debt have not resulted in higher earnings.”

Morgan and Steinbaum develop this point further, arguing that the college premium (the lifetime earnings boost from having a degree)

was mostly driven by a drop in wages for workers with only high school educations rather than substantial increases in wages for those with college credentials. In other words, the value of a college degree increased because the cost of not having one increased

In a Vice interview one of the report’s authors, Julie Margetta Morgan, explains their analysis:

It’s no longer this thing of, I’d like to earn a higher income, I guess I’ll go to college. It’s like, I have to go to college in order to not end up in poverty—and I’m also forced to take on debt to get there.

In other words, it’s not that higher ed boosts people, so much as those without post-secondary degrees are falling behind.  We are misinterpreting the widening gap between the two as progress.

A second point is the sharp generational difference in debt holding. “Student debt affects a much larger share of the young adult population than it used to…”  This isn’t shocking news for my readers, but is an essential reminder.  Morgan and Steinbaum offer this telling visualization:

holding student debt

Remember the recent Bloomberg analysis of student debt?  This giant debt bolus is now crammed into our youngest generations.  Their lifetime earnings are cramped by it, which means their lives will most likely be constricted, and the overall economy held back.

A third point: debt is strongly inflected by race.  “[T]his expansion is particularly evident among people of color.”  Black and Latinx populations hold more debt than other groups.

The student debt crisis is a profound policy failure for everyone, but denying its existence is a particular injustice to racial minorities who have borne the brunt of that failure, as they previously did of the housing bubble and its deflation in the 2000s.

Fourth point: a growing number of debt-holders aren’t paying down their holdings.  “[A]n increased share of borrowers with positive debt balances aren’t making any payments or are making payments that won’t be sufficient to retire their debt,” which certainly represents a policy failure for the student loan effort.

There’s a fifth point I’d like to note from the paper, namely that this economic transformation (rising student debt, stagnant wages) has a labor politics.

Making higher education more responsive to the stated needs of employers worsens, rather than rectifies, the student debt crisis by reducing workers’ power in facing a labor market where employers hold all the cards.

In other words, in today’s economy graduates are not so much empowered as they are seeking to be hired by truly powerful employers.

The paper’s conclusions are dark, especially for campus strategy.

[U]niversities have responded to this incentive structure by creating a plethora of new graduate degrees that ostensibly serve to distinguish their graduates in a crowded labor market but, in fact, work to extract yet more tuition from students while cheapening the value of the credentials they supersede.

The push for more higher education attainment has led to widespread credentialization, which students pay for in many ways.  In an interview one of the authors refers to our debt-for-degree approach as “a failed social experiment”.

Overall, “The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality” offers a grim critique of where American higher education finance now stands.

Is it correct?  And, if so, what happens next?

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