Ask most borrowers — and many Americans, for that matter — whether shouldering student debt impacts their daily life, most would give you a resounding yes.

But ask many of the stakeholders who influence our nation’s policy approach to the $1.5 trillion student loan problem and you’ll likely get a more measured assessment.

Case in point: A recent public conversation between Spiros Protopsaltis, a professor at George Mason University and an Obama-era Department of Education staffer, and David Cleary, the chief of staff to Senator Lamar Alexander, a Tennessee Republican and the head of the Senate’s committee on health, education, labor and pensions.

‘The debt stories are a little bit overblown.’

—David Cleary, the chief of staff to Senator Lamar Alexander

The two, who come from different sides of aisle, didn’t agree on much during a panel session hosted by the Education Writers Association last week. But one place where they did appear to find common ground: Their take on student debt’s impact on borrowers.

Protopsaltis described many of the headlines surrounding student debt as “exaggerated.”

“It’s not like higher education overall has a problem with debt, it’s the people who don’t complete and drop out with debt,” he said.

“The debt stories are a little bit overblown,” Cleary agreed. While policymakers should be “mindful” of the debt it takes to achieve an undergraduate degree, Cleary framed the average debt at graduation, $29,669, as a “pretty good investment” for a degree that boosts earnings by $1 million on average over a lifetime.

Spiros Protopsaltis, an Obama-era Department of Education staffer, said headlines surrounding student debt were ‘exaggerated.’

In many cases, the eye-popping debt loads are the result of “personal choices that people are making,” like attending graduate school, he added.

In some ways, Cleary and Protopsaltis are correct. The people facing the most dire consequences of student debt are not those who graduated and managed to land a role toiling away in an office job, studies show, but the borrowers who left school with debt and no degree, or a degree that did little for them in the labor market.

And yes, the people with the largest debts usually successfully pay them down thanks to the graduate degree they acquired while racking up six figures in loans.

Finally, a college degree, even with the debt, is typically “worth it,” given that the credential is basically essential to economic success these days. (Arguably, that has more to do with the declining value of a high school diploma.)

Student debt has changed dramatically in the last few decades

But it is also true that the experience of the average college graduate or someone considering attending college is very different than it was decades ago. In 1975, the maximum Pell grant, the money the government provides to low- and moderate-income students to attend college, covered roughly 79% of the cost of college.

Today, it covers about 29% of the cost of tuition, fees, room and board at a four-year public school, according to a report written by Protopsaltis for the Center on Budget and Policy Priorities, a left-leaning research and advocacy organization based in Washington, D.C.

Studies show that, for young people who attended college, student debt makes it more difficult to buy a home.

As Congressman Bobby Scott, a Democrat from Virginia and the chair of the House Committee on Education and Labor, put it to reporters at the EWA conference, for many people spending four years on a college campus is out of reach unless, you’re “willing to take on crushing debt.”

That experience, “should not be limited to those who can write $50,000 checks,” he said.

For those students and families who don’t have that money available — a not insignificant slice of the population — attending college has become “more punitive and more risky than it was a generation ago,” said Mark Huelsman, the associate director of policy and research at Demos, a left-leaning think tank.

There’s no denying that student debt shapes young people’s choices

Despite that heightened risk, many borrowers come out of the experience arguably doing fine. They’re current on their loans and can generally afford other necessities. Still, there’s no denying that student debt is changing the economic experience of young adulthood (or old age for that matter).

Previous research has found that, for young people who attended college, student debt makes it more difficult to buy a home. Other studies show it’s impacting borrowers’ ability to save for retirement.

For many student loan borrowers, their debt keeps them from engaging in the “normal American Dream-type activities that we have set our economy up and set our expectations up as markers of success,” said Huelsman. “There’s just a ton of evidence that student debt is annoying at best or is catastrophic at worst for a lot of people,” he said.

Why education leaders may downplay the student-debt experience

So why the attempt to minimize student loan borrowers’ complaints to the media or their friends at happy hour? For one, policymakers don’t want headlines about insurmountable debt loads to scare students and families away from attending college, Huelsman said.

In addition, any policy fixes that minimize the burden of student debt broadly — and aren’t focused on those facing the most dire consequences of their student loans, like default — would be a boon to a demographic that in some ways already has a leg up. Borrowers who graduate from college are on average inoculated from the most severe consequences of any economic downturn. Borrowers with graduate degrees tend to do even better.

‘We’ve increased the price of college and we’ve increased the risk of education during the longest economic expansion that we’ve had in a long time.’

—Mark Huelsman, associate director of policy and research at Demos

Finally, student debt is not the only factor changing what it looks like to come of age financially. Young adults are making slightly less than their peers were nearly two decades ago. They’re also yearning to live in places where the cost of both renting and buying a home are higher than average.

But it’s hard to divorce those other factors from student debt and its effect on borrowers, according to Julie Margetta Morgan, a fellow at the Roosevelt Institute, a left-leaning think tank. In many cases, cities with a high cost of living are the places offering the most opportunity for those with college degrees.

What’s more, today’s college-educated young adults are being asked to assume a much higher student-loan burden than their parents did at their age for a very small earnings boost over what their parents earned in their 20s and 30s.

One possible solution: More public investment in higher education

So how do we get to the type of system where students prosper rather than become overwhelmed by the burden of debt? Firstly, increase accountability on schools to make sure they don’t raise prices needlessly would help, said Margetta Morgan. Second, ensure student-loan companies make the process of repaying a student loan as seamless as possible

But a more comprehensive solution would include returning to a system where the public invested more in higher education, taking away some of the risk from the individual, she said.

In the past, “we recognized that there were public benefits to public investment in higher education and there were private benefits as well,” Margetta Morgan said. “Now we’re saying we either don’t think that there are significant public benefits or we’re having individuals pay for the private benefits even on top of the taxes they pay.”

That system has increased risk for everyone, but particularly for those who are left behind by other policy or economic forces, Huelsman said. For example, roughly half of black students who borrowed for their undergraduate degree during the 2003-2004 school year defaulted 12 years later.

“We have increased student debt and we’ve increased the price of college and we’ve increased the risk of education during the longest economic expansion that we’ve had in a long time,” he said. “That is something that we should genuinely be concerned about.”

Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch’s free Personal Finance Daily newsletter. Sign up here.

Source link