Don't Believe the Hype: There's Still a Student Loan Crisis

The Brown Center on Education Policy at the Brookings Institution is on a mission.

Over the past several months, the center’s researchers have been working hard to reset popular perceptions about the existence of a student loan crisis and, perhaps, influence public policy as a result.

In the first of its reports (April 2014), the BCEP concluded that not only is the price tag for governmental student loan relief programs much higher than originally thought, but their existence presents an irresistible temptation for students to “engage in more risky behavior because they don’t have to bear the full cost of their actions.”

As such, the center urges policymakers to eliminate the forgiveness portions of the various relief programs to “reduce the potential for over-borrowing by requiring borrowers to eventually pay off their debt.” Doing so, the center’s researchers argue, would also dissuade low-income borrowers—whom they view as disproportionately benefiting from these programs—from attending high-priced schools.

In a follow-up report (June), the same researchers take this a step further by contending that broad-based policy actions on the part of the federal government are “likely to be unnecessary and are wasteful given the lack of evidence of wide-spread hardship”—a conclusion they base upon creative manipulations of Federal Reserve Bank of New York data and selective interpretations of macroeconomic factors and trends.

Three months later (September), the center published an update, in which the researchers turn up the heat by directly challenging what they characterize as the “often-hysterical public debate about student loan debt.” Selective FRBNY data is once again used, this time to bolster a contention that “households with education debt today are still no worse off than their counterparts were more than 20 years ago,”—a conclusion that’s based, in part, on halving the value of those loans on the dubious presumption that U.S. households are typically made up of two people who would be equally responsible for their repayment.

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Most recently (December), the BCEP published what may be the capstone to the previous three reports. Its researchers found that more than half of all first-year college students seriously underestimate the extent of their education-related borrowing, which “may perpetuate popular narratives about crushing student loan burdens.” They also contend that after taking into account inflation and financial aid, “college is more expensive, but not to the extent it appears at first glance.”

As it happens, this latest view reinforces their previously articulated “unnecessary and wasteful” conclusion with regard to loan-relief programs, not least because “without knowledge of their financial circumstances, a student with a large sum of debt might be unprepared to compete for the jobs that would pay generously enough to allow them to repay their debt without having to enter an income-based repayment program.”

So to sum up the narrative the BCEP has evolved on this contentious subject, borrowers today are no worse off than those of the immediately preceding generation; tuition prices aren’t so out of whack as we’ve been led to believe; and not only are the government’s relief programs extravagant and pointless, but they also present a moral hazard.

In other words, to the extent that today’s students find themselves in over their heads, it’s their own fault!

Well, we are all certainly entitled to our own opinions. And from the hundreds of comments that are posted on articles discussing student loans, it appears that many agree with the BCEP’s conclusions—especially those who worked their way through school and repaid all their education debts over time, like me.

But that doesn’t mean that the Brookings’ point of view should go unchallenged, particularly when there is more information to consider.

Take for example, the fact that over the past 20 years, average higher-education prices have consistently outpaced the rate of inflation, average student borrowing has more than doubled, average aggregate borrowings have more than quadrupled, college-completion rates remain stuck at just north of 50%—and that’s for students who take six years to complete a four-year degree—and less than half of all loan payments are being remitted in accordance with the original terms of the underlying agreements (which means that more than half of all student loans that are currently in repayment are either delinquent or in default, have been granted temporary forbearance or were permanently restructured to facilitate repayment).

If the Brookings Institution is serious about providing “innovative, practical recommendations” that “foster the economic and social welfare, security and opportunity of all Americans,” not only would its researchers objectively incorporate all the available data, but their reports would also critically assess the personal-financial management implications of the higher-education industry’s revenue-based business model, the government’s easy-credit policies and the private sector’s loan-underwriting practices, which value creditworthy cosigners and the virtual impossibility of discharge in bankruptcy court over a borrower’s ability to repay his obligation.

As important, the institution would also vigorously explore the reasons for what is clearly an abject failure of financial-literacy education in secondary education and within college financial-aid offices that helped bring us to this miserable juncture.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.