Op/Ed: Why the Brookings Institution Is Still Wrong on Student Loans

The Brown Center on Education Policy at the Brookings Institution is back in the news.

In its continuing effort to discredit what the center describes as “the often-hysterical public debate about student loan debt,” the BCEP published a September follow-up to its April report—the one in which its researchers determined that broad-based policy actions on the part of the government are “likely to be unnecessary and wasteful given the lack of evidence of widespread financial hardship.” The update takes into effect more recent data from the Federal Reserve Bank of New York’s Survey of Consumer Finances and concludes that no meaningful change to their previous assertions is required.

Since the update doesn’t say anything about modifications to the methodologies the researchers applied in the first analysis, it’s probably safe to assume that the shortcomings that existed in the April report are also in September’s.

For example, the researchers appear to continue to base their findings on presumptive two-person households where individual incomes are combined and debt loads are halved. Doing so has the potential to significantly understate the metric when the latter is divided by the former. Nor does it appear that any attempt has been made to reconcile BCEP findings with reports of increasing student-loan payment delinquencies and defaults (17% and 7%, respectively, according to the Department of Education), and the accelerating extent to which problem loans are being restructured.

The researchers also describe lifetime income levels that “have more than kept pace with increases in debt levels between 1992 and 2010.” And although they admit that incomes fell slightly during the adjunctive 2010 to 2013 period, their original conclusions remain unchanged nonetheless.

Apart from the fact that lifetime earnings have little to do with loans that are set up to be repaid during the lower-earning segment of the average borrower’s career, what of the most recent National Center of Education Statistics data that indicates that young adults (aged 20 to 24) earned approximately $4,800 less in 2012 than they did in 1980 after adjusting for inflation? Wouldn’t that undermine the BCEP’s claim that “Americans who borrowed to finance their education are no worse off today than they were a generation ago?”

It’s also worth remembering that the study focuses only on households that are comprised of 20- to 40-year-old adults, despite the fact that according to a recent U.S. Government Accountability Office report, households headed by 65-year-olds and older are carrying increasingly higher levels of student debt. Some borrowers are dealing with the aftermath of late-career borrowing or, perhaps, the implications of the amount of loans they’ve cosigned for their children and grandchildren.

And what of those who are between the ages of 40 and 65? Aren’t these the same folks who are taking out PLUS loans to put their kids through school?

According to data supplied by the New York Fed, average aggregate student loan debt more than tripled for 40- to 59-year-olds in the eight years between the start of 2005 and the end of 2012. What’s more, when the Pew Charitable Trusts evaluated incomes and wealth histories for those who were born between 1965 and 1980, they found that even though three quarters of them were earning more than their parents had, “just 36 percent of Gen Xers have exceeded their parents’ family wealth, and the typical Gen Xer has $5,000 less wealth than their parents did at the same age.”

Here’s the point: A study that measures debt levels that are held by a narrow age band of borrowers, incorrectly associates this metric with lifetime earnings rather than early career compensation, ignores contradictory contemporaneous data on payment delinquencies, default rates, comparative values of income and wealth accumulation, and most important as far as I’m concerned, does not take into account relative affordability—the extent to which these debts are able to be repaid within the context of all other household financial obligations—is of dubious value.

If anything, the student loan debate deserves to become even more “hysterical.”