Who’s to blame for the student loan crisis?

2/18/2015

In a fairly unsurprising bit of news, researchers at the University of South Carolina recently conducted a study into mental health and student loans and found that yes, student loans aren’t great for your mental wellbeing.

That finding may seem obvious, especially since debt and poor mental health have been tied together for years, but the University of South Carolina study was the first to implicitly connect student loans with a decrease in mental health.

For proponents of student loan reform, the study is just further proof of why student loan borrowers need increased protection, support, and relief from their mounting education debt. But not everyone necessarily agrees that student loan debt is a problem. Whenever the word “crisis” is introduced into a national dialogue, counter-arguments will undoubtedly arise.

“A modest fraction of the household budget”

According to Beth Akers of the Brookings Institute, student loan debt is simply too small a part of our economic lives to be considered a crisis.

“It is not a surprise to see that monthly student loan payments make up a modest fraction of the household budget for most borrowers, but with the proliferation of articles detailing the plight of distressed borrowers, it’s easy to forget what the circumstances of average borrowers are like.”

Akers points to the 2010 Survey of Consumer Finances, in particular citing the placement of student loan debt amongst the top average monthly expenses for American households with student debts.

Housing $1,407
Transportation $750
Food $588
Insurance and pensions $466
Health care $296
Misc. $256
Student loans $242
Entertainment $217

The argument seems to be that if student loan repayment is only our seventh most expensive budget category, it can’t really be considered a crisis. And, besides, if student loan borrowers are only spending $25 a month more on their loans than they do on entertainment, where’s the fire?

The inflation of everything…except income

Where student loan debt sits on the budgetary hierarchy, however, isn’t really the issue. The problem is not student loan costs in relation to your monthly Netflix bill. The problem is student loan costs in relation to your income.

Some numbers to consider:

In 1993, the average debt for a newly graduated student loan borrower was about $15,000 (adjusted for inflation).
In 2014, the average debt for a newly graduated student loan borrower was about $33,000.
From 1993 to 2014, the average student loan debt for recent graduates increased by 120 percent.

So the cost of college went up by a lot. You probably already knew that. Here are some more numbers:

In 1993, men with a Bachelor’s degree earned, on average, $59,489 (adjusted for inflation).
In 1993, women with a Bachelor’s degree earned, on average, $35,642 (adjusted for inflation).
In 2013, men with a Bachelor’s degree earned, on average, $58,170.
In 2013, women with a Bachelor’s degree earned, on average, $39,201.

Leaving aside the appalling wage gap between men and women, what does this say? As the relative cost of a college education increased approximately 120 percent, income for women with Bachelor’s degrees went up only 10 percent, while income for similarly educated men actually went down 2 percent in relative value.

In other words, secondary education has become increasingly costly, but the expected return on investment for that education has, in many respects, plummeted.

No room in the budget

The dilemma student loan borrowers are facing these days is not simply that their student loan debt is too big or that their monthly payments are too high. Everything is expensive, and recent college graduates simply don’t have the earning power necessary to balance everything.

One last pair of statistics:

In August of 1993, the average sale price for homes sold in the United States was $150,600.
In August of 2013, the average sale price for homes sold in the United States was $310,800, a 106% increase.

A college education is sold as Step One along the path to the great American Dream. Get a good education, get a good job, get a good car, start your family, and get a good home. But student loan borrowers can be forgiven if they start to wonder if that path is a dead end.

It isn’t, and it shouldn’t feel like one, but it’s pretty easy to see how starting your adult life deep in debt and completely bereft of guarantees of any kind might make you a little stressed.

Thankfully, programs are available that may be able to reduce some of the burden to your budget. For information on managing student loans, visit StudentAid.ed.gov. If you need additional assistance understanding your options and creating a plan to pay off your debts, MMI is happy to offer one-on-one student loan counseling.