Jun
25
2014

NYT on Student Loan Crisis: What Crisis Is That?

Distribution of Debt (Brooking Institution)

Brookings acknowledges that today's graduates are deeper in debt. But that's OK!

In the New York Times (6/24/14), David Leonhardt heralded a new study by the centrist Brookings Institution (6/24/14) that questions whether the student loan market actually faces a "crisis on the horizon." However, as critics pointed out, the piece played down aspects of the student loan market to present a deceptively rosy picture.

Leonhardt quotes Matthew Chingos, one of the co-authors of the study, as saying, "We do think that the data undermine the prevailing sky-is-falling-type narrative around student debt." Leonhardt concurs, dismissing the "deeply indebted college graduate" as a clichéd "stock character" at the beginning of his column.

The Brookings study found that the percentage students pay from their monthly income has stayed roughly the same–at about 3-4 percent–for the past two decades. The authors' argument is that college graduates' rising incomes have kept pace with increased debt loads, so it is no more difficult than it ever was to pay off their debts. These findings are thus supposed to alleviate concerns of a pending crisis surrounding student loan debt. Right?

Not quite. On the same day the study was released, multiple critiques were aimed at the methodology and data set that the Brookings Institution used. As Jordan Weissmann (Slate, 6/24/14) pointed out, the study excluded student loan borrowers in their 20s and early 30s who are still living with their parents, because the Brookings study pulled available data from the Federal Reserve's Survey of Consumer Finance, which surveyed "households headed by people between 20 and 40 with at least some educational debt." (Emphasis added.)

That could be a potentially significant oversight, since 20 percent of people in their 20s and early 30s still live with their parents–a phenomenon known as "boomerang kids" (New York Times Magazine, 6/20/14)–with 60 percent of these receiving financial support from their parents. This segment of the cohort may well be in worse financial shape than their more independent peers.  Chingos told Weissmann that including these "boomerangers" would not have significantly altered the study's results, but Weissmann said he was skeptical about this claim–as one might be.

Mike Konczal (New Republic, 6/24/14) pointed out the problem with the study's stress on the fact that monthly payments have remained the same for the past decades:

Though the percentage of income that student-loan debtors pay stays the same, the length they are paying those loans is up 80 percent. What was once an average length of 7.4 years in repayment in 1992 is now 13.4 years.

So the amount of time it takes a borrower to pay off their debt has nearly doubled in the past two decades.

The Brookings study mentions this length increase and attributes it to “loan consolidation,” but minimizes the negative long-term effects of carrying debt much longer–beyond young adulthood into the beginning of middle age. As Konczal explains, borrowers in long-term debt often delay getting married and have more trouble buying a home or car.

Generally speaking, student loan debt is also a hindrance in saving and accumulating wealth. Konczal elaborated with a Pew Research Center (5/14/14) report:

Households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).

Leonhardt dismisses these concerns over debt as "scare stories." He seems to think that the proper message to give indebted graduates is: Don't worry, be happy.

Aldo Guerrero is a FAIR intern.