Student Debt and the class of 2010

[MichaelB]

Students continue to graduate from college with substantial debt. Full report here

We estimate that two-thirds of college seniors who graduated in 2010 had student loan debt, with an average of $25,250 for those with debt, up five percent from the previous year.

There do seem to be differences in total debt levels around the US, but no explanation why.

State averages for debt at graduation from four-year colleges ranged widely in 2010, from $15,500 to $31,050. High-debt states are concentrated in the Northeast and Midwest, while low-debt states are mainly in the West.

The problem is even worse at for profti colleges

Given the growing enrollment in and attention to for-profit colleges in recent years, it is important to note that this report reflects only graduates of public and private nonprofit four-year colleges because so few for-profit colleges report the necessary student debt data. However, based on national surveys conducted by the U.S. Department of Education, we know that on average, graduates of for-profit four-year colleges are much more likely to borrow student loans and borrow significantly more than their counterparts at public and private nonprofit colleges.

 

[haha]

Students continue to graduate from college with substantial debt. Full report here
There do seem to be differences in total debt levels around the US, but no explanation why.
The problem is even worse at for profti colleges

If the student has been even mildly concerned that his/her degree will help secure a fairly decent job, I see no problem with $25-30 or even 50K in loans. Working class people who must stock a toolbox to work at a repair garage will often be out in the neighborhood of that lower figure. Or try to buy a business that would support you for $50,000. Possible, but full of risks.

Ha

 

[FUEGO]

Not too bad. 1/3 graduate debt free and of the remaining 2/3's with debt, the average is $25,000? That is about half the starting salary for a year in a lot of fields. Still seems like a good value proposition assuming college leads to something with a moderately decent earning potential, especially if your alternative to college is working somewhere starting at $10-12/hr.

After all, plenty of folks plunk down $25,000 or more for their first car right out of college - in spite of college loans. It really isn't that much (again, assuming the debt has funded a college education in a field likely to lead to a job with a decent income).

 

[Independent]

Not too bad. 1/3 graduate debt free and of the remaining 2/3's with debt, the average is $25,000? That is about half the starting salary for a year in a lot of fields. Still seems like a good value proposition assuming college leads to something with a moderately decent earning potential, especially if your alternative to college is working somewhere starting at $10-12/hr.

After all, plenty of folks plunk down $25,000 or more for their first car right out of college - in spite of college loans. It really isn't that much (again, assuming the debt has funded a college education in a field likely to lead to a job with a decent income).

That's an assumption that I wouldn't make. I'd like to see the data, but AFAIK, nobody produces it. What percent of entering freshmen have jobs 6 years later that require their college degree? How does that vary by major and school? What about the people who get jobs, but jobs that don't require the degree (say an English major who ends up as a restaurant manager), what do they make? What percent are unemployed?

My guess is that engineering grads get better pay than anthropology grads, and a philosophy major from Yale will get a better job than a philosophy major from second state U, but I don't know the numbers. Borrowing for college may make lots of sense for some people, but none at all for others.

( Schools may provide stats on salary offers made to seniors through the school's career center. But that's a long way from the comprehensive data I'd like to see. )

 

[Mulligan]

For students attempting to pay their own way through school, its easy to see why they owe more. About 25 years ago when I finished up, I was making $5 an hour working and tuition was $30 an hour. Now today, students probably can make less than $8 an hour, but tuition is over $200 for same university I attended. Plus university administrators have created many "revenue enhancer supplemental fees" that are in addition to tuiton costs. I'm surprised they havent instituted an "oxygen use" fee to breathe on campus.

 

[FUEGO]

For students attempting to pay their own way through school, its easy to see why they owe more. About 25 years ago when I finished up, I was making $5 an hour working and tuition was $30 an hour. Now today, students probably can make less than $8 an hour, but tuition is over $200 for same university I attended. Plus university administrators have created many "revenue enhancer supplemental fees" that are in addition to tuiton costs. I'm surprised they havent instituted an "oxygen use" fee to breathe on campus.

Hard to make much less than $8/hr since fed min wage is $7.25. I'm a little out of the loop, but do keep in touch with the old alma mater's student chapter of my professional society. Just saw a job posting for a part time job that I held 10 years ago earning $10/hr. Now it pays $15/hr. Granted it is in engineering, but nothing high tech or demanding, and the posting was soliciting undergrads. But yes, the tuition has more than doubled in the last 10 years since I graduated undergrad. Around $200/credit hour now.

 

[FUEGO]

That's an assumption that I wouldn't make. I'd like to see the data, but AFAIK, nobody produces it. What percent of entering freshmen have jobs 6 years later that require their college degree? How does that vary by major and school? What about the people who get jobs, but jobs that don't require the degree (say an English major who ends up as a restaurant manager), what do they make? What percent are unemployed?

My guess is that engineering grads get better pay than anthropology grads, and a philosophy major from Yale will get a better job than a philosophy major from second state U, but I don't know the numbers. Borrowing for college may make lots of sense for some people, but none at all for others.

( Schools may provide stats on salary offers made to seniors through the school's career center. But that's a long way from the comprehensive data I'd like to see. )

I guess I am biased since I do have an engineering degree and view the world from the perspective that the college degree I obtained was very valuable. I agree that depending on major, you may not be getting your money's worth out of a college education. $25k-50k in debt to get an English or anthropology degree probably isn't a good proposition. Note my assertion that incurring this level of debt is reasonable assuming one studies something likely to lead to a job with a decent earning potential. Some degree programs have higher probabilities of leading to decent incomes and/or stable incomes after graduating. Those are the ones that are the best bets to pay back on the $25k investment.

 

[Mulligan]

I guess I am biased since I do have an engineering degree and view the world from the perspective that the college degree I obtained was very valuable. I agree that depending on major, you may not be getting your money's worth out of a college education. $25k-50k in debt to get an English or anthropology degree probably isn't a good proposition. Note my assertion that incurring this level of debt is reasonable assuming one studies something likely to lead to a job with a decent earning potential. Some degree programs have higher probabilities of leading to decent incomes and/or stable incomes after graduating. Those are the ones that are the best bets to pay back on the $25k investment.

I agree you have to evalute cost effectiveness. The trouble is many teenagers ( and Im afraid my daughter is heading this way ), mix idealism, with little understanding of debt, and only vague understanding of their potential degree's economic value get themselves behind the eightball before they truly understand how its going to get paid off.

 

[FUEGO]

I agree you have to evalute cost effectiveness. The trouble is many teenagers ( and Im afraid my daughter is heading this way ), mix idealism, with little understanding of debt, and only vague understanding of their potential degree's economic value get themselves behind the eightball before they truly understand how its going to get paid off.

I feel your pain. My daughter has started thinking about these things, and is focusing on applying herself, saving for college, and getting scholarships. I just hope she is this pragmatic next year when she turns seven and continues on this path in the future.

 

[MichaelB]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. If the starting salary is 1/2 the median wage, a newly graduated student has a debt equaling one year of salary. This would imply that 1/4 of students have debt greater than 1 year starting salary.

What a way to start a life...

 

[youbet]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. If the starting salary is 1/2 the median wage, a newly graduated student has a debt equaling one year of salary. This would imply that 1/4 of students have debt greater than 1 year starting salary.

What a way to start a life...

Doesn't sound too bad Michael.

DW graduated in 1969 with a BA in English and $10k (exactly) in debt. Her first job teaching paid about $8k. We lived on my salary as a night shift factory worker and used her salary to pay off the debt. Then we used her salary to save a down payment (20%) for our first house. Then the family came along and so on and so forth. You guys know the story.

We thought DW's degree was well worth the 1+ year of starting salary debt she incurred. We're amazed that kids graduating with $25K - $30K in debt today are so into whining and moaning about it instead of knuckling down and paying it off. Sure, they're going to have to postpone that new Miata for a little while. But, hey, sometimes you just have to do what it takes.

 

[haha]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. If the starting salary is 1/2 the median wage, a newly graduated student has a debt equaling one year of salary. This would imply that 1/4 of students have debt greater than 1 year starting salary.

What a way to start a life...

I really don't see the problem. I remember years ago when higher education in all the CA public universities was free. There was a big debate about why lower class people who would never see the inside of a university classroom should pay for schooling of the sons and daughters of people who were for the most part much better off than they were, and also had much better prospects.

IMO, most things are best financed by user fees. I personally benefit from the many things that are publically financed, like good public transportation in the central city. But should people who live where they are never likely to ride a bus or rapid transit or streetcar or ferry also pay for these things?

Tuition is ridiculously expensive. If students and their parents were not blinded by the supposed prestige of big-name universities they might make much better choices.

If you and your daughter know that she is a barracuda, go ahead and let her borrow a ton of money to get a big time law degree. Otherwise, go cheap.

Ha

 

[clifp]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. If the starting salary is 1/2 the median wage, a newly graduated student has a debt equaling one year of salary. This would imply that 1/4 of students have debt greater than 1 year starting salary.

What a way to start a life...

Here is a list of median starting salaries for various college degree. Even Social work has median starting pay over $32k, and most liberal arts degrees pay in the 30s to 40K, and after 15 years pay 50-60K. Even going to the highest debt state NH, and picking social work leaves you with a debt the same as your income. Considering that many/most people buy houses at several times their annual income. I don't think it monster burden. Now the folks who run up a $100K for undergrad or 200K for grad school have a serious problem, but that problem frankly starts with parents, student, and lenders. The recommendations I've seen are to keep student loans to the expected first year wages.

 

[chinaco]

Many causes. Schools keep building and adding services to attract students... things that have little to do with education. That is part of the institutional inflation that is happening.

The other part is completely under the control of the student (and maybe the parents) school choice and lifestyle choices while in school.

They may want to relocate and go to an Ivy League or Top tier school (or the state party school). But maybe it makes more sense (for many) to stay close to home, live at home and commute (if there is a school nearby).


Affordable education needs to be available... but economic related choices are big part of the problem.

 

[FUEGO]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. If the starting salary is 1/2 the median wage, a newly graduated student has a debt equaling one year of salary. This would imply that 1/4 of students have debt greater than 1 year starting salary.

What a way to start a life...

If the expected outcome of going to college is that you will obtain a $26.5k a year job, then I will save you the trouble and get you a low intensity factory job or a low skill desk job making that much, probably with similar benefits. And you can start working right out of high school and earn immediately instead of spending/wasting 5-6 years in college. After all, if you have the aptitude to excel in college, then surely you can excel at an entry level job and work your way up.

If you don't have the aptitude to excel in college, then you don't belong there, so maybe consider a nearly free community college, get some technical skills from a quick training program and get to work!

I suppose a reasonable rebuttal would be that for some, they want to follow their pursuits for altruistic or personal reasons. They want to be historians, teachers, writers, poets, the next great American novelist, social workers, etc. And for them, the cost of college will be high relative to their expected incomes. But their passion is so great they want to do it anyway. At that point, the analysis has left the merely financial realm, and so we can't analysis the decision from a merely financial perspective. Part of their expected utility comes from that pursuit of their passion or the good vibes from their altruistic avocation. Is $25k in debt such a large price for one to follow their lifelong passions? How do you even value that?

 

[sheehs1]

If the expected outcome of going to college is that you will obtain a $26.5k a year job, then I will save you the trouble and get you a low intensity factory job or a low skill desk job making that much, probably with similar benefits. And you can start working right out of high school and earn immediately instead of spending/wasting 5-6 years in college. After all, if you have the aptitude to excel in college, then surely you can excel at an entry level job and work your way up.

If you don't have the aptitude to excel in college, then you don't belong there, so maybe consider a nearly free community college, get some technical skills from a quick training program and get to work!

I suppose a reasonable rebuttal would be that for some, they want to follow their pursuits for altruistic or personal reasons. They want to be historians, teachers, writers, poets, the next great American novelist, social workers, etc. And for them, the cost of college will be high relative to their expected incomes. But their passion is so great they want to do it anyway. At that point, the analysis has left the merely financial realm, and so we can't analysis the decision from a merely financial perspective. Part of their expected utility comes from that pursuit of their passion or the good vibes from their altruistic avocation. Is $25k in debt such a large price for one to follow their lifelong passions? How do you even value that?

I"m curious as to why you put "teachers" in the list above. A professional license is required to be a teacher in most if not all public school systems. License renewal is also required. It is not as easy to be a teacher in todays world as it was when I was coming along. Many can not pass the Praxis test requirements.
One may not get rich teaching but it is a stable income with very good benefits (at the moment anyway). With a million plus teachers scheduled to retire....it will also be in demand for at least as long as we have a public school system .

Not everyone can be or wants to be a doctor, lawyer, engineer. The one thing I repeatedly told my daughter was "the purpose of college" is to be able to get a decent job/career so you can support yourself. Period. No question mark. Get a professional degree. She is a teacher. She can always change her mind and pursue something else but at least she has that. Same thing my own parents told me ...way back when.

There are a host of problems with the student loan programs. Interest rates are between 6% to 7%. Loan servicers don't want then to pay off their debt. They'd rather get that interest for as many years as possible.
Not sure how things may have changed now that the government took it over.

 

[FUEGO]

I"m curious as to why you put "teachers" in the list above. A professional license is required to be a teacher in most if not all public school systems. License renewal is also required. It is not as easy to be a teacher in todays world as it was when I was coming along. Many can not pass the Praxis test requirements.
One may not get rich teaching but it is a stable income with very good benefits (at the moment anyway). With a million plus teachers scheduled to retire....it will also be in demand for at least as long as we have a public school system .

I debated about including teachers. Teaching gets a bad rap for being low paid, but I don't know if it is necessarily true these days. Income is stable. Locally, they still get COLA raises (which doesn't always happen in private sector or non-fed govt employment we have all found out!). Summers off (which means you are getting paid the "low" salary for only 10 months of work). Pension after 30 years with a chance to spike it if you are so inclined.

My own daughter (who is 6) says she wants to be a teacher, and I don't think I would dissuade her from pursuing that career if that is her passion. I still think it would be reasonable to incur $25k in debt to get a job that pays a fair bit more than that straight out of school and includes institutional promises of raises for board certification, years of experience, advanced ed, additional responsibility etc. And after 30 years a pension that would exceed the starting salary (in real terms, assuming the plan doesn't change).

But for my daughter, I would certainly explain that there are pros and cons to teaching and that there is a chance to earn much more in other career paths.

 

[ERD50]

The median wage for all college graduates in the US is $53K. The average debt of a recent graduate is about 1/2 the median wage. ....

What a way to start a life...

I'll join the chorus who don't see the problem. Quite the contrary - if there was a mutual fund with a ROI like this, we'd all be all over it.

I'd also be curious what that would look like if we used median for both measures. When I see a 'comparison' done with median for one term, and average for the other, my 'agenda' red-flag flies high.

If you don't have the aptitude to excel in college, then you don't belong there, so maybe consider a nearly free community college, get some technical skills from a quick training program and get to work!

Yes, there are alternatives.

I suppose a reasonable rebuttal would be that for some, they want to follow their pursuits for altruistic or personal reasons. They want to be historians, teachers, writers, poets, the next great American novelist, social workers, etc. And for them, the cost of college will be high relative to their expected incomes. But their passion is so great they want to do it anyway. At that point, the analysis has left the merely financial realm, and so we can't analysis the decision from a merely financial perspective. Part of their expected utility comes from that pursuit of their passion or the good vibes from their altruistic avocation. Is $25k in debt such a large price for one to follow their lifelong passions? How do you even value that?

Interesting point. There certainly is value (not measured financially) to being able to do the work you love.

Now IMO, taxpayer backed student loans should not be offered unless the student is working towards a degree/certificate in a field that has has some minimum measured level of demand. It is a disservice to some students to have them load up on debt and not be able to get a job in that field to pay off the debt. It a disservice to the taxpayers, who are not getting any real benefit for the money fronted. Its a disservice to other students, as this 'false demand' raises prices for all.

There should be a worksheet the student needs to fill out, with expected incomes in the field, and the time to pay off, and some measure of how much these payments cut into their discretionary income, ability to get a mortgage or car loan, etc.

-ERD50

 

[sheehs1]

I debated about including teachers. Teaching gets a bad rap for being low paid, but I don't know if it is necessarily true these days. Income is stable. Locally, they still get COLA raises (which doesn't always happen in private sector or non-fed govt employment we have all found out!). Summers off (which means you are getting paid the "low" salary for only 10 months of work). Pension after 30 years with a chance to spike it if you are so inclined.

My own daughter (who is 6) says she wants to be a teacher, and I don't think I would dissuade her from pursuing that career if that is her passion. I still think it would be reasonable to incur $25k in debt to get a job that pays a fair bit more than that straight out of school and includes institutional promises of raises for board certification, years of experience, advanced ed, additional responsibility etc. And after 30 years a pension that would exceed the starting salary (in real terms, assuming the plan doesn't change).

But for my daughter, I would certainly explain that there are pros and cons to teaching and that there is a chance to earn much more in other career paths.

No problem fuego..I was just curious. My daughter is making $40K in a southeastern Virginia public elementary school. It's her 2nd year. When she gets her masters it can go up $3K to $5K. The thing about teaching salaries is they do not have the possible appreciation of salaries other careers have. But...they can elect to get in on the administration side...say Vice Principle and Principle and the salaries are very good....upwards of $75K plus.
Been trying to get my daughter to think in those terms...but so far ..no luck.

Is it worth $25K in student loan debt...to secure a job? I believe it is provided the student is smart about what they major in. That debt can be paid off. Hopefully the degree or job will provide the foundation for the rest of their lives.

 

[sheehs1]

I'll join the chorus who don't see the problem. Quite the contrary - if there was a mutual fund with a ROI like this, we'd all be all over it.

I'd also be curious what that would look like if we used median for both measures. When I see a 'comparison' done with median for one term, and average for the other, my 'agenda' red-flag flies high.



Yes, there are alternatives.



Interesting point. There certainly is value (not measured financially) to being able to do the work you love.

Now IMO, taxpayer backed student loans should not be offered unless the student is working towards a degree/certificate in a field that has has some minimum measured level of demand. It is a disservice to some students to have them load up on debt and not be able to get a job in that field to pay off the debt. It a disservice to the taxpayers, who are not getting any real benefit for the money fronted. Its a disservice to other students, as this 'false demand' raises prices for all.

There should be a worksheet the student needs to fill out, with expected incomes in the field, and the time to pay off, and some measure of how much these payments cut into their discretionary income, ability to get a mortgage or car loan, etc.

-ERD50

It is a disservice to parents too!

I've long said this training or classes that target these points need to start in senior high school!

 

[FUEGO]

No problem fuego..I was just curious. My daughter is making $40K in a southeastern Virginia public elementary school. It's her 2nd year. When she gets her masters it can go up $3K to $5K. The thing about teaching salaries is they do not have the possible appreciation of salaries other careers have. But...they can elect to get in on the administration side...say Vice Principle and Principle and the salaries are very good....upwards of $75K plus.
Been trying to get my daughter to think in those terms...but so far ..no luck.

Is it worth $25K in student loan debt...to secure a job? I believe it is provided the student is smart about what they major in. That debt can be paid off. Hopefully the degree or job will provide the foundation for the rest of their lives.

I have teachers in my family (one of which will soon retire with a nice pension). The deal in our state is similar to what your daughter has. Never a huge salary, but you won't be in the breadlines either. And there are rewards for professional development and taking on more responsibility like you point out.

 

[martyp]

My problem with the high cost of college today is that too many people are going to college who are not prepared for or capable of college level work. They are spending a lot of money for the first year or two and then dropping out with a lot of debt. So not only do you have to consider your earning potential after graduation but you have to weigh the risks of not graduating at all. We need to develop a vocational education system in this country.

 

[MichaelB]

If the median earnings for all the people in the labor force with college degrees is $54K, median starting salaries must be substantially below that. The average debt is close to the median starting salary for a considerable percentage of new college grads.

10% of college grads with debt fall into arrears when the first payment comes due.

The real median wage has been flat for college grads for 10 years. Average debt per college grad is growing, so this is getting worse. Total outstanding student debt has increased 60% in 4 years. This is going to get much worse, and soon.

Graduates with debt in the 70’s and 80’s were very lucky. Most of the interest was subsidized until after graduation, and then we all had our loans inflated away – repayment was relatively easy.

High debt levels combined with stagnating salaries are a bad combination. The real impact here will be in housing, because college grads with too much student debt take longer to buy their first house. Employment growth relies on new housing construction. This

My conclusion is too many people are attending college. The colleges themselves have no interest or incentive to filter, so they don't, and they are disconnected from the outcome of their product. They have a vested interest in financing but no liability when default occurs.

 

[Mulligan]

While, I still percieve the value is there in having some debt to have a career, in relative terms in my area, the cost is significantly higher than 25 years ago. There are still ways to make it affordable, though such as JUCO for 2 years then transferring. The one thing that lower to middle class kids cant do now that they could 25 years ago is head off to a four university with no plan, and " find their way" after 5 years of schooling. You need to have a plan so the credit hour costs are minimized instead of changing careers multiple times and racking up the credit hour costs. Smart students, like me , in the early eighties were able to game the student loan program. I took out student loans for 3 years and put them in CD's earning 11-14% and made enough on the interest to pay for my 4th year free! Ahh, the good old days, I guess a 1% CD wont do the same for this generation.

 

[sheehs1]

If the median earnings for all the people in the labor force with college degrees is $54K, median starting salaries must be substantially below that. The average debt is close to the median starting salary for a considerable percentage of new college grads.

10% of college grads with debt fall into arrears when the first payment comes due.

The real median wage has been flat for college grads for 10 years. Average debt per college grad is growing, so this is getting worse. Total outstanding student debt has increased 60% in 4 years. This is going to get much worse, and soon.

Graduates with debt in the 70’s and 80’s were very lucky. Most of the interest was subsidized until after graduation, and then we all had our loans inflated away – repayment was relatively easy.

High debt levels combined with stagnating salaries are a bad combination. The real impact here will be in housing, because college grads with too much student debt take longer to buy their first house. Employment growth relies on new housing construction. This

My conclusion is too many people are attending college. The colleges themselves have no interest or incentive to filter, so they don't, and they are disconnected from the outcome of their product. They have a vested interest in financing but no liability when default occurs.

I definitely agree with this. Kind of like the housing bubble mantra. "Everyone should own a home". (not) Everyone should have a college education (not). For each...the way was paved with easy to get money and not so great results.
Student loan crisis is because the salaries and lack of jobs don't support paying off the debt. Don't think I like this analogy.