A chilling article in the NYT on both the ease and amount of debt for many students who choose higher education:
Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college […] So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up. […]
How many people are like her? According to the College Board’s Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree recipients who borrowed while attending private, nonprofit colleges was $22,380.
The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.
As the article points out, there and numerous similarities with the recent mortgage crises, but more important are the differences. One cannot walk away from student debt and toss the front-door keys to the lender. And while many people chose to live in houses that they could not afford, we have in large part based the very premise of social advancement and wealth on education — which remains highly correlated with income.
Particularly given the focus (rightly, in my opinion) on for-profit education — the finances here bear some scrutiny. Many of the non-proft institutions of higher education are acting as conduits for for-profit loan providers. I don’t quite see the demarcation of the two — in some ways, the for-proft colleges are more transparent and upfront with students about their costs (and their students are often more cost-sensitive).
The Obama administration has passed major changes to federal student loan programs which should eliminate some of the excess rents (in economic terms). But, in my view, there still needs to be price pressure on many IHEs. College education in many elite institutions is simply pricing itself out of the market for too many families.
6/5 Update: A piece on pending legislation to make discharging student debt easier.