Wednesday, December 04, 2013

 

Debt



A new report on student loan debt from The Institute for College Access and Success is generating quite a bit of press with its statistics on student loan burdens.    The headline claim is that “Seven in 10 college seniors who graduated in 2012 had student loan debt, with an average of $29,400 for those with loans. “  

The report goes on to name (and shame) high debt colleges and high debt states, and to contrast them with the presumably more honorable low-debt colleges and states.  It ends with a note on for-profit colleges, saying that too few of them report anything close to the amount of data needed for meaningful comparisons.

A few thoughts.

I only gave the report a quick read, but I didn’t see it define “average.”  Is that the mean or the median?  That matters, because if it’s a mean, it could be skewed by a few spectacular outliers.  If Warren Buffett came by for dinner, the mean individual wealth in my house would skyrocket, but I wouldn’t be any richer.  

And it’s a little odd, intuitively, to derive the average only from the 70 percent who took out loans.  If you factor in the 30 percent who didn’t, the average would drop significantly.  Just writing off that large a group may help goose your headline number, but it distorts the truth.  

That becomes clear when you notice the next great distortion.  It defines “college” graduates as bachelor’s degree graduates, and it looks only at bachelor’s-granting institutions.  It assumes, implicitly, that students are first-time, full-time, degree-seeking, and probably traditional age.  In other words, as with so much commentary, it generalizes from the top.

Over forty percent of American undergraduates attend community colleges, nearly all of which would fall into the “low debt” category.  At HCC, for example, the median debt of a graduate is zero.  Most don’t borrow.  That’s because the tuition and fees for a year of full-time study is less than the maximum Pell grant, and has been for years.  (What this suggests about the Bennett hypothesis -- that colleges will raise prices to capture all available aid -- I’ll leave as an exercise for the reader.)  Students with money can pay cash on the barrel; students without get Pell.  Yes, there are students in between, and some of them borrow.  But even there, the borrowing for educational costs is quite low, because the costs are quite low.

Strikingly, the report makes no mention (at first blush, anyway) of community colleges or of transfer students.  Savvy students and their parents have figured out that they can save significant money by starting at a community college and then transferring to a four-year college; they wind up with the same highest degree, but at far less cost.  Given the implied agenda of the report -- getting the very real student loan issue under control -- I would have expected at least a glancing reference to a well-established alternative.  

Looking at four-year colleges in isolation, with no consideration of the larger ecosystem of higher education or of state politics, can lead to some unhelpful conclusions.  Many students now get caught between escalating tuition driven in part by “austerity” and a tight job market driven largely by that exact same austerity.  Yes, some four-year colleges (and especially some for-profits) need to rethink what they’re doing.  But let’s not let a focus on a headline number lead to a deficit of options.  Options are out there; we just need to include them in the discussion.

Comments:
Do you advertise that your "average" student graduates without any debt?

Students who are supporting their own family seem to be the ones that don't fit into your example of only needing to pay tuition from Pell or their own income.

I just hope someone told kids and their families to avoid borrowing to cover living expenses, which are a larger fraction of costs at a CC than at a selective college. Did any of the kids on the extreme end in that study borrow to get the latest headphones or gaming system? They'll be paying for that forever.
 
Three thoughts from the paper itself:

I like that one of the authors is Matthew Reed.

They are pretty clear about how they bought their data set and that it excludes transfer students and only looks at debt acquired at the school they graduated from. Similarly, the wording implies that they are reporting the mean debt held by those who have any debt from the place they graduated from, but it would be nice if they were clearer about that and reported the median and mode as well as the mean.

A casual look at the main data table suggests an interesting signal of college cost: States that ranked highest on the amount owed also seemed to have the highest percentage who owed money. A scatter plot of debt and percent might be instructive.
 
Adding in for-profit colleges would be pretty useful since they now take up a large part of the market. I finished my bachelor's degree at a for-profit (after doing an AA at a community college a decade earlier) and took out about $40k in loans to do so. A state university would have been cheaper, but the for-profit was a lot more convenient. The closest state universities are 40 and 60 minutes away from where I live and do not offer any night programs. The public universities with online programs that I looked at were less well organized and/or comparably expensive.
 
CCPhysicist - Higher average debt actually tends to go along with lower % with debt, but it's a very weak correlation (R^2 = 0.05).

The table comparing states based on average debt of those with debt creates some odd distortions. By that measure, Delaware has the highest average debt and New Hampshire has the second highest. When all students (or all students from 4-year colleges and so on) are included, New Hampshire has the highest average debt and Delaware improves to 11th.
 
Whoops, data entry error. There is in fact a positive correlation between average debt and percent with debt (R^2 = 0.3529) and Delaware actually improves to 18th when taking the average debt including students without debt.
 
Thanks for doing the leg work, Mike. Interesting result.

I also noticed that we can answer another of Matt Reed's questions, because any state with 50% or less with debt would have a median debt of zero.

The winners are Alaska (oil money), Louisiana (also oil money?), Nevada (gambling money?), Wyoming (coal money?) and perhaps Utah right at 50%. The 41% in Nevada is impressive for a state that was hit so hard by the Real Estate Depression, but maybe they are so poor that there are lots of Pell dollars behind that result.

Oil doesn't solve every problem, however. Look at Texas and the Dakotas for the counterexamples.
 
To CCPhysicist re: Wyoming--a lot of mining taxes in general (we really run the whole gamut) fund education, though for K-12 it's county by county. Albany county (where I grew up) was on the short end of the stick there, as we were one of the few counties without mining.

The University of Wyoming, though, is fantastically low priced, and the state has traditionally strongly supported keeping costs low. In-state tuition is $4.5k a semester, and it's cheaper to attend UW as an out-of-state student (if you're eligible for WUE) than in-state in places like CUBoulder or U. Arizona.
 
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