How Big a Problem is Student Loan Debt?

  Recently, the Atlantic posted an article called The Myth of the Student-Loan Crisis. It's worth the quick read, but it's also worth a discussion. 



Recently, the Atlantic posted an article called The Myth of the Student-Loan Crisis. It’s worth the quick read, but it’s also worth a discussion.


As one might imagine, it’s hard to summarize nearly $1 Trillion of student debt in such a small article. Indeed there’s a lot left out. But what got left out and why? That’s something that we at College Parents of America have been discussing among our staff this week.


The title of the article could have multiple meanings. It might mean that student debt is not at all a crisis. It might instead mean that there are myths surrpounding student loan debt, due to various factors, and that student debt is not as problematic as widely publicized. The latter is the more generous reading and it’s substantiated by the claims of the authors (who downplay the stories of $100,000 student loan debt and emphasized the rate of return on degrees). Thus, this is the interpretation that will be used in the discussion below.


Overall, the stats in the Atlantic minimize some of the astounding stories we have heard about student loan debt and reinforce that college is often a sound investment. The overall flow of the Atlantic’s the Myth of the Student-Loan Crisis infographic/article is:

  • Yes, school is expensive.
  • However, the sticker price is not the price the vast, vast majority of students pay (out of pocket or by loans). 
  • The $100,000 debt story you heard? That’s only a couple percent of all borrowers.
  • And school is still an amazing investment for many, with high returns on debt.


College Parents of America, of course, supports college for all and firmly believes that college is a good investment in most cases. However, we do receognize that there are some important facts that darken the optimism of the Atlantic’s article.


One such statistical case for the increasing burdens of student debt was made in the Economist:

“The cost of university per student has risen by almost five times the rate of inflation since 1983, making it less affordable and increasing the amount of debt a student must take on. Between 2001 and 2010 the cost of a university education soared from 23% of median annual earnings to 38%; in consequence, debt per student has doubled in the past 15 years.”


We’ve collected quite a few more to also show how complex the issue of outstanding student loan debt is:

  • Two-thirds of all 2011 graduates had student loan debt (Project on Student Debt)
  • Average student loan debt is at a new high: ~$27,000 per student (Forbes)
  • Student loan default rate is at an all time high: 9.1% of students default within two years (USA Today)
  • Parent borrowing is up 75% since 2005-2006; parents are borrowing an average of $34,000 (Forbes)


With statistics like these that show how heavy student loan debt can be, the most important thing is making education worth every dollar.


Some will say that choosing a financially sound degree (one that will earn a significant enough salary to repay its debt) is a smart economic choice. For those who believe in that argument and approach to higher education, a smart place to look for helping you choose your career is the US Department of Labor–Bureau of Labor Statistics’ projections for careers. You can search careers under large categories or sort by factors such as fastest growing, highest paying, and most new jobs.


Another way to make college worth every penny? Actually finishing school. 

  • Surprisingly, only 58.3% of students graduate from their 4-year college within 6 years (Department of Education).


Many of these non-graduating students have borrowed to finance college. In fact, in 2009, 29% of borrowing students dropped out of college (Degreeless in Debt). And these borrowing nongraduates are four times more likely than borrowing graduates to default on their loans: 16% versus 3.7% (Degreeless in Debt).


Why are there so many students who don’t finish? There are multiple shocks that could make students drop out of school. 

A 2011 study asked about primary shocks that could cause them to withdraw from college.

  • 52.9% indicated ‘becoming ill.’
  • 18.4% indicated ‘death or illness of a family member.’
  • 10.6% indicated ‘became clinically depressed.’
  • 5.5% indicated ‘experienced significant injury.’
  • 10.9% indicated ‘theft.’
  • 13.2% indicated ‘large increase in tuition/living costs.’
  • 13.2% indicated family member lost job/family in need of financial help.’


Given these sorts of shocks and the rate at which students fail to graduate, College Parents of America always suggests that parents and students plan for the possibility of collegiate lifestage risk. Plan smartly–don’t become a statistic.


Some common sense tips:

  • maintain a healthy lifestyle & get health insurance if you can; 
  • figure out a solid financial plan to get you through your college education; 
  • protect your belongings that are not easily replaced; 
  • and, through savings, tuition insurance (included with every College Parents of America membership!), or some other method, do what you need to protect your investment in a college education.