Are Young People Too Afraid of Student Loans?

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In their recent book Not Quite Adults: Why 20-Somethings Are Choosing a Slower Path to Adulthood, and Why It's Good for Everyone, authors Richard Settersten and Barbara E. Ray make what sounds like an crazy argument: Young people are too afraid to borrow for college.

It sure does sound crazy. And when you dig a little deeper into it, you realize that it actually is crazy.

Three basic facts about higher education in 21st-century America:
  1. People are more likely to go to college than ever before.
  2. People who go to college are more likely to pay for it with loans than ever before.
  3. People who pay for college with loans borrow more than ever.
Taking those three irrefutable truths and conjuring up the argument that excessive fear of student loan debt is the problem in higher education for this generation is actually sort of amazing.

But they manage to pull that off. I'm serious. "One of the key reasons they skate so precariously close to financial ruin seems almost heresy in this age of contraction," they write. "They are afraid to take on debt. That is, they are unwilling, and in some cases unable, to take on the kind of debt that helps to secure a more stable future: debt from a college degree."

There are two fundamental fallacies they use to keep this argument from collapsing:

Don't mention the default rate. One in five federal student loans end up in default within 15 years. But the authors don't mention that. Nor do they mention that student loan debt can't be discharged in bankruptcy. But that doesn't stop Settersten and Ray. They write that "relatively few graduates experience financial straits because of their student loan debt" -- and then provide no evidence that that's true.

That's because it isn't. A new study from the Institute for Higher Education Policy finds that nearly 40% of student borrowers are delinquent on their payments within the first five years of repayment. Lynn O'Shaughnessy has more details on that scary report.

Mislead with numbers
. The authors note that "The average student has paid back all but $7,000 of his or her debt just three years out of college." Which would be interesting, if it were true.

It isn't. Mark Kantrowitz of FinAid.org calls the alleged statistic "bogus." When I asked one of the book's co-authors for a response, she seemed to back off that statistic.

"We find that the average young adult household has about $7,000 in education debt outstanding" wrote Ray. "Although this is much lower than others have noted, most of the other figures are for recent college graduates, while our figures are for those at least three years out, and sometimes longer." In other words, the data apparently includes all young adult households -- not just those who borrowed for college -- and includes people who've been out longer than three years as well. Ray did not respond to repeated requests for further comment and clarification. But the bottom line -- when you look at actual data instead of this book -- is this: Most students have paid off only a tiny portion of their debt three years after graduation.

But the best part of my email exchange with Ray was where she explained that "Our larger point -- which debates that zero in on one data point obscure -- is that college pays off in the long run."

Exactly. Having used statistics as a drunk uses a lamppost -- for support rather than illumination, to quote Andrew Lang -- the authors fall back on the last refuge of the scoundrel: claiming the actual data doesn't matter. Just trust us.

Zac Bissonnette's Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, Or Mooching Off My Parents was called the "best and most troubling book ever about the college admissions process" by The Washington Post.
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