Rebuttal to the Student Loan Bubble: Tell Me Why I'm Wrong


America never met a bubble it didn't like, and education seems to be our next buy-at-any-price obsession. Student loan debt now totals more than $1 trillion. For many students, it will take back-breaking effort to pay this debt back. And they have little choice: Most student debt can't be eliminated in bankruptcy.

But like any emotion-laced issue, the student-debt story can be prone to hyperbole. My biggest peeve is that most stories covering the issue profile a student with $100,000, or even $200,000, of debt. Read enough of these stories, and you'll think graduating with six figures of debt is the norm. But it's not -- by far. While journalists can find students drowning in six-figure debt, they are a small minority. As the Federal Reserve writes, as of 15 months ago (emphasis mine):

The average outstanding student loan balance per borrower is $23,300 ... The median balance of $12,800 is roughly half the average level, which indicates that a small fraction of people have balances significantly higher than the median. About one-quarter of borrowers owe more than $28,000; about 10 percent of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1 percent, and 0.45 percent of borrowers, or 167,000 people, owe more than $200,000.

Hmm. Almost 75% of those with student loans owe less than $28,000. Ninety-seven percent owe less than $100,000. The median student loan balance -- the middle level where half owe more and half owe less -- is $12,800.

I don't wish to trivialize $12,800 of debt, or even the mean average of $23,300. If you're unemployed or in low-income work, it can be a big burden.

But let's put it into context. The average auto loan amount in 2012 was $19,492, according to credit rating agency Equifax. For a new car, the average loan amount is $25,714.

Why, then, is there so much uproar about the student debt crisis when the average new-car loan is greater than the average student loan? No one ever talks about the "Nissan Altima loan crisis." Plus, the benefits of an education will last a lifetime, and on average demonstrably increase your employment and earnings potential. A car loses value as soon as you drive off the lot.

A few people I've posed the question to have offered reasoned rebuttals. They note that you have to have a car to get to work. True. But a degree dramatically increases your odds of having a job to drive to -- the unemployment rate for those with a bachelor's degree is almost two-thirds lower than it is for those with only a high school diploma.

They also note that an auto loan is collateralized by the vehicle. If you can't afford the loan, you can sell the car to help repay the balance. True again. But a car requires expensive upkeep and repairs as it ages. The benefits of a degree compound over time as career opportunities open new doors to promotion, and higher wages. A college graduate will, on average, earn far more in their 40s and 50s than they did in their 30s, while those without a degree see much more stagnant (and lower) wages throughout their lifetime. The "collateral" of a student loan can't be sold, but it tends to appreciate over time.

I think what the student loan crisis comes down to are issues between anecdotes and averages. As long as there are anecdotes of people graduating with six-figure debt and flipping burgers, journalists will write about them with so much passion that you'd think they're the new normal. But they're not. The average college grad is more employable and earns far more than those without degrees, and the average student loan is less than the average new-car loan -- a debt few seem bothered by.

But I won't pretend to understand all sides of this debate. I can just look at the numbers and tell you what I see. Where am I wrong? What am I missing? You tell me in the comment section below.

The article Rebuttal to the Student Loan Bubble: Tell Me Why I'm Wrong originally appeared on

Morgan Housel doesn't own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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