Student Loans

From The Atlantic, by Daniel Indiviglio:

You think the housing bubble was enormous? Meet the education bubble. On Wednesday, an article here by Andrew Hacker and Claudia Dreifus explained the debt crisis at American colleges. But some startling statistics will help to make their analysis a little more tangible. The growth in student loans over the past decade has been truly staggering.

Here’s a chart based on New York Federal Reserve data for household debt. The red line shows the cumulative growth in student loans since 1999. The blue line shows the growth of all other household debt except for student loans over the same period.

This chart was posted in response to an earlier article by Andrew Hacker and Claudia Dreifus, and here are two paragraphs from that earlier article:

If you want to get a name as an economic seer, try this one. The next subprime crisis will come from defaults on student debts, starting with for-profit colleges and rising to the Ivy League. The parallels with housing are striking. In both, the written warnings aren’t understood, especially on penalties and interest rates. And in both, it’s assumed that what’s being bought will rise in value, in one case the real estate, in the other the salaries which will accrue with a degree. One bubble has burst; the second is already losing air.

Still, there’s a difference. With mortgage defaults, banks seize and resell the home. But if a degree can’t be sold, that doesn’t deter the banks. They essentially wrote the student loan law, in which the fine-print says they aren’t “dischargable.” So even if you file for bankruptcy, the payments continue due. Hence these stern word from Barmak Nassirian of the American Association of College Registrars and Admissions Officers. “You will be hounded for life,” he warns. “They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment.” He adds that any professional license can be revoked and Social Security checks docked when you retire. We can’t think of any other statute with such sadistic provisions.

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  • Amos Paul

    Student loans are not good (for those with them and society), but how does that make this similarly parallel to the housing bubble?

    My understanding of the housing bubble is that it wasn’t *just* the fact that there was tons of debt out there–but that there was lots and lots of investing going on in real estate. Banks and agencies would package up mortgates for outside investors to ‘buy’ the debt and receive the interest as a return on investment. Real Estate was considered one of the most secure and best investment options–but it was in fact a pyramid of cards with mortgagees on bottom and investors creating multiple, international levels at the top. I’m not aware of student loans being sold to investors like that, leaving the risk solely on the shoulders of the originating lender.

  • Amos Paul

    And no, student degrees can’t be ‘seized’ like houses, but the houses *also* massively depreciated with all the house seizures and sales. With government student loans, students are legally required to keep paying no matter what. So that money’s coming back *eventually*–even if it takes a lifetime. It’s just a matter of the collecting agency retaining enough capital to continue collecting and operating in the black. The massively depreciated houses may never retrieve that value plus interest owed to investors.

    [I had to split my comment in two because the spam filter kept blocking me… apparently, too many financial terms = no comment?]

  • I think it becomes like the housing bubble when people’s entire disposable income is consumed by paying for a degree that has got them nothing.

    And if that happens, there will be a backlash against the colleges.

  • Amos Paul


    I don’t mean to spam out this thread with comments, but I have one more note to make on the situation in response to you. That is, I believe 2009 was the year Congress passed the new income *based* repayment program, which is far superior to the old income *contingent*. If former students opt into it and supply them with Tax Returns, they will calculate your legally acceptded ‘disposable income’ and only require you to pay, at a maximum, a certain percentage of that figure. Moreover, if that percentage is less than $50, they will not charge you anything at all for those months.

    For those struggling to get on their feet, this plan ought to scale with their income.

  • Ryan

    I have always thought the this should be particularly disconcerting to seminaries and Christian colleges.

    I graduated seminary with many peers who went to Christian college and then to seminary to finish with a total of $75,000 in student loans. All of this to go take ministry jobs paying $40K a year!

    This is anything but equipping people to succeed and thrive in ministry as many Christian colleges and seminaries claim they are on mission to do.

  • rjs

    I think this article is a bit over the top in doom and gloom. But I agree with Ryan – this should be of particular concern to seminaries. Preparing people for ministry by loading them with debt doesn’t exactly serve the church well.

  • Ryan,

    I work at a seminary. We are indeed very concerned about this problem. Indeed, we are asking ourselves the questions “What part does a seminary play in equipping people for ministry? What do the leaders of the church today, and in the future, need from us?” and so on.

    We recognize that this is a problem that, if not answered, not only jeopardizes the well-being of those students we seek to equip, but of the seminary enterprise itself.

    There are several questions that come out of this? “How necessary/important is seminary in the first place?” “Who should go to seminary?” “How much of the cost of an education is appropriate to expect the student to pay?” “How does the seminary meet the gap between that amount (paid by the student) and however much it actually costs the seminary to provide that education?” (and that latter number is pretty much bound to be higher than the first, no matter how efficient we become)

    I would submit that the seminaries/educational institutions cannot solve these problems on their own. On some level or another, we need churches to step up and help with the costs.

  • Greg

    My alma mater, Saint Louis Christian College, has a program that extends free tuition to full-time students living on campus. They have implemented this just so those entering a Christian service career are not saddled with a huge debt. The college is supported primarily through contributions. This is the type of model Christian educational institutions show embrace a little more.

  • Ryan

    I agree with you Mark and am glad you are having the conversations.

    Here is just one idea. Why not in all of your recruitment and orientation efforts suggest alternative routes for completing seminary that do not involve so much debt. Perhaps advocating for students to extend their seminary education to 5 years so they can work full time and pay for most of their education at the same time.

    Why not educate them on the monthly payments they will likely face at the end of their education? I don’t think many seminary students understand what it will look like to be in ministry, raise a family, and have a healthy marriage with a $500 a month student loan payment for 20 years.

  • This isn’t quite my department, so I won’t be able to give specifics, but at least some of these ideas are very much in process. I’m sure it’s true (if in differing amounts and ways) at other schools, as well.

  • AHH

    It would be interesting to know the proportion of this increase that is due to the recent surge in for-profit colleges, some of whom operate ethically but some less so. I suspect it would be the dominant factor.

  • rjs

    From the August 26, 2011 Chronicle of Higher Education, data from 2007-2008, those who graduated with bachelor’s degrees:

    38% at public 4-year institutions had no debt, 16% less than $10,000 (much less than the standard car loan). That is 54% had clearly reasonable debt loads.

    28% at private 4-year institutions had no debt, 10% less than $10,000. That is 38% had clearly reasonable debt loads.

    Although less debt is clearly better, I do consider education to be worth a modest amount of debt. Personally I’d say up to $25,000 shouldn’t cause much concern – over this should.

    26% who graduated from public 4 year colleges had more than $20K, only half of these had more than $30K debt.

    42% who graduated from private four year colleges had more than $20K debt and 25% had more than $30K debt.

    Now to the point made by AHH – For Profit College Graduates:

    4% no debt
    4% under $10 K

    (i.e. 8% compared with 54% public and 38% private at more traditional institutions had clearly reasonable debt loads.)

    Continuing on:

    12% 10K-<20K
    23% 20K-<30K
    33% 30K-<40K
    24% 40K or more

    Think about it:
    12% of students graduating from public 4-year institutions had debt of 30K or more.

    25% of students graduating from private 4-year institutions had debt of 30K or more.

    57% of students graduating from for profit institutions had debt of 30K or more.

    The numbers across the board may have gone up the last several years, but I don't have that data yet.

  • gingoro

    Comment to Mark B-W
    Our church supports not only the seminary but also other post secondary schools like Redeemer College, Institute for Christian Studies, Calvin College and on and on and on. IMO the churches are providing good support at least in our denomination. In addition we support our local Christian elementary and high school.
    Dave W

  • Denominational seminaries are definitely in somewhat better places, in terms of church contribution, but I don’t think the same could be said across the board. Either for churches or for other seminaries.

  • (Of course, I’m cognizant of the fact that denominational seminaries are suffering these days, too)

  • Greg Drummond

    RE: Seminary Costs
    This is one of the main reasons I have chosen Tyndale Seminary in Toronto, Canada for my MDiv studies. Though it is still a significant investment, the yearly cost is around $11,000 CDN per year. Way more manageable on a pastor’s salary

    I was talking with a friend just the other day who used to work in the financial aid office at a California seminary. He told me about a man that made a career switch to become a pastor. The man graduated seminary in his 60s with over $60,000 USD in debt. My friend, and his coworkers thought, there is no way he will pay that off in his lifetime.

  • This is a true story for my wife and I. Between undergrad and both doing masters degrees (mine in seminary)… we will be broke for many years to come.

    I wish that when the gov was giving “bail out” money to corporations that they would have rather distributed that money to student loan debt and other debt… But, why would I live in that kind of a land of wishful thinking? 🙂

  • DRT

    rjs, is the debt you are quoting both student and parents? I bet the parents had more debt than that for many kids.

    My BS cost $12,000 (the whole thing, including room and board). My oldest son just started at a state school, $19,000 for one year.

  • DRT

    Correction, mine was $16k (they did not teach us to multiply in engineering school)

  • rjs


    This doesn’t include any debt the parents incur.

  • Juxtapose that chart of student loan debt with this one illustrating the gains of education.

  • Naum,

    Thanks for that counter-point. It’s encouraging.

  • DRT

    rjs, why does education cost so much more now than it was 3o-50 years ago?

  • DRT

    …..and I have to brag/celebrate, my oldest son was evacuated from his first year in college due to the hurricane so I get to have him home here with us this weekend. To top it off, his professors have been bragging up engineers and he has a new appreciation for the old man…good feelings here.

  • @DRT wrote: rjs, why does education cost so much more now than it was 3o-50 years ago?

    A darn good question, especially considering that a lot of curriculum is online these days, taught by “hired-hands” (not dismissing their qualification to lecture on a given subject, just that it’s on a bill/contract basis instead of tenured staff) but the price is not any lower than attending classes IRL. And worse, if you attend classes IRL, you discover that all coursework is done online…

  • AHH

    RJS will likely have more complete info, but one significant reason for increasing tuition costs at public universities has been a serious decline in most states of state government funding. So taxpayers pay less (or they pay instead for other things whose costs have grown, like prisons) and students pay more.

  • rjs


    At the rather prestigious state university where I work we expect to be defacto private by about 2020. This doesn’t mean that we will go private – but that tuition, fees, endowments and such will have to cover all operating expenses. There will be little to no state support.

    State support subsidizes education for all residents – without such support there is no choice but to raise tuition. It isn’t actually an increase in tuition – it is a redistribution of the cost directly to the students and their parents.

    On top of the loss of direct support to the University the state is also cutting grants and scholarships that go directly to students and this impacts our financing as well (aid has to come from somewhere).

  • AHH


    That sounds very similar to the medium-prestige state university where I live.

    There’s a significant societal question here.
    Is higher education something that just benefits the student and therefore should be paid for only by the student?
    Or is it seen as something that provides benefits for the state as a whole (such as having an educated workforce) and should therefore be supported by the whole state, as the state does for things like roads?
    Most states are moving more and more toward the former answer. They may not be consciously making that choice, but it is the consequence of other choices such as laws that imprison more people and aversion to taxes.

  • RJS is exactly right. Here in Texas the state has continually reduced the amount of funding to community colleges and universities. The community college district in our area has shifted some the cost to local property taxes but this has mainly meant tuition and fee increases for students. I think this shift in priorities of government shows a lack of understanding of the consequences of this ideology. Here in Texas we will continue to see population growth and growing percent of under-educated population. This will only contribute to growing inequity and a likely rise in crime and poverty. But our taxes sure are low! Whoo Hoo.

  • DRT

    Sarah, while I fully support your notion that good trades and trade schools are great ways to go for many of our children, I do not support the reduction you are advocating in computer science. If you don’t get all those other things you are not getting a BS.

    But having said that, getting a good trade degree is a good choice for many in lei of a 4 year degree.

  • No Sarah, my argument is that I believe crime rates generally go up when there are a lack of educational and job opportunities for young people.

    Although this isn’t the blog post to defend the liberal arts – you might be surprised to learn that many classes in the liberal arts (depending on the pedagogy) actually help cultivate critical thinking and writing skills. Those are drastically much needed in the market economy regardless of your major. I would give you the high-minded argument about the love of literature and history, the idea that humanities classes make you more open-minded, etc. but I take it from your post you wouldn’t buy that anyway.

  • DLS

    The real ‘bubble’ in education isn’t cost alone, it’s the value of a degree. We’ve watered down the B.S./B.A. degree to such a point that it’s nearly worthless now. An M.A. is the new B.A. 20 years from now, we’ll have diluted that too.

  • Robert

    Recently I went back to pursue another degree. Though I could handle about half the tuition and fees I still needed a bit of a loan to cover the rest (mostly so I could eat and have shelter.)

    After my student loan application was received I then got my loan amount and nearly fell out of my chair. I needed $1,500 per semester for two semesters. The loan company approved me for $12,500 per semester.

    Then to make sure I only used the $1,500 I had to file three separate forms denying the rest of the money and had about a week and a half of go between before it got resolved. And I’m on top of my finances.

    I can’t imagine what its like for other students. We need something to be done about this stuff sooner than later. We’re in for a HUGE problem.