The increased attention to student debt over the past year has prompted long-overdue discussions about just how many students are using loans to finance higher education. For the first time ever, student loan debt exceeds credit card debt. But increased attention also has brought about misconceptions that are neither helpful, nor productive. Let's take a look at what's fact and what's fiction about student loan debt.
1. College is no longer worth the money.
If you're a recent college graduate, you're probably scared. Headline after headline warns: "Welcome to the Real World 2010 College Graduates – Nobody Wants to Hire You." While the troubles some college graduates face are real — and painful — the media tend to use these troubles as provocative, but misleading evidence that a college degree is no longer worth it. It's true that the current job market is terrible for new college graduates. But the job market for college dropouts is even worse. Unlike college graduates, dropouts don't have a degree to count on and are unlikely to ever reap the benefits of their investment. College graduates generally bounce back the quickest after a recession because they have a degree that – imperfectly or not – indicates a certain level of skills and knowledge.
2. All student debt is bad.
Considering the uncertainty of employment, some suggest that students should just avoid (or minimize) borrowing completely. But this actually may force students to adopt behaviors that put them at risk for not finishing their degrees. For example, students might choose to delay enrollment after high school, enroll part time, or work full time during school as strategies to pay for school. But each of these behaviors requires students to juggle the competing demands of work and school and increases their chances of not graduating. This is a complex calculation, and students may not always make the best choices. Unfortunately, the consequences of choosing badly are becoming more severe.
3. Student debt is a problem only for college graduates.
College graduates are not the only students who have student loan debt to repay. Those who don't graduate also have to repay their loans. My new Education Sector report Degreeless in Debt: What Happens to Borrowers Who Drop Out found that these students face the worst of both worlds: they are saddled with loan payments and are more likely to be unemployed. If they have a job, they earn $5,000 less in median incomes than borrowers who graduated. Even worse, borrowers who drop out are four times more likely to default on their loans than borrowers who graduated.
4. For-profit colleges are the only culprits in the rise of student debt.
Critics frequently cite the shortcomings of for-profit colleges and with good reason — the worst of them seem to churn out degrees, exploit unknowing students with predatory lending practices, and soak up federal aid dollars to increase revenue. Indeed, for-profit schools were consistently the worst culprit in my report: they accounted for most of the increase in student borrowing and the increase in borrowers who dropped out. But even as for-profit colleges constituted 9 percent of total enrollment, a quarter of federal financial aid dollars, and nearly half of borrowers who entered repayment in 2007 and defaulted by 2009, we cannot ignore what is happening to the rest of student borrowers in other sectors. The trend that should be imprinted in everyone's minds is that more borrowers dropped out in every institution sector. Nobody is off the hook.
5. Schools have no control over whether students default on their loans.
Colleges often cite the risk factors to dropping out — delaying enrollment, enrolling part time, or working full time — as excuses for high student loan default rates. But these risk factors are not static traits. They are behaviors, choices students make, in significant response to rising college prices. There are plenty of things that colleges can do (and have already done) to control costs. They can use technology to redesign courses. They can take advantage of the open-learning courses from Carnegie Mellon and MIT. They can reorganize their administrative offices. But they can also do a much better job informing students of their choices. The Center for Community College Student Engagement recently found that only 26 percent of entering students said a college staff member talked to them about their outside commitments to help them decide what courses to take. Schools should be relentless with student mentoring, proactive about teaching their students how to manage their money, and develop default prevention plans for students most at risk for dropping out. All of these efforts could go a long way toward encouraging students to enroll full time and persist.