Unpacking $1 Trillion

The much circulated statistic that outstanding student loan debt has topped $1 trillion is indicative of a few things: More students are taking out loans. More students are going to college. College is more expensive. It has always been a scary prospect for students to take on personal debt to go to college, and the economic downturn has done nothing to ease that anxiety. It should come as no surprise, then, that it has become a campaign talking point. "Even though education, a college education, is still a great investment, the burden of debt is serious and it's hard on folks just as they're starting off in life," said President Obama at the University of Las Vegas last week.

Let's have quick reality check. Not all debt is bad debt, particularly if it allows for greater earnings power over time. Borrowing money to go to college is not like paying for Corvette with a credit card. A Corvette only decreases in value. A college degree all but ensures stable employment. And student loan debt is not like short-term credit-card debt; it is structured to be paid back in reasonable slices over the long term. Obama released new guidelines last week reinforcing that fact, making sure that students know that they can cap their monthly payments to 10 percent of their incomes.

The overall student debt figure has grown largely because more students are going to college. The percentages of students who take out loans and the amounts they owe have remained relatively flat over the last decade. Average total debt levels for bachelor's degree recipients at public universities only went up about 10 percent since 1999, according to the College Board. The average total debt level is $23,000, according to the Federal Reserve Bank of New York.

What's all the fuss about? Why is student debt taking on so much significance this year? What is the appropriate way to talk about financing higher education? Are political candidates taking advantage of peoples' vulnerability on the issue? What are common misperceptions about student debt and what should college enrollees understand as they examine their options? What should voters understand?


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