Since this topic comes up repeatedly at SW, here's some new info ... starting with a study just released by the Federal Reserve ... from
(snip)"In a recent Economic Synopses essay, Alexander Monge-Naranjo, research officer and economist with the Federal Reserve Bank of St. Louis, examined the recent growth in student loan debt in the U.S. over the period 2005-2012. As of March 2012, student loan debt stood at $870 billion and had surpassed total credit card debt ($693 billion) and total auto loan debt ($730 miillion).
In addition, Monge-Naranjo found that the distribution of student loans by debt levels had shifted, with the share of borrowers with loan balances in excess of $10,000 increasing. Increases were greater at higher levels of debt:
•Only 3 percent of borrowers in 2005 owed more than $100,000. By 2012, that fraction reached 6.2 percent.
•The share of borrowers who owed between $150,000 and $175,000 rose from 1.7 percent to 3.7 percent.
•The share who owed between $175,000 and $200,000 went up from 0.6 percent to 1.5 percent.
•The share of those owing more than $200,000 went up from 0.2 percent to 0.6 percent.
While Monge-Naranjo noted that “high levels of student loan debt pose no problems as long as the investment in education has high returns and the loans are repaid,” he also indicated that some borrowers may suffer adverse effects in the future, such as difficulty obtaining other forms of credit.(snip)
followed by analysis / commentary from Karl Denninger ... from
(snip)While Monge-Naranjo noted that “high levels of student loan debt pose no problems as long as the investment in education has high returns and the loans are repaid,” he also indicated that some borrowers may suffer adverse effects in the future, such as difficulty obtaining other forms of credit.
Really?
The time during which the loan is out and you have to make the payments doesn't "pose a problem"?
That doesn't inhibit your ability to buy other things during that time on an inevitable basis?
That pressure doesn't come at the time when you are just starting a career and your prospects are the most-shaky and unproved?
What's worse is that this claimed "analysis" (as with the other screamers claiming that college degrees are a great value even if you go into debt) all relies on two further factors, neither of which is a good gamble:
•You finish on-schedule. If you take 6 years instead of 4 cost and thus outstanding balance goes up 50%. Does the math still work at 150% of the claimed cost? Maybe, maybe not, but you're betting it will!
•You finish at all. Statistically speaking this isn't such a great bet either. Indeed only approximately six in ten students complete in six years, not four. What happens to the other four? They typically don't complete at all.
Here's the ugly reality. According to the Department of Education (yes, official government statistics) you are only 50% likely to finish "on plan" (and thus on-cost) within four years at a private institution (the nice expensive ones!) and ~30% likely to do so at a public (state-funded) college.
In other words the only way you get to being 50% likely to hit the so-called "planned" expense numbers (and debt numbers if you borrow) is if you to go to one of the tony private schools. The odds of you doing so at a public university are three in ten.
You are less than 60% likely to finish in six years at a public institution and ~65% likely at a tony private one. If you're foolish enough to attend a for-profit private college, it's about 40% in six years. Put another way six out of ten who enter a for-profit private college fail.
Why isn't it considered consumer fraud to not disclose this up front in the college course catalog and before you apply and spend money on the application process (and all the rest)? Don't you think that enticing someone to spend tens of thousands of dollars on something that has a better than even odds risk of never being completed should come with a very prominent and clean warning of these risks before the incoming student signs on the dotted line?
The Fed's paper, of course, like all of those arguing that a degree offers "great value", begin from a false premise -- that you already have the degree!
For the High School grad contemplating entering college this an intentionally deceptive metric. That ought to be treated as fraud when used to sell you on the premise of going to school.
The only actual means of evaluating whether college is a good investment is to look at outcomes for all who enter, not just those who finish four years later - particularly when half or more of those who enter do not complete their program of study "on plan" and four in ten don't manage to do even after expending 150% of the expected time and cost.(snip)
In previous SW discussions on the topic of the 'value' of a college education, we have basically compared the one major factor which the Federal Reserve's analyst latched onto ... whether or not the post-graduation earnings potential provided by the college degree is 'worth' the cost of tuition plus 'lost opportunity' costs ( i.e. working / earning less than would otherwise be possible because large amounts of time must be devoted to studying - a significant factor where dancers and camgirls are concerned ). Indeed, where lots of different college majors are involved, the 'value' of the degree obtained ( in terms of available jobs / increased paychecks ) already falls short of the total tuition and 'lost opportunity' costs which must be 'invested' to obtain the degree.
However, as pointed out by Mr. Denninger, that comparison makes an assumption that the college student actually graduates, and also assumes that graduation takes place according to the originally planned timetable. Dep't of Education stats show that American college students actually accomplish this ~50% of the time at private colleges, and only 30% of the time at public colleges !!! Obviously, taking longer than the originally planned timetable to complete a degree adds to the total tuition cost, and adds to total student loan principal and interest payments, but also adds to the 'lost opportunity' costs.
To top this off, a significant number of college students ( 35-40% ) don't graduate at all !!! This of course creates a situation where they still owe student loan debt and interest payments, but don't have the college credentials to qualify them for higher earning jobs.
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