Paying off student loans is easy, right?

Many times we like to focus on the pretty side of debt. Take the reading from the Brookings institute as an example. College students are doing great! Yes, their tuition, and therefore debt, is higher, but they are earning more. Yes, they have larger amounts of debt, but mostly because they are earning more education. See? They are doing great. Earning more. Obtaining more education. What could be wrong?

First of all, the Brookings Institute reading makes the glaring assumption that most college students who take out debt end up graduating and end up cashing in on their investment with a higher paying job. While this isn’t explicitly stated, their argument rests on this assumption that anyone who takes out debt is going to finish their Bachelor’s and go off to earn lots and lots of money. This is simply not true. Bachelor degree 6 year completion rates for public institutions hover around 60%. For profit institutions are about half that. So, if a student has a 2 in 3 or 1 in 3 chance in graduating with a Bachelor’s degree in the 6 years we have data for, this assumption that everyone who takes out debt is doing splendidly seems to be a fairly large error on the part of Akers and Chingos.

Second, to me, their definition of “extremely high levels of debt” is way off mark. To set a benchmark at $100,000 to be considered “extremely high” is a unrealistic cutoff and bound to have small showings. To me, any debt that is 200% the average should be considered extremely high. This would make the cutoff $50,000, half of the cutoff set by Akers and Chingos. Setting cutoffs like this give an unfair portrayal of debt.

Thirdly, embedded in their assumption that everyone who goes to college graduates, and graduates on time, is an assumption that they get a high paying job, and that you use any additional money from this high paying job to pay for your loans. They use the justification that:

“the increase in earnings received over the course of 2.4 years by a household with earnings at the mean of the distribution would pay for the increase in debt incurred at the mean of the borrowing distribution”

Because, that increase in wages isn't being used to pay anything but your student loans, right? While the wages and debt used in this calculation are adjusted for 2010 dollars, I find this to be dubious at best. It also ignores the fact that some struggled to pay off this debt before the increase, so just because there is an increase in wages as well, doesn’t mean that student debt is going to be magically easy to pay off.