Are Students Really “Crushed” By Student Loan Debt?

More from Empower U 2016.

The second day of Credit Union Student Choice’s Empower U Washington DC-based conference presented attendees six morning and afternoon student loan-focused sessions. Here are some of the highlights.

The Changing Landscape Of Higher Ed

In the first session, author and columnist Jeff Selingo presented on the changes coming to higher education. For context, consider the role of an undergraduate degree. Why do nearly 3 million students earn associate and bachelor’s degrees each year? Is it to gain tactile skills or to deepen our understanding of the world while developing critical thinking skills?

The design of the American higher education system was imported from Europe, says Selingo, an editor at large for the Chronicle of Higher Education and the author of College (Un)bound: The Future of Higher Education and What It Means for Students, with the goal to broadly educate students before they entered apprenticeships to train them specifically to become lawyers, ministers, and tradesmen.

This broad education remains the purview of bachelor programs today. However, the job market is a farcry from the status quo that met the first class of Harvard graduates in 1642. Selingo cited research showing that 50% of American jobs today could be lost or disrupted by automation and artificial intelligence.

We have to rethink what we mean about higher education after high school, he says. We have to stop thinking of college as a box you enter at 18 and exit four years later, and more of a platform for long-term learning.

Additionally, Selingo identified five skills that employers valued more than others based on his own conversations with these individuals: communication and writing, organization, customer service and problem solving, planning and detail oriented, and the only hard skill Microsoft excel.

But are students developing these skills as undergrads? Selingo argues no. Our education system is too much like the workplace of old, he says. It’s task-based. Rather, he argues that today’s workplace is more like preschool, in the sense that things are unstructured and decisions often need to be made on the fly.

In that sense, colleges and universities are failing to prepare their students for the demands of the workplace. Too much emphasis is placed on where students attend college, rather than what they learn once there. According to statistics provided by Selingo, 33% of graduates posted no learning gains from their time in school, and 40% failed to graduate with complex reasoning skills.

It doesn’t matter where you go, he says, but what you do.

How students are taught also matters. Selingo mentions long-term learning as a more powerful mechanism for today’s workplace, and how workers are increasingly turning to online courses on sites such as General Assembly, Khan Academy,, Coursera, iTunes U, and others for education. But universities, too, are evolving to meet the needs of the workplace. Some, like the Georgia Institute of Technology offer internship or co-op working opportunities during a student’s time on campus; others, like Stanford University, are considering subscription options and no traditional terms. For example, in 2025 Stanford plans to offer an open loop experience: instead of four linear years of colleges, students get six years of college that can be used at any time throughout life.

Students need to leave college with more than just pieces of paper to succeed, Selingo says. How they go to college matters more.

Are Americans Actually Crushed By Student Loan Debt?

That’s a question Jason Delisle, resident fellow at the American Enterprise Institute, asked during his mid-morning presentation.

Based on statistics Delisle presented from the 2011-2012 National Postsecondary Student Aid Study, as of the 2011-2012 school year, the median debt amount for public and private non-profit four-year bachelor’s degrees totaled $24,300 and $28,000 respectively. That’s compared to the $41,000 median debt that those who attend four-year for-profit institutions hold upon graduation.

However, these five-figure totals are just one way to look at the debt load, Delisle argues. These totals should be considered on a monthly basis relative to income to see how much of a burden this debt places on borrowers.

Delisle cited 2014 Brookings Institution data to show the mean and median monthly student loan payment to income ratio from 1992 to 2013. While the median hardly increased over those 21 years, the mean has varied over time. In 1992, it was near 15%. In 2013, it was somewhere between 6%-8%. However, Delisle says, in the 1990s and early 2000s the average term of student loans was around seven years, whereas in 2013 that total was 12 years.

We are borrowing more but with longer terms, so there’s no increase in [the median student loan payment to income ratio], Delisle says. Student loans are just as affordable, though we have more debt and are paying for longer.

Rather, the real crisis, he says, involves repayment that more borrowers are defaulting on their loans.

According to 2016 Federal Student Aid data cited by Delisle, nearly 8 million federal student loan borrowers are currently in default on their student loans, and federal student loan portfolio defaults as a share of loans due is trending up.

At first quarter 2015, federal student loan defaults made up 12.5% of the total loan portfolio, or 18.5% of loans due; at third quarter 2016, these figures were 13.2% and 20.6% respectively.

Delisle also cited focus group data identifying four main reasons why borrowers default on loan balances: they didn’t finish school, they resent having to make the payments, the payments are a low priority, and the penalties for default are low. It’s a systemic issue, he argues.

The system sends signals to borrowers that it’s a good thing to put off payment, he says.

So he pitched his own alternative student loan system, a high-level overview of which includes:

  • Borrowers receive a $50,000 line of credit not a loan with no balance or interest rate
  • Borrowers repay 1% of their income for every $10,000 drawn down
  • Borrowers repay for 25 years or for 1.75 times the amount drawn down
  • Borrowers repay automatically through income tax withholdings

One of the problems with student loans is that they’re loans, he says.

More From Empower U

  • How To Better Serve Younger Members

  • Another Reason Credit Unions Aren’t Wells Fargo

October 4, 2016

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