Some Perspectives on Student College Debt

by Charles W. Steger '69

Virginia Tech President Charles W. Steger '69

It is not hard to read or hear news reports about growing student debt loads. Because of higher education's essential role in American life, how students pay for college is understandably a topic of national discourse.

Is student debt higher now than, say, three to five years ago? Yes. Is this debt cause for concern? Is student college debt inordinately high? These answers depend on perspective.

While some students borrow heavily—doctors or lawyers, for instance—only about 0.5 percent nationally borrow more than $200,000. Approximately 43 percent of undergraduate and graduate students borrow between $1,000 to $10,000, and another 30 percent borrow between $10,000 and $25,000, according to the National Association of Student Financial Aid Administration (NASFAA).

At Virginia Tech, average student debt loads increased from $19,807 to $24,320 over the past five years, slightly less than the national average. The situation is indeed worthy of examination. Although the exact reasons for the increase are often individualistic, we suspect that factors include national and international economic malaise and rising tuition in the face of historic losses in state funding. Additionally, Congress raised the annual student-loan borrowing limits.

Despite these factors, 48 percent of Virginia Tech students graduate without any debt. We commend those students who work their way through school and those parents whose sacrifices enable young graduates to enter the workforce without the burden of debt.

As expected, much discussion surrounds other comparators. According to the Federal Reserve Bank of New York's February Quarterly Report on Household Credit, "The outstanding student loan balance now stands at about $870 billion, surpassing the total credit card balance ($693 billion) and total auto loan balance ($730 billion)."

Are those appropriate comparisons? Most notably, which of those three loan balances provides a lifetime return on investment?

Intelligently used debt is not a bad thing. How many of us could not own a home were it not for mortgages? How many businesses have been able to expand or squeeze past a cash-flow crunch because of sensible credit lines from a bank? In similar fashion, a college education financed by loans pays substantial dividends. College graduates earn more, live longer, vote more, and are more engaged in communities than non-college grads.

At Virginia Tech, the average graduating senior's debt load is about equivalent to the cost of a new car. Nearly half of the 2011 graduating class (49 percent) reported employment within six months of graduation, and half of those respondents reported a salary of more than $48,500 per year.

Although some have claimed that student loan debt is the next mortgage bubble, the scale is not comparable. The entire student loan market is estimated at $867 billion, while the mortgage collapse caused losses of almost $8 trillion. NASFAA president Justin Draeger maintains that "even if every borrower defaulted on his or her student loan at the exact same time (an impossibly unlikely scenario), it wouldn't have the same impact on the economy as the housing collapse."

We believe that rising student debt is troublesome and requires serious consideration by state and national policymakers. Colleges and universities must work to contain costs to keep education affordable. For our part, a recent internal analysis revealed that Tech's administrative costs are about half that of peer universities.

The most influential factor driving tuition increases, however, is loss of state funding. States must reconsider their disinvestments in public higher education. Additionally, we must keep some perspective on default rates. For-profit schools account for 25 percent of the national enrollment but 50 percent of the defaults.

The statistics are clear. A college degree is an investment, not simply a cost.

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