More and more students are borrowing more and more money to pay for higher education that costs more every year. According to the New York Federal Reserve Bank, outstanding student loan balances are poised to exceed credit card debt.
How worried should we be?
Rising student loan debt raises three sets of concerns, in no particular order. First, are the educational experiences students have paid for worth the cost? Second, could borrower defaults pose a risk to the economy? And third, how much will debt burdens hinder students?
Which of these is most worrisome probably depends on whether you have student loan debt.
1. Are the educational experiences students have paid for worth the cost?
People who have invested in higher education tend to enjoy higher lifetime incomes, making it easier for them to repay educational loans. The unemployment rate among those with undergraduate degrees is far lower than that among the population as a whole.
That does not mean that life is easy for a recent graduate - the unemployment rate for recent graduates is high - but it does mean that over a lifetime, if history is a reliable guide, debts should be manageable. The employment advantages provided by higher education offer some reassurance even as the amounts that students borrow increase.
Of course, history may lead us astray and the situation could deteriorate. Perhaps graduates will not find employment that enables them to repay their loans. In that case, loan forgiveness policies and adjustable repayment schemes, like the program announced by the Obama administration this week, make it easier for borrowers to avoid default on their federal loans - although the government (meaning taxpayers) would then take in less money from borrowers' repayment.
2. Could borrower defaults pose a risk to the economy?
Default rates have risen as the economy has deteriorated. And there are reasons to think that the Education Department’s current method of tracking defaults obscures the frequency of repayment problems. It will be some time before we know just how common defaults are, but even when we do, default does not mean a lender collects nothing: Borrowers may stop making payments and then resume making them later.
For both federal and private loans by banks and other lenders, collection powers matter: Because it is difficult to walk away from student loans - even through bankruptcy - the risk is lower that lenders, whether banks or the government, will suffer the kinds of losses incurred on real estate loans. Nonetheless, holders of private loans may suffer losses as students have difficulty paying.
3. How much will debt burdens hinder students?
Larger loan amounts are still bad news for students. Debt burdens likely lead students to put off major life decisions - whether to buy a house, have children or even get married - for a longer period of time. Fear of debt may deter some students from investing in higher education at all. And difficulty managing debt may lead some students to discontinue their education.
Students who borrow but do not complete an educational program likely face the greatest obstacles of all, confronting repayment obligations without the desired degree that might have created higher-paying career opportunities. Some educational programs, including those with for-profit institutions, have lower rates of completion and higher rates of loan default. The Education Department has found that default rates have risen more - by more than one-third - at for-profit institutions than at private non-profit or public institutions.
Understanding why students are borrowing more is easy: Tuition is and has been rising, and likely will continue to do so. According to estimates by The College Board, the cost of attending a public, four-year college exceeds $17,000 this academic year. At a private, non-profit institution, the cost tops $38,000. Of course, that is just the “sticker price,” which many students do not pay.
To pay even a fraction of such a high sticker price, many must borrow because incomes have not risen along with tuition. Family incomes have remained flat or actually declined in recent years. Students are caught in a squeeze play.
A more difficult question is, why does the price of higher education rise so rapidly? At public institutions, one reason for recent increases is declining public support. State funding of higher education has suffered as budgets have grown lean, leading universities to raise tuition and fees. At private institutions, investment income has almost certainly declined, affecting those colleges and universities lucky enough to have endowments.
Such explanations do not tell the whole story. The sticker price of higher education had been rising steadily for decades before the most recent downturn in the economy. The cost structure of the modern university is enormously complex. Some blame spending on efforts to cater to student preferences, building more luxurious dormitories, athletic facilities and performing arts centers, for example. That cycle of spending is difficult to break because no college leadership would like to be first to cut back in a way visible to students.
Nonetheless, sooner or later, something may have to give.
Jonathan Glater is an assistant professor of law at the University of California, Irvine. He previously covered higher education finance at The New York Times.
All statements and opinions expressed on this blog are those of the individual contributors, and not of the Bill & Melinda Gates Foundation or NBC News.