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November 17, 2012

Why Rising Student Debt Isn’t As Big A Problem As You Think

College tuition is steadily rising in Florida, but at least one expert says the issue of student debt is being blown out of proportion.

Dr. Ed Moore is president of the Independent Colleges & Universities of Florida. He is also on the Higher Education Coordinating Council.

He and six other council members are charged with making recommendations to the Florida Legislature and education leaders regarding new degree programs and institutions.

At today’s council meeting, Moore gave a presentation titled “The Reality of Student Debt.”

Q: In a nutshell, what in your view is the reality of student debt?

A: The reality is that it’s not as big of a story as the national media and some would have you believe. But it’s certainly an issue of concern.

The rising cost of attending college has had a lot of impact, but there are so many other factors that have driven student debt that it’s not just pure cost.

Student debt (has) remained relatively constant as a percentage of the total American debt. It’s not as scary a picture as some would believe.

Q: From your vantage point, what is the biggest problem behind the debt that needs to be dealt with?

A: I think we need to be looking at student default rates more than the gross amount that students are borrowing.

On average, the amount that students borrowed last year from all sectors in higher education went up about $400 or so from the year prior. Not a real significant bump.

The total average debt is about the same cost as going out and buying a brand new Ford Taurus. So if you think of it in terms of relative investment, a student that’s going to go out and borrow $26-thousand — it’s the only thing they’ll ever really do that truly invests in themselves and gives them guaranteed earning power for the rest of their lives.

Students defaulting, particularly students that end up defaulting without degrees should be the real focus. Why are they defaulting? Are they picking schools that aren’t keeping them there; are they unemployed?

In large degree, it’s due to the rise over the last decade of the for-profit sector. Their numbers are significantly higher in loan default rates.

Q: Why are so many students defaulting without even finishing their degrees?

A: Students end up not finishing for so many reasons – family matters, jobs, they run out of money. I would look and see — is it a particular institution or a sector in higher education that is enrolling students that borrow and then don’t finish more so than in others.

It’s not the borrowing. More than 50 percent of students end up owing less than $20-thousand, for example. That’s not a significant burden to have a college degree. There’s tremendous value in having that degree.

People with college degrees make more money than people without college degrees in their lifetime. People with college degrees are more likely in this kind of economy to be employed as opposed to unemployed. So there’s value.

It’s an investment in self. Anytime we can encourage people to invest in themselves, that’s a great thing.

There needs to be some constraint about borrowing crazily, getting into high debt and managing that better. As a matter of public policy, I think that’s what we’re looking at. It’s getting a little more controls on who’s going into debt and why.

Q: Did you see anything promising in the Governor’s Blue Ribbon Task Force Final Report?

A: The focus there on the funding end of things was more on differential tuition and tuition rates. Certainly, cost is a factor that drives debt.

So if the state and public side starts adjusting tuition rates…that is going to have an impact on student borrowing.

A significant number of Florida students, though, make it through without borrowing anything at all.

When you look at average debt levels of graduates, it works out to less than $2000 a year debt difference between somebody who goes to a private institution as opposed to somebody who goes to a public institution.

Students borrow relatively the same amounts of money regardless of the institution they go to mainly because it’s the cost of living that gets them much more so than the cost of tuition.

Q: Has the council discussed solutions for tackling student debt?

A: I did a comparative analysis on student debt as opposed to household debt, credit card debt, and mortgage debt, just to put it in relative terms.

I think as we move forward in the Higher Education Coordinating Council looking at issues of value, cost and long-term implications of how we fund higher education, keeping in mind where the money is being spent and how it’s being spent is going to be real important to us.

Higher education is an investment in yourself. I would encourage readers – don’t get so focused on (having to) borrow $5000 or even $10,000 a year.

The reality is people come out of college and usually go right into debt buying a new car or investing in a business. They’re investing in themselves when they get an education, and I would encourage them to really spend time evaluating what it is that they’re doing going to college and get the most out of that educational opportunity.

People should be aware going in – what are they going to study and what are the implications of the time and money they’re going to spend.

stateimpact.npr.org