Debt by Degrees

„The protesters at Occupy Wall Street may not have put forth an explicit set of demands yet, but there is one thing that they all agree on: student debt is too damn high. Since the late nineteen-seventies, annual costs at four-year colleges have risen three times as fast as inflation, and, with savings rates dropping and state aid to colleges being cut, students have been forced to take on ever more debt in order to pay for school. The past decade has seen a student-loan binge, so that today Americans owe well over six hundred billion dollars in college debt. That’s a burden that’s hard to carry at a time when more than two million college graduates are unemployed and millions more are underemployed.

Some of the boom in student debt can be chalked up to demographics: in the past decade, the number of college-age Americans rose by more than three million and the proportion of eighteen-to-twenty-four-year-olds enrolled in college went from thirty-five per cent to forty-one per cent. Still, the piles of student loans are due largely to the fact that the cost of a college degree has been going up much faster than people’s incomes. And that has raised the spectre that we might be living through a »higher-education bubble«, in which Americans are irrationally borrowing money to spend more on college than it’s actually worth.

We’ve just endured two huge bubbles, which sent the value of stocks and then homes to ridiculous levels, so the theory isn’t implausible. Of course, a college-education bubble wouldn’t look exactly like a typical asset bubble, because you can’t flip a college degree the way you can flip a stock, or even a home. But what bubble believers are really saying is that young people today are radically overestimating the economic value of going to college, and that many of them would be better off doing something else with their time and money. After all, wages for college graduates actually fell over the past decade, and the unemployment rate for recent grads is close to ten per cent. That’s hardly a ringing endorsement of the economic value of education.”