Student Debt as a Percentage of Total Household Debt, Q4-2014

The following chart shows total household debt in the United States, broken down into its major components, in the fourth quarter of 2014:

Household Debt 2014 Q4

In effect, although total household debt increased from $11.71 trillion to $11.83 trillion from the third to the fourth quarters of last year, student-loan debt remained a relatively flat percentage of that debt, repeating the pattern that occurred between the second and the third quarters of 2014:

Household Debt 2014 Q3

So, student –loan debt still accounts for the second highest portion of household debt and it continues to increase.

That it is not increasing more rapidly than the other major sources of debt is good news, but the degree to which the news is perceived as good may be mitigated by several considerations.

Over the last decade, the online for-profit institutions have been the major driver of student-loan debt because both the percentage of their students carrying loans and the average amount of those loans have both been much higher than the numbers for other categories of institutions.

The out-sized proportion of student-loan debt being carried by students enrolled with the large online for-profit institutions has been used both to highlight the unscrupulous business practices and deficient academic performance of that type of institution and to minimize, at least in some studies and commentaries, the scope of the problem of rising student-loan debt within other types of institutions.

But, since the release of the Harkin Report in 2012, there has been a major contraction in the online for-profit sector, reflected in the closure of “campuses,” or recruiting centers, layoffs of large numbers of staff, and major declines in enrollment. Indeed, as recently as 2013, Corinthian Colleges still had one of the largest enrollments among for-profits institutions, and with the forced closure of that “system,” the student-loan debt of many of those students has been forgiven.

Likewise, the rise in student-loan debt at public colleges and universities has been much more marked since the 2008 recession, when what had been a steady erosion in state support suddenly became a much sharper decline.

So, student-loan debt is increasing at public colleges and universities, but that increase is due to the decline in state support and not due to any increased exploitation of federally provided or federally guaranteed student aid.

In other words, our public institutions may have over-reacted to the very rapid growth of the online for-profits by over-investing in educational technology in order to compete with what should have been recognized as an unsustainable business model, but we have not adopted that business model.

Nonetheless, much of the discussion in state legislatures is distorting the reality that students at public colleges and universities are paying more not because of anything that those institutions have suddenly started to do but, instead, because of what the legislatures themselves have recently done.

This does not mean that there are not some obvious cost drivers within our institutions—most notably administrative bloat, which has drained resources from instruction and instructional support, and the institutional subsidies to intercollegiate athletics, which at all but the universities in the major conferences, are far exceeding any institutional benefit.

But state support has now declined to the point at which, as that great prognosticator Gordon Gee once quipped, “state-located” is, indeed, now more accurate than “state-supported.” And, in most instances, those state legislators and governors who claim that they are committed to supporting public education are more interested in the political rhetoric than in the fiscal realities of sustaining post-secondary educational opportunities.

“Transforming” and “reforming” higher education have become expedient euphemisms for wanting ideologically to redefine, to refocus, and to restructure successful institutions without paying for the privilege.

 

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