My View On: Student Debt Forgiveness

Bernie Sanders and Elizabeth Warren have proposed forgiving all student debt. Naturally, this is somewhat popular and garnering a lot of attention because free stuff is fun and having the government give out free stuff is also very controversial. Where do I sit on this issue? Well, it’s a complex one, but I’ll try to condense my thoughts here.

The Student Loan Market – An Overview

The student loan market is $1.6T spread out over 44MM people. That’s an average balance of ~$36K and a median balance of ~$19K.¹ In terms of broader household debt student loans are a relatively small piece of the pie at just 10% of household debt.

One interesting trend is the recent slowdown in the growth rate of student loans. The financial crisis had a significant impact on student loans as it became increasingly evident that more education was the answer to the financial woes that many were undergoing. So while student loans surged in the post-crisis period the growth rate has rapidly slowed in recent years which is evidenced in the flatlining of the above chart.

The reason that student loans surged in the post-crisis period is simple – college is worth it for most of the borrowers. According to the NY Fed, college graduates earn 80% more than high school graduates. A study from Georgetown University (probably the finest school in the world in my unbiased opinion) showed that the top majors will earn $3.4MM more than the bottom majors. In other words, all student debt doesn’t lead to the same outcomes. The argument for education is even stronger for master’s degrees. According to the BLS, the wage premium for a master’s degree is 36-89% over a bachelor’s degree. 

So, the math here is pretty simple. Total college costs are ~$24K per year on average and the average college graduate is taking on ~$19K in debt to earn $66,500 vs the alternative of having no debt and earning $37,000 with a high school degree. Even with the rising cost of college and student loans the wage premium from college is a no-brainer.

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Angry Old Lady 7 months ago Member's comment

I think the better question is why is going to college so unbelievably expensive. The increase in tuition over the years has far outpaced other increases. It is also far more expensive than in other countries.

Carol W 7 months ago Contributor's comment

if you can't afford to go to college, don't go. Stop whining and learn a trade, work your way up, offer to work for nothing at something you love, or join the army. The best businesses weren't born in business school, the greatest novels weren't class assignments. How important is a college degree? Go ask Mark Zuckerberg.