Opinion

Is student loan debt an emergency? Take our quiz.

Student loan debt is so often described as a “crisis,” with anecdotes about crushing debt burdens seemingly easy to find, that saying so has become cliché. Responding to such cries, President Biden has pushed the bounds of his powers to forgive federally backed higher-education debt. Some even believe that university education should be free, or near-free, as it is in many other countries (though these nations’ university systems are notably less vibrant and prestigious). What do the facts suggest about how bad things have gotten, and what to do about it?

Forty-four million U.S. borrowers hold federal student loans — adding up to more than $1.6 trillion in debt. This seems like an impossibly large number. But it is a tad lower than the total amount Americans owe in auto loans. Consumer credit card debt stands at about $1.1 trillion.

Outstanding student debt did increase between 2010 and 2020, but the trend in borrowing the past several years has been downward; the average amount lent per student has decreased, too.

Though they hold a big share of total student debt, six-figure borrowers represent less than 10 percent of all borrowers. Such massive loan balances are not the norm.

How does this small group accumulate such large debt balances? It turns out a huge proportion of outstanding student debt — a majority, according to some experts — is held by households in which the highest level of education is a master’s degree or higher — that is, people who paid for more education. Americans with professional and doctorate degrees are only 3 percent of the population but hold a vastly disproportionate share of the total. These borrowers also make more than twice the median income, usually over six figures in annual salary.

This is largely because there’s a limit on the federal loans students can take out in the first place: roughly $31,000 for dependents. One caveat: Roughly half of students who went to for-profit schools owe $40,000 or more.

Most borrowers who were in default during the pandemic — when the Education Department released the above statistics on the subject — didn’t complete their degrees. Most were also Pell Grant recipients — that is, the poorest borrowers. On the flip side, only 3.5 percent of those in default took out loans for graduate school.

So, is student debt a crisis? It depends on who’s in debt. People who complete their degrees, particularly if they didn’t come from poverty, tend to pay off their debt over time. That makes sense: In general, higher education is worth the cost. A typical worker with a bachelor’s degree has earned about $1 million more by the end of her career than her counterpart with only a high school diploma.

Forgiving loans, meanwhile, results in those who didn’t go to college subsidizing the tuition costs of those who did. That doesn’t mean it’s never a good idea. On the contrary, it’s precisely because a college education is so valuable that the government ought to make it easier for Americans to enroll. But the fairest system is one in which those whose degrees land them in comfortable circumstances pay off their loans — and those who are struggling, and therefore at most risk of default, don’t.

Janitors’ paychecks should not end up in dentists’ pockets.

President Biden’s Save plan, whose enrollees were treated to an additional $7.4 billion in debt cancellation this month, gestures at this principle with its focus on income-based repayment. And parts of the proposal, such as wiping out debt that has been held for more than 20 or 25 years while giving enrollees who borrowed relatively small amounts of money a chance to have debt canceled sooner, also make sense.

But the terms are too generous toward those who can do without the government’s beneficence. The income maximum is set at a very comfortable $125,000 for single people and $250,000 for married couples and heads of household, and the Urban Institute found that nearly half of bachelor’s degree recipients will end up paying less than half of their loans back. The result is not merely to provide a safety net to those for whom higher education proves a poor investment, as ought to be the case. It’s also to give a freebie to those whose plans worked out just fine — which really makes these arrangements not seem like loans at all.

Another problem: If loans seem to have no downside, colleges have scant incentive to contain tuition. Students won’t worry about sticker price if they feel they can get whatever they require to afford school for what will, in the end, amount to little or nothing.

There are ways to adjust the program so that it helps those who need it most while costing the public less: for instance, upping the share of income paid by better-off borrowers, relative to the share paid by those who earn less — similar to how progressive income taxation works. Most important, policymakers should focus on a connected, more acute crisis: those rising tuition rates that an unreasonably charitable student loan policy could encourage to continue upward.