The college Class of 2011 might expect more in life than simply to be known as “the most indebted ever“:
22,900: Average student debt of newly minted college graduates
The Class of 2011 will graduate this spring from America’s colleges and universities with a dubious distinction: the most indebted ever.
Even as the average U.S. household pares down its debts, the new degree-holders who represent the country’s best hope for future prosperity are headed in the opposite direction. With tuition rising at an annual rate of about 5% and cash-strapped parents less able to help, the mean student-debt burden at graduation will reach nearly $18,000 this year, estimates Mark Kantrowitz, publisher of student-aid websites Fastweb.com and FinAid.org. Together with loans parents take on to finance their children’s college educations — loans that the students often pay themselves – the estimate comes to about $22,900. That’s 8% more than last year and, in inflation-adjusted terms, 47% more than a decade ago.
In the long run, the investment is probably worth it. Education is a much better reason to borrow money than buying cars or McMansions, and it endows people with economic advantages that the recession and slow recovery have only accentuated. As of 2009, the annual pre-tax income of households headed by people with at least a college degree exceeded that of less-educated households by 101%, up from 91% in 2006. As of April, the unemployment rate among college graduates stood at 4.5%, compared to 9.7% for those with only a high-school diploma and 14.6% for those who never finished high school.
I am intrigued by the McMansion comparison here as it is used to illustrate the foolishness of overspending on a big or expensive house versus the possible “good debt” of college loans. Of course, this is all in economic terms as the education is expected to pay off down the road while McMansion purchases of the last 15 years are not expected to yield such great values in this poor housing market. (And using a car as a debt comparison seems a bit strange: a car is rarely an investment but rather a black hole for money.) But this view of a house, as an investment opportunity, is a relatively recent development.
There is something about this data that could warrant a closer look: while it appears that the average college student debt has increased, is the average really the best measure here? I would much rather see a distribution of college debt in order to better know whether this mean is heavily influenced by people with massive amounts of college debt. Here is a paragraph from a recent New York Times article regarding college loans:
Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.
And here is some additional data from recent years that sheds more light on the distribution of college debt:
These figures were calculated using the data analysis system for the 2007-2008 National Postsecondary Student Aid Study (NPSAS) conducted by the National Center for Education Statistics at the US Department of Education. (For comparison, cumulative education debt statistics from the 2003-2004 NPSAS are also available.) The 2007-2008 NPSAS surveyed 114,000 undergraduate students and 14,000 graduate and professional students. These statistics are not necessarily available from published NPSAS reports.The median cumulative debt among graduating Bachelor’s degree recipients at 4-year undergraduate schools was $19,999 in 2007-08. One quarter borrowed $30,526 or more, and one tenth borrowed $44,668 or more. 9.5% of undergraduate students and 14.6% of undergraduate student borrowers graduating with a Bachelor’s degree graduated with $40,000 or more in cumulative debt in 2007-08. This compares with 6.4% and 10.0%, respectively, for Bachelor’s degree recipients graduating with $40,000 or more (2008 dollars) in cumulative debt in 2003-04.
This data provides a median that is somewhat similar to the two figures cited above. Based on these three figures and interpretations, it sounds like more college students are taking on debt rather than some students are taking on a lot more debt.