United States: Student debt mountain anxiety

To believe some young voters — especially those who showed up at Bernie Sanders rallies earlier this year — America is in the midst of a student debt crisis. In 2010, student loans overtook credit cards to become the biggest source of American household debt other than mortgages. Today, they total about 7 percent of GDP. Of those who borrowed from the federal government and began repayments in 2011, 10 percent defaulted within two years, up from 4.5 percent in 2003. The problem animates the Left: whereas Donald Trump has talked about the subject only fleetingly, Hillary Clinton has detailed policies for helping penniless scholars. Who could oppose such a worthy aim? Defaults on student debt are highest among so-called ‘non-traditional’ students. They attend community colleges, which provide short, typically two-year courses, or profit-making universities, which offer heavily marketed and pricey degrees, sometimes of dubious merit. According to Adam Looney of the treasury department and Constantine Yannelis of New York University, non-traditional students constituted more than half of all new borrowers from the federal government between 2004-2014. They accounted for fully 70 percent of those who defaulted within two years of starting repayments in 2011. The problem non-traditional students face on graduation is more often low incomes rather than high debts. In 2014, the median graduating borrower from a community college owed $11,700 (Rs.7.8 lakh), compared with $26,500 among those who had attended a selective, four-year course. Yet while 25 to 34-year-olds with bachelor’s degrees or more earned an average of $59,000 (Rs.39 lakh) in 2015, those with two-year degrees made only $38,500. Just as those with large mortgages typically have big houses, those with huge student debts usually have a graduate degree in, say, business or medicine, and can expect a bumper salary as a result. The average aspiring medic borrows $138,000 (Rs.92 lakh) for her graduate education; lawyers-to-be, $107,000. Yet the three-year default rate among graduate students is only 3 percent. At first, during the primaries, Ms Clinton promised to make community college free. She also said she would make public colleges “debt-free” — i.e, cheap — for low and middle-income students who study in their home states. This makes some sense. But a need to appeal to Sanders’ fans led her to expand her plan in July. Clinton now pledges that by 2021, no American from a household earning less than $125,000 (Rs.83.4 lakh) per year will need to pay any tuition fees at all to in-state public universities. Ms Clinton’s refreshed plan will cost anywhere between $350-800 billion (Rs.23.4-53.4 lakh crore) over a decade, according to the Committee for a Responsible Federal Budget, a think-tank. Much of that cash will flow to students who will go on to become affluent. The returns on college education have never been higher (a fact which helps to explain Trump’s success with voters who have spent less time studying). Over a career college graduates can expect to earn twice what high school graduates make, according to one estimate. Reforms during…