The Brown Center on Educational Policy at the Brookings Institution published yet another report on student loan debt.
This time, its researchers are challenging the popularly held view that we are at the dawn of a financial crisis to rival the one we experienced just a few short years ago.
Their determination? That broad-based policy actions on the part of the government are “…likely to be unnecessary and wasteful given the lack of evidence of widespread financial hardship…” — a conclusion that’s difficult to reconcile with the high levels of loan delinquencies reported by the Federal Reserve Bank of New York, when the data is adjusted to take into account loans that are actually in repayment mode (roughly half), along with troubled contracts that are being accommodated with deferments, forbearances, restructures and modifications.
That notwithstanding, there’s quite a bit more to challenge in a report that draws disconcertingly similar conclusions to its immediate predecessor, “Student Loan Safety Nets: Estimating the Costs and Benefits of Income-Based Repayment” — which uses equally contentious analytical methodologies to argue against the extensive need for student-loan relief programs.
The center has chosen to build its case around data that’s collected by the Federal Reserve Board in its Survey of Consumer Finances, which measures household earnings and debt obligations. Although I would strongly argue that doing so ignores the potential for changes to those households over the years (given the rates of divorce and partnership dissolutions), and the unlikelihood that more than one member is responsible for this category of debt, it is the manner in which the researchers are manipulating and interpreting this data that concerns me more.
The Brookings folks contend that when a household includes a spouse, education debt should be divided by two for measurement purposes. Yet household income does not appear to be subject to the same adjustment. What’s more, the institution elected to compare aggregate levels of debt to lifetime earnings instead of measuring current obligations against current income, which is how every credit underwriter I know would assess financial capacity.
The researchers attempt to compensate for that — and the fact that education borrowers are tasked with repaying loans during the lower-earning period of their careers — by comparing “flow” measures of debt to income. The result?
Education-debt-to-income levels appear to be relatively consistent over an extended period of time, which suggests that today’s young adults are having no harder a time meeting their obligations than their predecessors. The researchers conjecture that lower interest rates and extended loan-payment durations are factors, but that’s as far as they go.
It would have been helpful to consider why average loan-repayment terms are now, according to the researchers, in excess of 13 years, when the standard is 10. Perhaps it has something to do with the difficulties so many borrowers are having meeting their obligations without stretching their payments over a longer period of time.
It’s also unfortunate that Brookings does not resolve the reasons for the significant increase in education-debt levels over the years, other than for the role that tuition-price increases play. Perhaps a deeper dive into the impact the recession has had on household wealth, the toll that underemployment for recent college grads has taken on their ability to more speedily repay the loans they’ve undertaken, as well as the extent to which completion rates continue to be stuck at around the 50% mark would have helped explain the phenomenon.
Then again, if all of the aforementioned considerations were taken into account, the institution would undermine the link between the conclusions in this report with those of its last.
More on Student Loans:
- Can You Get Your Student Loans Forgiven?
- A Credit Guide for College Graduates
- How to Pay for College Without Building a Mountain of Debt
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.
Image: Suprijono Suharjoto