Home > Students > The Student Loan Fairytale: We Don’t Live Happily Ever After

Comments 0 Comments

Once upon a time, we used to be able to see through to the truth at the core of an otherwise imaginary tale.

Nowadays, we prefer the entertainment.

Keep it simple, parse and spin a few facts, repeat the story often enough and before you can say “Fiction is the willing suspension of disbelief,” that narrative comes to be a universally accepted truth. Case in point: a recent series of challenges to the widely held view that today’s high level of education-related indebtedness is evolving into a socioeconomic WMD.

The Brookings Institution characterizes these concerns as “often hysterical.” According to Reuters, the worry is “overblown.” Their conclusions appear to hinge on select Federal Reserve Bank of New York data, which the authors use to proclaim that today’s student debtors are no worse off than their predecessors were.

Reuters takes that a step further by calling attention to what it describes as a “larger trend in which heavy borrowing is increasingly rewarded with big salaries.” We read about some highly compensated college grads that appear to be successfully managing their enormous debt loads and college faculty who believe that “people who borrow a lot tend to end up with high-paying jobs” as a matter of course.

As the folks at Brookings put it, “lower-income people” should view debt as a “tool” to be exploited. An assertion that’s echoed by Reuters: “The more you study, the more you earn, even if it means building up much larger debts.”

On Higher Debts & Higher Income

What lends credibility to that argument is research that links higher education with higher lifetime earnings. But that only speaks to the learning side of the equation. It would be helpful to see the results of a study that adjusts career income for the all-in cost of the enabling education—a cost that includes interest and factors in failure rates too, when you consider that 41% of students leave school without earning a degree.

The developing narrative goes on to suggest that more highly educated workers are in short supply. Consequently, they’re able to command higher salaries, which enable them to more quickly repay the higher debts they’ve accumulated along the way.

Once again, a portion of the storyline is accurate: Certain major areas of study are indeed in high demand, particularly in the technology sector. Also, the more you earn, the greater your ability to tolerate higher loan payments.

The rest of it, though, is a fairy tale.

How Bad Is It, Really?

Consider the rates of delinquency and default. Brookings, Reuters and others often refer to calculations that are based on data that’s contained in FRBNY’s quarterly reports. But like many casual observers, they incorrectly divide the principal balance of the loans that are past due by the aggregate amount of all student loans—some $1.2 trillion-worth—even though only half of that amount is actually in repayment. Consequently, the resultant metric is understated by a factor of two. And that doesn’t take into account those loans that aren’t characterized as past due, because the debtors had been granted some form of payment accommodation.

As for the default numbers, here too the emerging narrative omits the fact that unlike any other form of consumer debt, the vast majority of these loans (roughly 85% are directly made or guaranteed by the federal government) are only thus declared when the borrowers have missed nine or more consecutive payments. Certainly, that’s not how auto loans, mortgages and credit card debts are managed. And even if all that wasn’t the case, the understated percentage of student loan defaults is still higher than for any other form of mainstream consumer borrowing.

Some of the other truths that are disregarded (perhaps because they conflict with the emergent narrative) include how education debts are expected to be repaid during the lowest-earning segment of a typical college graduate’s career (a fundamental program deficiency that explains why so many borrowers are seeking relief); how nearly half of all grads are underemployed and therefore undercompensated (FRBNY data that refutes the “high demand” assertion), or how Millennials who are forced to choose between “life and debt” are a good part of the reason for the decline in the rate of first-time home ownership.

Narratives such as this aren’t just misleading, they’re toxic. That’s because once we’ve bought into a story, we’re naturally inclined to work really, really hard to fit the contradictory reality that is ultimately revealed into the comfortable false premise we’ve come to accept. And when we’re unable to do that, we’ll look for someone to blame.

The storytellers are happy to help with that as well.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on Student Loans:

Image: Anna Gontarek-Janicka

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team