How the student loan debt bubble hurts the poor

We’re all aware of the student loan debt bubble and how it has quadrupled in the last ten years. Student loans are the second largest component of household debt now, behind only mortgages. Higher education has been posed as a solution for the problem of economic mobility for everyone in America, and as a result, more and more Americans are stretching themselves thin and taking on more debt in order to get a college education.

What goes unmentioned is how the societal norm that is pushing more people into college has the same effect on low-income Americans who are most affected by the debt burden. A new Brookings Institute study finds that student debt makes up a massive portion of household income:

College attendance is still a good idea for the average student, but it’s increasingly difficult for the marginal student. It’s unclear whether or not low-income students comprise more marginal students than the other income quintiles, but it is clear that the downside of an inability to complete a higher education would take a much greater toll on low-income households than it would on higher-income households.

What’s more, defaults on student loans are rising. Even if we assume that defaults are spread evenly across the income groups, a default is worse for a student in a low-income group than in the higher-income groups by mere fact that a student loan comprises a higher percentage of their assets than otherwise.

What this means is that, at the same time, more low-income students feel the need to go to college and are risking more to do so. The federal government has been pushing to expand access to higher education to more and more people, but at the expense of the marginal students. Going to college still isn’t free, even with subsidized loans. As the costs of going to college rise, so do the inherent risks. We might need to re-evaluate our national norms around the value of college for all.

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Jazz Shaw 8:31 AM on December 04, 2022