Bubbly College Debt

by Andrew Gillen

Minding the Campus has published my essay on The Amazing College Debt Bubble. My favorite parts include:

by far the largest share of blame for the tsunami of debt falls on the colleges themselves. As Robert Martin argues, "higher education finance is a black hole that cannot be filled." Colleges have nonetheless attempted to fill the hole with student borrowing. Such greed, when filtered through a well-functioning market, need not be a cause for concern as the market channels it into useful and productive activities. Unfortunately, the higher education sector cannot be characterized as a well functioning market...

and

the best way to put these figures into perspective is to realize that the $1,456 per student that colleges actually spend on instruction implies that the $126 billion that Americans borrow would cover the instructional costs for 86.3 million students. Using the higher figure of $2,366 for instructional costs, Americans' borrowing would still cover the instructional costs for 53.3 million students. And yet we only send 18.7 million students to college (and many of these are part time students)...

Americans Borrow 126 Billion a Year for College

by Andrew Gillen

I did a radio show with Steve Scher this afternoon on student loans. (I started off a bit rocky, but eventually recovered). While preparing for it, I accidentally came up with an estimate of the yearly shadow debt of college. My back of the envelope calculations indicate that in total (standard debt plus shadow debt), Americans borrow about 126 billion dollars a year for college.

Federal Loans account for 84b.
Private and State Loans account for another 12b.
The Shadow Debt accounts for the rest, about 30b. It is composed of

• Non-official student loans ~ 7.4b
• Credit Cards (student) ~ 1.9b
• Credit Cards (parent) ~ 5.5b
• Home equity or line of credit ~ 8b
• Retirement Acct ~ 3.3b
• Other parent loans ~ 3.6b
  

Here is the table.


The Federal Loan and Private and State Loan numbers come straight from the College Board (table 1).

The interesting part is the shadow debt calculations. Sallie Mae’s How America Pays for College includes a table indicating the amount borrowed from various sources (table 2a). Unfortunately, this is an average per borrower. So to get an aggregate figure, I needed to multiply by the number of borrowers. To find that, I took the total number of students from the Digest of Education Statistics (table 187) and multiplied by the % of students borrowing according to finaid.org (first table at the link). These are the first 2 red numbers.

Since there was some overlap between Sallie Mae and the College Board figures, I was able to find PLUS and Private Loan amounts under both methods. It turns out that Sallie Mae’s figures are off by a factor of about 1.6 for those 2 categories. Assuming that they are off by a similar amount in the other categories, multiplying the Sallie Mae aggregate figure by 1.6 (the third red number) gives us calibrated figures that are comparable to the College Board figures. Adding it all up gives us 126b.

For those interested in playing around with the numbers, send me an email at gillenandrew at gmail and I’ll send you the excel file.