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The Rhetoric And Reality Of Student Loan Debt

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American college graduates are swimming student loan debt, but is all that debt really worth it?

Here is your amazing statistic of the week: The accumulated total of student loan debt in the United States has hit $1.3 trillion.

Of that, $1.1 trillion is federal loan debt and a further $200 billion is made up of private loans.

That’s the greatest amount of student debt in U.S. history.

So, why are UNLV and students nationwide graduating with more debt?

Beth Akers, a fellow with the Brookings Institution in Washington, D.C., was at UNLV to discuss the issue.

According Akers, there are three main reasons why loan debt is growing so rapidly. First, institutions are just charging more money for tuition. Second, people entering college have less money.

She said in the past, students were more likely to be from affluent families that could afford to pay for college themselves. And finally, more people are getting advanced degrees and using student loans to finance those degrees.

And while getting a bachelor’s degree or a graduate degree will still pay off in the end, Akers believes students need to do more to be savvy college consumers.

She told KNPR’s State of Nevada that students often don’t understand how much money they’re borrowing, how the loan works and what the outcome of their education is ultimately going to be.

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“Even shortly after taking on their first loan those freshman students don’t have an idea of how much they’ve borrowed,” she said.

Akers believes the idea that getting a college degree at any cost has fueled a lack of ‘price sensitivity.’

“I think part of this is that institutions can charge more,” she said, “We’ve had this very strong narrative in this country that everyone really needs a bachelor’s degree.”

She said if students believe they need a degree no matter what they won’t push to know what they’re getting for the price and whether the institution they go to will be a good investment. Akers said college continues to be a good investment, giving an estimated rate of return of 15 percent, which is a lot.

However, she warns if things continue along this path the rate of return will change.

“I’m concerned that if we continue on the trajectory that we’re on that’s not going to be the case anymore,” she said, “As people borrow more and more they become less and less sensitive to the price the institutions are charging them.”

However, while you might think it is the students who have hundreds of thousands of dollars of student loan debt who are in the most trouble, Aker said that is not what is happening.

“It’s the borrowers that have the lowest balances who are the people who are struggling financially,” she said.

Akers said people who invest large sums of money into their education usually turn out to be doctors, lawyers, engineers or in technology fields. As a result, they’re making more money out of college and can pay off the loans easily.

She said it is people with tens of thousands of dollars of debt who are in trouble.

“It’s these people who are not completing their degree who have the expense of repaying debt but who don’t have the financial benefit that comes with a degree,” Akers said, “These are the people who are in a lot of trouble.”

The federal government controls most of the loans for students and it does apply pressure to institutions with high numbers of loans and students with low payback percentages.

Akers believes it is in the hands of the students themselves to understand the cost of college and the benefit they’ll receive.

“I would say be forward looking,” she said, “So it’s important to understand what your pathway is going forward. College is not just this experience that everyone needs to do that is sort of magical and is the golden ticket. College should be the pathway going forward.”

She advised would-be students go to a website from the Department of Education which allows students to see not only how much the annual average cost would be but also the graduation rate and the average salary after going to the school. 

Guests

Beth Akers, fellow, Brookings Institution’s Center on Children and Families, and the Brown Center on Education Policy.

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