Is Student Debt Really a Problem?

Typical debt for a bachelor's degree is $20,000, but there's an increase in community college debts.

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Most college students and recent graduates are not saddled with oppressive educational loans, according to a report issued by the College Board today. But the report also documented a surprising and troubling increase in the debt loads shouldered by students attending the lowest-cost schools of all—local, public community colleges.

One third of all new bachelor's degree recipients in June of 2008 started their working lives without owing a penny in federal or private educational debt. Only 10 percent of last year's graduates owed more than $40,000, according to the lead author of the report, College Board researcher Patricia Steele. (She did not count credit card debt or other noneducational liabilities such as car loans.)

The median borrower graduated last year owing almost $19,999, a $1,026 increase from the typical debt load of 2004 graduates. "Most people would say that is a reasonable amount of debt to take on for a baccalaureate degree," especially if students stick with federal loans, which now allow borrowers to adjust their payments to their income, Steele says.

The College Board, an organization made up of colleges, published the report to "take down a notch the sensationalist stories about students drowning in debt," Steele says.

But Steele was surprised "by the extremes" she found in recently released federal borrowing statistics. About 5 percent of students who got associate's degrees from public community colleges in 2008 left school owing more than $30,000. The average tuition at a public community college last year was just $2,402. Add in $1,000 or so a year for books and supplies, and the total educational cost for two years shouldn't exceed $7,000.

Steele was also puzzled by the jump in the percentage of public community college finishers who borrowed—from 30 percent in 2004 to 38 percent in 2008.

David Baime, vice president of government relations for the American Association of Community Colleges, notes that government grants and scholarships didn't keep up with inflation during most of the decade. Community colleges raised their tuition on average by almost $500 between 2003 and 2007. But the federal Pell grant rose by only $260.

"Real family incomes declined over that period. The costs of textbooks were spiking," and loans were very easy to get during the credit bubble, Baime says.

Lauren Asher, president of the Institute for College Access and Success, points out that living costs such as healthcare and energy also rose dramatically during that period. In addition, the shortage of grant money has meant that the 80 percent of needy community college students are left with a gap of $5,277 between what the government estimates they can afford and the bills they have to pay, she says.

"People think of community college as affordable," but students who attend community college full time (and are thus more likely to graduate) "are having a harder time covering their living costs without borrowing," Asher says.

Asher, Steele, and other analysts agree, however, that a reasonable amount of low-interest educational debt shouldn't alarm students or parents. "It's not that all borrowing is bad," Asher says. "If you are close to finishing and you need to borrow so that you can get a degree, you may be making a very wise decision," she says, adding: "If you drop out of school, you will be left worse off."

The recessionary spike in unemployment, which is driving thousands of newly needy students to college, will probably lead to a rise in the number of students who borrow. And recent hikes in tuition and the maximum allowable federal student loans are likely to increase the amount students will borrow, analysts say. But analysts also note that the credit crunch wiped out financial firms that used to advertise easy $40,000 private educational loans on television. So the number of students taking out big, expensive private loans could plunge.

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