If College Is a Great Investment, There Wouldn’t Be a Student Debt Crisis

by Jason Richwine

Calling the situation an “outrage,” President Obama announced on Monday that the student-debt burden is too high, and he proposed new regulations that would cap payments on older loans at 10 percent of income.

In the same speech, the president called higher education “the single best investment that you can make in yourselves and your future,” and later referred to it twice as “a smart investment.” But how that can be true if students are now drowning in debt?

There appear to be two incompatible narratives about higher education in the U.S. We are told that it is vital to encourage young people to attend college because the lifetime payoff far exceeds the cost of tuition and lost work years. At the same time, we are also told that students are struggling to service the loans they took out to pay for college, and they desperately need debt relief if they ever hope to get above water. These claims cannot both be true. If college had been a good investment for the students who took out loans, then there would be no student-debt crisis. Student-loan recipients would be paying off their loans with the income from their well-paying jobs.

Perhaps the debt problem is exaggerated, as most “outrages” in politics tend to be. But it’s another indication that the college-for-all mentality is not a harmless fantasy — real damage can occur, in the form of financial distress, when young people are encouraged to pursue higher education that doesn’t fit their abilities and interests.

The president’s actions implicitly acknowledge that college has not been a good investment for many people. Federal student loans are already subsidized with billions of taxpayer dollars every year. In addition to proposing new regulations, the president also endorsed Senator Elizabeth Warren’s bill that would allow students to refinance their federal loans at lower rates, at a cost of an additional $58 billion over ten years. If college is such a great deal, why are all of these new subsidies necessary?

Fortunately, it’s no longer just curmudgeons on the libertarian right who are arguing against college-for-all. Dean Baker of the left-leaning Center for Economic and Policy Research has pointed out that skipping college can be a reasonable decision for young people who do not anticipate a payoff. And when a recent piece at the New York Times’ Upshot highlighted the income gap between college grads and non-grads, Vox’s Matt Yglesias took the journalist to task for not adequately considering the underlying differences between each group. If this represents a new current of rational thinking about higher education, the president is swimming against it.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.