People sometimes regret their decisions to borrow for goods and services and higher education is no exception. Going into debt for a college education can make sense, but it can also be a terrible mistake.
In today’s Martin Center article, Preston Cooper makes the distinction between good and bad student debt.
If a student borrows to finance an educational program that leads to useful skills and knowledge, that’s good debt. Cooper gives the example of nursing students at UNC, who graduate with debts of around $22,000, but have starting salaries of more than $58,000.
On the other hand, a great many students borrow too much for credentials of little market value. That’s bad debt. A large component of that are the students who are lured into college but never complete a degree.
Bad debt helps to fuel the problem of credential inflation. Cooper explains:
Subsidized student loans, along with other forms of financial support for higher education, enable more people to get degrees. Unfortunately, this leads employers to expect degrees from job candidates, even when those jobs have not required degrees in the past. Degree requirements lead people to take on student debt and earn college degrees when the needs of the labor market don’t justify it. Even if the borrowers themselves can use the debt to get access to better-paying jobs, the cost of their unnecessary education still acts as a drag on the economy overall.
What is to be done? Cooper advocates limits on the amount students can borrow from government, and also requiring colleges to have some “skin in the game,” meaning that if the students they purport to educate don’t repay their government loans, the school will have to pay, at least in part.
We really should get the federal government completely out of college finance, but until such time, Cooper’s reforms are good ones.