What Everyone s Getting Wrong About Student Loans

Good morning, John. Everyone is talking about student loans incorrectly, and it's making me frustrated, so I'm making a video about it. Some flat, decontextualized numbers for you. There's $1.75 trillion of outstanding student debt in America, held by around 45 million students. That is roughly $39,000 of debt per student. And what you would imagine, given those numbers, and what most people do imagine, is the average college graduate headed out into the workforce with $39,000 of debt. And this is entirely wrong. First, let us not forget about the 35% of people who get a degree and do not have student loans. That number was a lot bigger than I expected it to be, and I think it's important to say that it exists, and that those people have, like, a leg up on the 65% of the students who graduate with debt. Second, this won't surprise you, but you may not have noticed it, the average student debt holder didn't just graduate. They graduated a while ago, and they have either been paying down their student debt, or they haven't been, in which case it's actually gone up due to interest. So the $39,000 isn't what they come out with, it's what is left after having been paid down. But even weirder, the average student graduating from a four-year college or university has about $28,000 of student debt. So it is strange that the average student debt holder has $39,000 of student debt. What's going on here? Graduate school is mostly what's going on here. But here's the weirdest plot twist in all of this. People who take out more student loans are less likely to default on their student loans. Much less likely. In fact, as you take out more and more student loans, you become less and less likely to default on them. So I guess we figured it out. Students just need to take out more student loans, and everything will be better. No. Something weird is going on here, and we have to figure out what it is. What is the weird thing that's going on? Well first, people with a lot of student loans tend to be doctors and lawyers. So that's one bit of this. But the bigger, more surprising, more upsetting reason that this is the case is that 40% of people with student loans dropped out without getting a degree. This is a wide variety of kinds of people, but they are more likely to be black and Hispanic, they are more likely to have gone to a high school in a low-income area, they're more likely to be older when they start college, and they're more likely to be first-generation students. And their loans tend to be smaller because they tend to go to cheaper schools for not as long. Loan delinquency for this group is quadruple loan delinquency for people who graduated. Now again, there are lots of reasons why people might be in bad situations with regard to their student loans, and it's often not because they didn't graduate, but this seems like a cohort that we don't talk about, and a problem that we don't interface with very much. And it is a very big problem. Like, I'll say it again, 40% of people with student loans are not going to get a degree. And this all happens for predictable reasons, the biggest one being financial pressure. College doesn't just cost the money you're spending, but also your near-term lost income, which is vital to many people, and the support that they have to give to their families. And the second biggest cause, academic disqualification, is caused by students not getting a good enough high school education, being under-supported or over-committed during school. There are a lot of hard parts and failures in higher education, but taking billions and billions of dollars per year of financed money from students who aren't going to end up with a degree, like, that's astounding and it is infuriating to me. This is the exact problem that Crash Course and Arizona State University are trying to take on with our partnership, providing structures to help students make good decisions earlier in their higher education process so they don't end up making expensive mistakes, and also helping them learn information that they may not have been taught well in high school or may have forgot since. This is a very common outcome. At some schools, it is the most common outcome, and I do not understand why we don't talk about it more. Because the result of not talking about it is understanding the student debt crisis entirely incorrectly. When we forgive debt, 40% of the people whose debt is being forgiven are people who didn't end up with a degree, students that didn't fail but were failed. And on average people who have debt and no degree have around $13,000 of debt. We need to take on the student loan crisis, and we also need to take on the dropout rate crisis. Not just with one-time debt forgiveness, but by supporting students who are working to make their lives better. John, I'll see you on Tuesday.