Richard Badenhausen: Student loan debt is an engine of opportunity

(Joshua L. Jones | The Athens Banner-Herald via AP, File) In this May 10, 2019, photo graduates enter Sanford Stadium during the University of Georgia's Spring commencement in Athens, Ga. The first student loan bills are arriving for the Class of 2019. If the grads are able to stick to the standard plan, they'll make payments every month for the next 10 years and be done with it.

Michael Brown, director of communications for LendEDU, a New Jersey-based online marketplace for student loans, recently congratulated Utahns in The Salt Lake Tribune for having the lowest average student loan debt per borrower and the lowest percentage of college graduates with debt in the country.

Brown contrasted the “enviable” position of our state with the larger “ever-growing student loan debt crisis.” He then called on Utah to “implement a permanent virtual learning option” to further drive down tuition costs and mandate a cap on student loan debt of $50,000 for all Utah public universities, despite our supposed lack of a problem.

Let’s put aside questions about whether colleges should take advice on curriculum delivery from salespeople or whether establishing restrictions on borrowing is the best fit for a state that cherishes the free market, especially since Brown’s plan calls for taxpayers to step in to cover costs in excess of the debt cap.

Instead, let’s examine the notion of a student debt crisis, uncover what might be driving this narrative, and remind families that education represents the most dependable and highest returning investment they are liable to make in a lifetime of putting financial resources to work.

Such fact-based approaches to this issue will be even more important going forward, with an incoming Democratic administration likely to point to the “debt crisis” as justification for free college plans.

Despite Brown’s claim that the “student debt crisis has been ignored for decades,” the press has actually covered this story for years, especially since outstanding total loan balances now sit just south of $1.7 trillion. While frightening headlines lead to more clicks, underneath such scary numbers are a number of realities.

First, $1.7 trillion might seem like a big number, but taking on some amount of debt is typically the best way to jump-start opportunity, whether buying a house, starting a business or pursuing a college degree. The wage premium for those graduating with a college degree (versus those without) is roughly $1 million in career earnings, a return on investment you’d be hard-pressed to reproduce anywhere else.

Compare the $1.2 trillion outstanding automobile loan debt currently held by Americans and you’ll see that the education sector is not an outlier, especially because college borrowers are investing in an appreciating asset — human capital — whereas those taking out loans to buy cars and trucks are stuck with depreciating assets, an investment faux pas.

Second, according to the College Board’s most recent examination of “Trends in Student Aid 2020” released just last month, the so-called crisis contains some surprising details:

• Total federal aid has fallen 25% over the past decade, including a 4.6% decrease in the last year.

• Total federal borrowing by students and families has declined by almost 21% over the past decade and fell for the ninth consecutive year in 2019-20.

• The share of undergraduates borrowing has declined each year since 2011-12.

• 45% of the outstanding federal loan debt was held by a mere 10% of those with loan balances of $80,000 or more.

• The majority of borrowers held debt less than $20,000.

Given that the federal government continues to reduce its loan exposure, a very small portion of borrowers hold large balances and the majority have outstanding debt that wouldn’t even finance an entry-level Subaru Outback, it’s unclear to me why Utahns should be forced into curricular and financial regulations.

The real villain in this story are the predatory, for-profit institutions that have been given cover by the Trump administration. Students attending such schools accumulate more debt and are four times more likely to default on loans as their counterparts in community colleges.

Even more egregiously, those students tend to be “disadvantaged or have less economic security such as people of color, single parents, and older students,” according to one study. Interestingly, the difference in outstanding balances held by graduates of public universities and nonprofit private institutions is relatively minor, a mere $5,000.

Returns on investment in higher education for students, families, and communities continue to be outstanding. Let’s not be taken in by fearmongering and needless regulation that will do little to help Utahns who already behave in fiscally prudent ways.

Richard Badenhausen

Richard Badenhausen is dean of the Honors College at Westminster College and immediate past president of the National Collegiate Honors Council.