More than $1.2 trillion in outstanding student education debt is clearly an alarming number, but we need to understand how we got there before we can address it, said special guest Andrew P. Kelly, resident scholar and director of the American Enterprise Institute (AEI) Center on Higher Education Reform, during the second Fred P. Thompson Lecture on October 15. Additionally, the sources of this debt don't necessarily align with the common narrative.
Nearly 200 audience members, most of them students, turned out for the lecture, which was titled "The Student Debt Crisis." They listened intently as Kelly offered some surprising insights and analysis on the complex topic and on what he described as "holes in the student debt crisis narrative." This includes the reliance on counterfactual information, a failure to discern correlation and causation, and finally evidence that the borrowers facing financial hardship may not be who you think they are.
One common refrain of student debt "crisis" is that those with student debt are less likely to have a mortgage than those without student debt, Kelly noted. However, that wasn't true until 2011, when the nation was still recovering from the Great Recession, indicating there are likely far more financial factors to one's decision to buy a home than whether or not one has student loan debt.
"Just because two trends co-vary doesn't mean one is causing the other," Kelly said. "There is no evidence that the probability of home ownership decreases as the amount of student debt increases."
In fact, Kelly notes, the compositions of borrowers changed significantly during the past several years, with the biggest bump in student loan debt in the category of lower-income, lower-credit-scored students taking courses at two-year and for-profit colleges without parental financial support—a group less likely to own a home regardless of student loan status.
"This is an access story," Kelly said of this group, which is also more likely to attend institutions with lower completion rates—again, mostly two-year and for-profit colleges. "They drop out with a little bit of debt, but that little bit of debt causes enormous problems."
In fact, the highest default rate on student loans is on the smallest balances. Why? Those who borrow a lot—even up to six figures—default less frequently because they typically earn graduate degrees and secure higher paying jobs. The actual greatest indicator of likelihood of loan repayment, Kelly asserts, is whether or not the borrower finishes his or her degree and therefore has something to show for their financial investment.
Jacob Gram '16 attended the talk and described Kelly's presentation as a new and out-of-the-box take on an issue that affects a lot of people. Gram is a member of the UO executive council of AEI, which helped bring Kelly to campus.
The organizers would like to thank Kelly, AEI, and Fred Thompson '51, chairman of steel manufacturer Powder River Inc. and managing partner at Vintage Properties, a family-limited partnership with holdings in real estate, equities, bonds, and asset-based lending.
"It is Fred's vision to bring leading lights in academia to campus to share their views and discuss solutions to vexing problems for the benefit of students and our community," said moderator John Chalmers, Abbott Keller Professor of Finance and academic director of the Finance and Securities Analysis Center. "Fred's generosity has resulted in a program that is becoming a regular part of the fabric that is Lundquist College of Business, where we address important economic issues from a variety of perspectives."
The Fred P. Thompson Lecture Series launched last spring with "The Retirement Crisis," which attracted about 140 students and community members. The next lecture is planned for May.