The “Deeper Dive” Costs of College Debt

Posted on August 29, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

Unintended Consequences?

[By Rick Kahler MSFS CFP]  [Dr. David Marcinko MBA]

Not only is a college education a door to higher wages, but providing that education is an important segment of our economy and a huge source of good paying jobs.

In 2017 the average salary for the country’s 624,822 full-time college instructors was $82,240, according to an annual study from the Department of Education’s National Center of Education Statistics.

The old days

In the days before college loans were as easy to get as the common cold, college costs were due in cash. Students and parents had to save money or pay tuition out of their earnings. Many students worked their way through college. Those without savings, the ability or desire for college jobs, or high enough grades for scholarships didn’t go to college.

Since colleges competed for students, market forces controlled the tuition rates. Raising tuition too much resulted in fewer students and smaller revenues. The two forces of supply (college capacity) and demand (the ability to pay tuition) kept college costs in check.

Understandably, borrowing to pay for college tuition was difficult. What sane bank or investor would loan money to an unemployed teenager with no collateral to speak of? If you could find someone willing to make such a risky loan, the interest rate was high.

Politics

Well-intended politicians decided it wasn’t fair that those without the means to pay tuition were denied college educations. Their solution was to require taxpayers to underwrite college loans, sometimes at interest rates lower than those available to the most creditworthy.

With tuition money easy to obtain through low-cost, government backed loans, demand for a college education increased. With the increased demand came higher tuition costs. This easy money is the primary reason that college tuition costs have far outpaced inflation and have gone up twice as fast as medical costs since 1985.

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Consequences

Unfortunately, one consequence of loaning money to those deemed poor risks is that a high percentage of those borrowers are unable to repay the debt.  It should come as no surprise that 10.7% of all student loans are currently 90 days or more in default. Conversely, the composite default rate on mortgages, credit cards, and auto loans is 0.82% as of October 2018.

Today, taxpayers are on the hook for over 92% of the $1.5 trillion in outstanding student loans made to over 44 million borrowers, according to a June 13, 2018, Forbes article by Zack Friedman, “Student Loan Debt Statistics in 2018.” Only home mortgages exceed student loan debt.

And the appetite for loans continues to rise. The average student from the Class of 2016 graduated with over $37,000 of college debt. It isn’t uncommon for a medical student to amass over $200,000 of student loan debt. This year we will add another $120 billion in college debt to the books.

The more college debt that graduates take into the workplace, the less they have to spend for vehicles, rent, and consumer goods. The damage to the credit ratings of the 10.7% who are in default will also hinder their purchasing power for years to come.

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Assessment

If taxpayers ever decide to quit footing the bill, my hunch is that many colleges’ tuition rates will fall as hard as housing prices did in Florida, Arizona, and California in 2009. Lower tuition costs would create a financial hardship for most colleges and the some 4,000,000 people employed in higher education.

Politically, I don’t expect that to happen. Colleges are big business with a lot of money and influence in Congress. Further, a college education is becoming viewed as a right that should be free. In the meantime, savvy students will do whatever they can to minimize their college tuition and graduate debt-free.

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COACH

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Conclusion

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The College Degree [Mortality] Advantage

Posted on July 4, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

By the NBER

Working Paper 29328), Anne Case and Angus Deaton

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The Persistent Mortality Advantage of a College Degree
In 2019, Americans with a four-year college degree had six years greater life expectancy at age 25 than those without a degree. These educational differences in mortality have been growing in recent decades and are apparent across demographic groups. In Mortality Rates by College Degree before and during COVID-19 (NBER Working Paper 29328), Anne Case and Angus Deaton explore the evolution of these differences during the pandemic.

If every American faced an equal threat of infection and death from COVID-19, then the mortality gap between more and less educated individuals would have narrowed during the pandemic. However, the risks from COVID-19 were plausibly greater for those without a college degree for a variety of reasons. For example, people without college degrees disproportionately work in occupations where working from home to avoid infection is not feasible. They are more likely to use public transportation and to live in crowded housing arrangements, heightening their risk of exposure. Conditional on infection, less educated individuals may experience worse outcomes due to higher average rates of pre-existing conditions and poorer access to health care.

Using provisional mortality data from the National Center for Health Statistics, the researchers determine that a college degree was protective against mortality during the calendar year 2020, which encompassed the first nine months of the pandemic. They express the mortality advantage of a college degree using the ratio of the mortality rate for those without a four-year college degree to the rate for those with a degree. The researchers calculate these ratios for 60 different demographic groups, identified by two genders, five age groups, and six racial/ethnic categories (Hispanic, non-Hispanic White, non-Hispanic Black, Asian, American Indian/Alaskan Native, and those who report two or more races).

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The Bulletin on Health summarizes selected recent NBER Working Papers. It is distributed digitally to economists and other interested persons for informational and discussion purposes. The Bulletin is not copyrighted and may be reproduced freely with attribution of source.

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Prior to creation of the Bulletin on Health, the NBER published the Bulletin on Aging and Health.

Working Papers produced as part of the NBER’s research program are distributed to encourage discussion and suggestions of preliminary work. Neither Working Papers nor issues of the Bulletin on Health are reviewed by the Board of Directors of the NBER.

The Bulletin on Health is edited by Robin McKnight   Across all demographic groups, the ratios were all above one in 2020, reflecting higher mortality rates for those without college degrees. The ratios were highest for younger age groups: in the 25 to 39 age group, mortality rates for those without college degrees were as much as seven times the rates for those with college degrees. The researchers argue that the association between education and mortality is concentrated among preventable deaths, which are more prevalent causes of death among younger adults. In addition, older Americans are more likely to be retired, so additional risks that less educated workers faced due to occupational differences were less relevant for older age groups.

The overall finding that those without college degrees were at greater risk of death during the pandemic may not seem surprising, given their differential risks of infection, higher rates of pre-existing conditions, and worse access to care. A more unexpected finding is that these differences in mortality risk, as reflected in the mortality ratio, were very similar to the differences in mortality risk in the year prior to the pandemic. The figure, which plots the ratios for each demographic group in 2019 and in 2020, shows that the mortality advantage of a college degree was little changed during the pandemic relative to the prior year.

The figure highlights a few exceptions to this pattern. For Hispanic women aged 25 to 64 and for non-Hispanic American Indian/Alaskan Native women aged 25 to 39, the mortality advantage of a college degree was substantially higher in 2020 than in 2019. But for most demographic groups, the mortality ratios during the pandemic were strikingly similar to those before the pandemic. In fact, for over half of the demographic groups, the ratio was slightly lower in 2020 than in 2019.

The results suggest that the mortality advantage of a college degree during the pandemic was a continuation of pre-existing health differentials between those with and without college degrees. “The mystery,” the researchers conclude, “is not why the [college degree] was protective during the pandemic, but why the effect was proportionately as large before the pandemic.”

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A New Plan for [Medical] Student Loans?

Posted on November 23, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

The Debt Crisis

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Recently, President Barack H. Obama announced a new plan for student loans and the severe debt it has placed on students. Obviously, more needs to be done, but it’s a start.

As you can tell, this infographic illustrates the strategies that President Obama has implemented or improved along with thoughts that go beyond the new deal, especially about students.

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