- The return to a college education in terms of higher earnings swamps the amount of student debt held by most students (see figure below). Most students hold modest amounts of student debt and are successful at repaying.
- The students who fare the worst in terms of repayment and default tend to be those who don't complete college and/or attend for-profit, low-quality institutions. An interesting paradox is that default rates are quite high among those with relatively little student debt, because many of these folks never finished their degree and thus received a smaller income boost.
- Because the earnings premium from a college degree increases with age (up to a point), ability to repay increases over time, so deferred or "income driven" repayment schemes can be a big help.
Higher education is, among many other things, an investment in individual human capital, and a very good investment for most. Debt finance is a perfectly appropriate and rational means of paying for such an investment. The rhetoric of the student debt "crisis" has had the unfortunate side effect of implying that student debt is something to be avoided, rather than an opportunity if managed prudently. Public policy can potentially do a lot to facilitate sound debt finance of human capital accumulation: by improving student access to credit on good terms, by making repayment schemes more flexible and less painful, and by helping students make better decisions about where to go to school. Not surprisingly, the authors note various Obama administration initiatives along these lines.
Lurking in the background, of course, are political debates about higher education policy. For example, there is the proposal to make public higher education tuition-free for lower- and middle-income students, an idea embraced this summer by Secretary Clinton to throw a bone to the Sanders wing of the party. It seems like a fine idea to me, but one without much prospect of enactment in the near future. Ongoing policy reforms that facilitate responsible and manageable student debt remain crucial.