Student loans

Should Students Borrow?

As summer ends, 17 million students head to college. Nearly 40 percent are borrowing to do it. Over the past 15 years, the number of people with student loans nearly doubled and now stands at roughly 45 million―that’s about one in four adult Americans. Furthermore, the amount of debt has virtually tripled to just over $1.5 trillion, so the average loan is something like $35,000. Politicians, reporters, and researchers characterize this as a crisis. Is it?

Our answer is yes. While the majority of those with student loans are able to handle them, a large fraction cannot. Despite the strong labor market, nearly 7 million people, or more than 15 percent, are over 90 days late on payments or in outright default (see here). Since virtually all of this debt comes through federal programs, the government has created the problem. What should policymakers do about it?

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Investing in College

Most Americans want a college education, but it is expensive. On average, a four-year school costs about $25,000 per year, or $100,000 for a degree. That’s roughly half the median house price – a substantial investment. If you have to borrow to finance a college education – just like you borrow to own a house – is it really worth it?

The answer is yes for most people. But the outcome is not free of risk, especially for those students who borrow heavily relative to their future income prospects....

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