Forbes online published an article last week, “The Unspoken Cause of the Student Loan Crisis,” that attributes the student loan crisis to student loans being made without regard to the credit worthiness of the borrower. The article goes on to compare the student loan crisis to the mortgage crisis caused by lax underwriting standards. Forbes’ contributor Hardeep Waia wrote, “The discipline that has returned to mortgages needs to be brought to student loans. Those applying must be evaluated partly based on their majors.”
You heard it right – Waia is suggesting that major is the key indicator to determining ability to pay off student loans and should be the yardstick of “credit worthiness” for student borrowers. This article is well intended but off the mark in that it (in our humble opinions) miscredits the cause of the crisis and makes assumptions that aren’t supported by data (at least not any data that was cited or linked to).
Waia asserts that giving equal access to student loans for all despite their choice of majors is the root of the crisis. He equates starting salary with the ability to pay off a loan. But the size of the student loans is a symptom in itself, not the underlying cause. The underlying cause of all of this is bloated tuition costs that are increasing at rates that far outstrip inflation. Interest rates play a part in debt, but when the principal is outrageously high to start with, that’s the root problem.
Now let’s get to the assumptions made in the article. The first is that grads who don’t major in high earning fields can’t pay their student loans. He mentions those in the humanities and social workers in particular. These are public servants and teachers. These are grads who will likely work in professions that offer tax-free student loan forgiveness. These programs, combined with Pay As You Earn or Income-Based Repayment, make people in these circumstances much more able to afford their loans and much less likely to default than those not eligible for PSLF.
The second assumption is that these majors are the ones that are defaulting on student loans. There are no studies that we’ve seen that support this notion. We’ve seen studies based on race and ethnicity, gender, and family background, and we’ve seen research from specific universities that offer information about default and some majors (but lump many together), but they are quite limited in scope because they look at such a small percent of the borrowing population.
And when the government offers default data, it reveals nothing about borrower demographics and is limited to rates by year and type of institution (for-profit, public, two year, four year). If you read anecdotal profiles, you see that borrowers who major in business, STEM fields, and even law and medicine can default on their student loans. Singling out certain majors as prone to default without data to support it is likely to draw ire (and rightly so).
This is a complex issue and there are many factors that contribute to student loan default on a macro and micro level. The economy itself is an issue, unemployment is a factor, as are cost of living, over-inflated tuition, interest rates, lack of publicity about affordable repayment plans and loan forgiveness programs, lack of borrower education, and a myriad of other public issues. Then there are the personal factors – illness of self, aging parents or children, inability to pass certification exams to gain a job in the field of major, divorce, etc.
In short, the titular reason that this cause of the student loan crisis is “unspoken” is because it’s unsubstantiated. At Tuition.io, we’re always interested in the latest research on student loan debt as we like to present our readers with the best and most current information on this crisis. But this piece should be taken with (not a grain, but) a block of salt. As a rule of thumb, we are fans of Forbes but if we are to buy into the assumptions made by the author, we need to see supporting data. Otherwise, all this article offers is a notion.
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