Megan McArdle: “What Are We Buying With $1 Trillion in Student Loans?”
November 10, 2015

Megan McArdle, the veteran financial writer and contributor to Bloomberg Views, asks “What are we buying with $1 trillion in Student Loans?”

The federal government now has $1 trillion worth of student loans in its portfolio, a substantial portion of which will be forgiven entirely or in part. But almost no one even dares to ask what we’re getting for all this money. 

Here’s the argument:

McArdle details the substantial public investment in higher education in the form of subsidies for college loans, including the predictable loan forgiveness that the taxpayer is eventually going to have to eat every time income-based repayment doesn’t cover the loan. That’s going to include a lot of baristas making $10 per hour making cappuccinos at Starbucks working to pay off their graduate degrees in fine arts, and gender studies and cultural anthropology. You know who you are.

And that eventually presents a public policy problem:

As an individual, it’s still perfectly rational to borrow money to invest in that credential, considering the sizeable income bonuses it confers. But public policy has to look at the system, not just what might benefit a particular individual. And at a system level, helping people borrow money to obtain a credential is crazy. A credential doesn’t increase anyone’s productivity; it just determines the distribution of better-paying jobs. The net economic benefit is zero. [Emphasis added.]

There is some rationality behind this argument, and this is the line of thinking that will be employed by those who would attack programs that make college more affordable, including student loan repayment assistance programs, interest rate subsidies for student loans, income-based repayment programs that may well never cover the cost (and stick taxpayers with the difference), and even tuition subsidies. We could well see lending programs restricted to STEM fields, for example, or to disciplines for which the U.S. is currently issuing H1B visas to foreign workers because of the need to fill critical skill shortage areas.

Who would benefit? Well, the wealthy children will be fine, whatever happens. But putting aside the need to control cost inflation (and the very real inflationary effect that easy lending has on college costs as tuition expands to consume available lending), a rollback in college lending programs, including existing subsidies would hurt middle class and working class families the most. Essentially, it would choke off a historical onramp to the middle class. Those coming from the working classes may qualify for need-based grant aid to help cover the gap. It may well be middle class kids who get hurt the most.

To preserve college financing programs for millennials and future generations, students, graduates, borrowers and faculty are going to have to be able to make a compelling case for the worth of non-technical degree programs.

And there are a lot of students in college right now that are making it a difficult case to argue.

But all is not lost: The good-old fashioned liberal arts education, with a solid grounding in critical reasoning, good writing and research skills, still has tremendous value. But it’s up to graduates of these programs to make the social, economic and political case for it.

Fortunately, we at can give you a little help. Here are some findings from a recent study commissioned by the American Association of Colleges and Universities, together with the National Center for Higher Education Management Systems:

  • The unemployment rate among mature individuals with liberal arts degrees (those ages 41-50) is just 3.5 percent – substantially better than the average, and nearly identical to their peers who had a professional or preprofessional degree.
  • Once they reach their peak earning years (51-60), workers who major in the humanities or social sciences actually out-earn graduates of professional and pre-professional fields – by $2,000 per year – $66,185 versus $64,149. They do not, however, catch up to their peers in the fields of physical sciences, natural sciences and mathematics, who earn, on average, $86,550 in their peak earning years).

The obvious problem with these two data points, of course, is the 20-40 year time lag between the degree and the favorable result. What was true for those who began their careers 20-40 years ago may not be true for those starting their careers today. They didn’t start out with an average student loan debt of $30,000 for example.

But according to the same study, 93 percent of employers agreed that problem solving skills and the ability to think critically were more important than the label on the diploma.

More broadly, the AACU also makes a societal case for continuing to encourage non-technical and liberal arts majors: These students have historically taken on vital roles in education, social services, government, the arts and other fields that vastly enhance the quality of life for all Americans, and lay the groundwork for creating future generations of scientists, engineers and physicians. Indeed, while 24 percent of college graduates earn liberal arts and humanities degrees, these individuals comprise 50 percent of workers in these professions, according to the AACU report.