Milad Mohammadi
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Student Debt: A Problem with No End in Sight

By: Milad Mohammadai

In the United States, college is expensive. Every year, students across the nation trek to their respective state capitals in order to lobby for increased financial aid. Among these are NYU students who have been knocking at the state departments doors in Albany. New York State has largely lived up to its promise of increasing assistance, and in recent years has allocated funds to make college much more affordable. Just last year, Governor Cuomo unveiled the Tuition-Free Degree Program, where families would be eligible to attend a New York State college tuition free. While the governor’s plan comes with many stipulations, such as income, residency, and credit requirements, it has still been hailed as a small but important step towards solving the student debt crisis. But is it a pragmatic solution?

During the 2016 Presidential race, several candidates referenced student loans and debt to be a critical issue, and for many millennials, it has become one of the most important policy issues on their agenda. The US student debt balances are now around 1.3 trillion dollars, roughly the same size as the US junk bond market and the default rate for these loans is ever increasing.

Although Governor Cuomo’s tuition relief program unsurprisingly has been received with great cheer among his constituents, there are those who voice concerns about throwing money at the problem as a permanent solution. While the goal on both sides of the political aisle is to help students obtain higher education at reduced cost, there have been a flush of bills proposed on both a Federal as well as a State level that seek to address the issue in alternative ways. The cost of higher education has been spiraling out of control over the past decades, with no end in sight, and debt-riddled students have been left floundering in the face of ever-increasing interest rates on student loans.

The long prevailing view has been that both Federal and State governments have done too little to reduce both the costs of higher education attendance, as well as help students pay off debt. Numerous proposals have been discussed, such as price ceilings on interest rates, or partial forgiveness of student loans, and some proposals even go as far as suggesting free public education for all students. With the cost of college attendance rising for universities all across the US. It remains to be seen what sort of new legislation will be proposed, if any action will be taken at all by the Federal government. One thing is certain, and that is drastic changes must occur or the default rate may continue to skyrocket as students accumulate more debt. According to the National Center for Education Statistics, since data was collected in the mid 1980s, college tuition has risen steadily past the rate of tuition in all categories of institutions, regardless of program length. For reference, across all institutions the inflation adjusted cost for the average tuition in 1984 was $10,210 compared to $21,728 in 2014. There is no indication that we will expect to see a slowing down or reduction in the average tuition rate.

Currently, nationwide student debt has been estimated to be roughly over 1.3 trillion dollars according to the New York Federal Reserve’s fourth quarter 2016 report, a 31 billion dollar increase since last fiscal quarter. According to The Student Loan Report, the average 2016 graduate in the US owed $17,126 in student loans. Generally, these numbers correlate with the percentage of bachelor’s degree holders in each state. The more people have already gone to college, the more future graduates will likely pay to attend a degree granting institution.


However, these numbers don’t give us a clear picture, as they also include those who did not take out loans. We also need to look at the average debt across the US per borrower, which is $35,051 according to Wall Street Journal’s Mark Kantrowitz’s analysis of National Center for Education Statistics data (NCES). This shows that in actuality, the situation is much more dangerous then it first seems. Obviously, there is nothing inherently wrong with debt and loans, as long as they are to be paid back. Unfortunately, this has not been the case. According to Kantrowitz, evidence indicates that this debt is continuing to rise, along with ever increasing default rates. According to a study by Judith Scott-Clayton at the Brookings Institute, the default rates for students who took out Federal loans in 2004 is projected to reach 40% by 2024. This is due to the pressure of college graduates finding it difficult to obtain jobs in the market that can adequately service their debt.


These numbers do not even consider those who have gone on to attend graduate school programs, where high costs can also require loans, although many of these programs offer significant discounts. Student debt can be a serious problem, as it can dramatically limit the options graduates have in choosing a career, purchasing a car or home, as well as many other economic activities. Surveys indicate that student loans have a ripple effect on the market and will likely lead to dramatic changes in sectors such as real estate, where traditionally purchasing a home was a commonplace middle-class goal.


There is however, mounting evidence that in fact it may be the student loans and Federal assistance themselves that may be the main contributing factor to the rising student debt. Daniel Lin, professor of Economics at American University argues that the issue comes down to simple supply and demand. As more students go to college, colleges must decide between allowing for increased enrollment or increasing tuition. It comes to no surprise that the latter is what occurs. A major effect of the Federal loans and assistance for students is increased college attendance and increased demand for education overall, leading to higher tuition costs. In a 2015 report published by the Federal Reserve Bank of New York, it was concluded that the three primary Federal student assistance programs; Federal Direct Subsidized Loans, Federal Direct Unsubsidized Loans, and Pell Grants all led to oversaturation of college students in the market, leading to increased attendance costs for students. This was further confirmed by a 2016 National Bureau of Economic Research study which found that the Federal Student Aid programs contributed to a 78% increase in the cost of education at schools that were part of these programs.

By ending these programs, college attendance would drop, as more people would find it difficult to obtain a loan for college. This in turn may lead to lower tuitions at universities. This is by no means a proposal that should be taken lightly. Most evidence suggests that college graduates on average have higher incomes than those who only graduated high school. A 2014 Pew Research Center study found that on average college graduates make $17,500 more than high school graduates.  This is not even mentioning the ethical ramifications of denying college education to those without the financial means to attend.


This does not give us the whole story however. The type and quality of education can also make a significant difference. Certainly, we must compare factors such as majors, where it is more likely for someone who let’s say studies economics, to make more over his or her lifetime, than someone who studies certain other majors. Since the the Federal government’s loan programs do not consider which major the student chooses to study, we run into a situation where the loan is not provided in accordance with the demand in majors in the market.


Some majors may have a higher income potential, but also have a higher unemployment rate, and vice versa. Other important factors to consider is the average debt to income ratio for each major, which also drastically varies. An analysis by Credible looked into the debt to income ratios for each major, and found rates varying from 6% for economics majors to up to 15% for veterinary science majors in the market.


Another interesting question is whether college education is even necessary at all. George Mason University Economist Bryan Caplan has argued that college education and public high school education serves the public very little. Caplan argues that this education surmounts to little more than what he calls “signaling”, where graduation is an indicator that a candidate is worthy of employment, but the actual education itself does not necessarily produce skillful candidates to the market. For Caplan, higher education is a form of hoop jumping where prospective candidates show of their willingness to conform to societal expectations, work hard, among other things. In his recent book The Case Against Education, Caplan argues for abandoning the higher public education system altogether, in favor of a more liberal approach to education. Caplan looks into data on the occupations many students take after public education, as well as data on skill development and concludes that publicly funded education provides very little in actual value for labor in the market. Caplan cites various diverse sources of data for his argument. Especially interesting is the data Caplan cites regarding the retention of material taught in educational institution, and their low retention rates over time. Caplan however, does not argue that higher education does not lead to higher salaries, but rather that it does not lead automatically to more tangible work skills. What such a dramatic policy change would do is quite unclear, and it may be the case that current institutions are too ingrained in the market that their removal or reduction would lead to many sudden negative consequences. In the end, there is likely no right answer, but it may be time to reevaluate current Federal policy.

Works Cited

Aleem, Z. (2015). It’s Official: The Class of 2015 Has the Most Student Loan Debt in History. Retrieved 2018, from Mic:

Caplan, B. (2018, Febuary). The World Might Be Better Off Without College for Everyone. Retrieved from The Atlantic:

David O. Lucca, Taylor Nadauld, Karen Shen. (2017, Febuary). Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs. Retrieved 2018, from New York Federal Reserve:

Davidson, P. (2017, July 7). Are student loans as big of a problem as people think? Retrieved 2018, from USA Today:

Friedman, Z. (2017, Febuary 21). Student Loan Debt In 2017: A $1.3 Trillion Crisis. Retrieved 2018, from Forbes:


Holodny, E. (2017, November 2017). How much student loan debt people owe in each state shows some graduates are getting screwed. Retrieved 2018, from Business Insider:

Jarmoluk. (2017). Retrieved from Pixabay:

Lin, D. (2012, December 5). Why is Higher Education so Expensive? Retrieved from Learn Liberty:

Marte, J. (2016, February 02). The college majors where people struggle with debt the most. Retrieved February, 2018, from

National Center for Education Statistics . (2016). Fast Facts. Retrieved 2018, from National Center for Education Statistics :

New York State Government. (2018). Tuition-Free Degree Program: The Excelsior Scholarship. Retrieved 2018, from New York State:

Pew Research Center. (2014, Febuary 11). The Rising Cost of Not Going to College. Retrieved 2018, from Pew Research Center:

Rieder, R. (2017, June 28). The economic side effects of the student loan crisis (in 3 charts). Retrieved from BlackRock Blog:

Salingo, J. J. (2017, November 3). Six Myths About Choosing a College Major. Retrieved 2018, from The New York Times:

Scott-Clayton, J. (2018, January 10). The looming student loan default crisis is worse than we thought. Retrieved 2018, from Brookings Institute:


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