Is the nation’s ‘student-loan crisis’ actually a crisis? Economist says no

Are student loans always more harmful than beneficial? Professor Andrew Barr of the Department of Economics, a researcher of financial aid’s effects on students’ choices and outcomes, argues the answer is emphatically no — when handled with well-informed diligence. 

“People talk a lot about the size of student loan debt, now over $1.5 trillion,” Barr said. “The top line number on debt is very high, but much of that debt is held by people who are doing quite well.”

Barr explained that the population with student loan debt is divided into three categories: individuals who are pursuing or have received graduate degrees that generally have high financial returns in the labor market (e.g., law and medical degrees); individuals who completed a bachelor’s or associate’s degree in a high-return field and usually have few problems paying off their debt; and the “crisis” group — a smaller group of individuals who enrolled in programs with low returns, or who failed to finish their degrees. Individuals in the “crisis” group frequently leave college with the same or worse job prospects as when they started and therefore struggle to repay their student loans.

Though the “crisis” group indeed faces many financial hardships, they make up the minority of those who have student loan debt in the country. 

The use of student loans for the majority of people, Barr said, is highly beneficial. 

“Many students have used student loans to access an education they otherwise would not have been able to pursue,” he said. “For most of these students, they are better off financially than they would have been.” 

The majority of people with student loans have the ability to pay back their debt. Because of this, Barr said when looking at solutions for the existing pool of borrowers, the focus should be on the ones who, in many ways, were failed by the system and are now struggling with debt. 

“Our system is actually set up to help this group of individuals already,” he said. “We have loan repayment options that allow people to pay back a small fraction of their disposable income each month (zero if they earn below a certain amount). After 20 years, any remaining debt is forgiven.”