It’s Debt-for-Diploma Time Again

— -- One of the perks of living near a university is that every year around this time, I get to witness the ritual of college graduation. The sidewalks of my neighborhood become dotted with commencement gowns and flooded with proud parents. One by one these students will accept their diploma, shake someone's hand and pause for a photo that will grace their parents' wall for years to come. It's a day worthy of capturing forever, especially since the exuberance comes with a six month expiration date... the infamous day the first student loan payment is due.

It's an experience shared by more college grads than ever before. Today, two-thirds of all undergraduates borrow money to pay for college according to the Department of Education, up from under half a decade ago. These are no small debts either. The average undergraduate today leaves campus with just over $19,000 in student loans... roughly $220 in monthly payments for ten years. One in four grads will face bigger troubles as they struggle to pay off more than $25,000 in student loans.

There's an ever sadder reality lurking in this debt-for-diploma system: those who accrue debt, but leave without the all important diploma... a fate shared by nearly one out of five borrowers.

Now some people: personal finance experts, academics and policymakers argue that student loan debt levels are still within reasonable limits. Here are their arguments, and at first glance they appear reasonable. The first argument is that student loan debt is a non-issue for most grads because the payments represent less than 10 percent of their income. The second argument is that college graduates will earn over a million more dollars in their lifetime than someone without a college degree, making this debt more an investment that pays off in dividends. And because the benefits of this investment accrue to the individual, it's only fair that the individual should absorb the cost.

These arguments may sound reasonable. But they are not.

The reality is that young worker's earnings haven't kept pace with student loan debt, so that inconsequential 10 percent is not so inconsequential after all. The median earnings of a young worker with a college degree have remained flat for three decades. Keep in mind too that young professionals now routinely need to fork over one-third or even half of their income for rent, thanks to skyrocketing rent prices in job-rich metropolitan areas. And while it's true that college grads will earn more over their lifetime than the college-have-nots, that argument fails to take into account the societal gains of an educated populace. An educated citizenry results in more tax revenues and less welfare expenditures. People with college educations are more likely to participate in their communities, more likely to vote and more likely to volunteer. This is the type of social capital we as a nation should be marshalling our resources to encourage.