Student debt

Student debt is rising across the industrialized world. And in the US, where the problem is most extreme, it now tops $1.64 trillion—8% of the country’s GDP. 💰

The economy has changed. Education hasn’t. Once, most people could find jobs in the industrial economy without ever setting foot on a college campus. Incomes for workers with degrees have stagnated trapping many in low-wage work without a way out. A high school diploma, once a ladder to the middle class, is now a ticket to penury.

Using private debt to finance the minimum education needed, whether it’s college or advanced vocational training, no longer seems sustainable. Advanced economies that want a middle class need workers who can afford higher education, and as a result, new ways of financing tuition, and new ways of learning, are emerging. Let’s study up.

375 million (pdf): Jobs expected to be eliminated worldwide due to automation and AI

42%: Share of the core skills required to perform jobs in 2018 that will have changed by 2022

79,598: Undergraduate computer science degrees awarded in the US in 2018

$171,752: Average out-of-state tuition for a four-year degree in computer science in the US

$15,000 to $20,000: Average tuition for a bootcamp that promises students the chance to skip the CS degree and get a job as a software developer

33,959: Students who graduated from coding bootcamps with names like AppAcademy, General Assembly, Hack Reactor, Metis, and Lambda School in 2019

$200 billion (pdf): Education loans and financial disbursement made each year in the US

$12,297 (adjusted for inflation): Cost of Yale University’s tuition, room, and board for the 1951-1952 school year. By the 2015-2016 school year, the price was $62,700.

During the post World War II-boom, governments treated financing college as a public good. Only a fraction of the population needed to go to college for a good job. Incomes rose. Tuition was low. Prospects looked bright.

But over time, as higher education consumed ever higher shares of public budgets, governments shifted more of the cost to students. Nations like Germany, where tuition is free and vocational programs funnel students into high-paying trades, are now the exception. Nowhere was this shift more dramatic than the US, a change foreshadowed by David A. Stockman, the budget director for former US president Ronald Reagan, when he reframed college as a luxury students should finance themselves. “If people want to go to college bad enough,” he said in 1981, “then there is opportunity and responsibility on their part to finance their way through the best way they can.”

For the working class, it couldn’t have come at a worse time. Those without a degree saw their real wages flatline after the mid-1970s as college graduates saw their incomes rise dramatically. At the same time, tuitions were skyrocketing and government subsidies falling. By the 1990s, there was an explosion of debt and defaults. According to The Brookings Institution, 40% of borrowers will default on their student loans in the future, defined as not making a payment for more than a year.

MIT economist David Autor describes why the economy no longer lifts all boats, starting with wage stagnation in the 1970s. “One of the enduring paradoxes that has accompanied the rise of wage inequality over the last four decades in industrialized economies is the sustained fall in real wages experienced by less-educated workers,” he writes. Why? Higher skills return higher earnings, while those at the bottom receive less and less. That’s sent student debt rocketing to $1.64 trillion as workers try to compete in the global economy.

Quartz contributor Helen Edwards reports on how human biases get imported into AI—and how lawmakers and the tech industry are trying to course-correct.

“Our system only has one track: go to college or bust. For a lot of people, it’s bust.”

—David Autor, a professor of economics at the Massachusetts Institute of Technology

1240: Oxford University opens the first documented student loan program.

1838: Harvard University starts its own lending agency to give students zero-interest loans.

1944: The US passes the GI Bill, the first program to help pay for veterans to attend college. Nearly half of all veterans now take advantage of it.

1958: The US offers college loans to students in subject areas that contribute to national defense through the National Defense Student Loan Program.

1965: US president Lyndon Johnson signs the Higher Education Act into law, providing government loans for all higher education.

1976: West Germany abolishes tuition fees, then reinstates them in 2006 and eliminates them again in 2013.

2011: Pay As You Earn (PAYE) is introduced in the US by the Obama Administration so students can pay off federal student loans as a share of their income.

2012: US student debt tops $1 trillion for the first time.

2013: Bankers on Wall Street, which holds $291 billion in student debt, warn of a student debt bubble.

2018: Average debt per college graduate in the US hits $29,000 and $46,316 (£36,000) in the UK.

When Oxford University created the first recorded student loan system in 1240 it was named St. Frideswide’s Chest—because it was a literal chest to hold collateral, usually students’ precious books.

Income sharing agreements (ISAs) are a lifeline for students drowning in debt. Long established in Europe and Australia, the concept is finally making inroads in the US. The concept is simple: Students repay loans as a share of their income rather than fixed payments. Terms vary, but students often only pay once after their salaries cross a threshold and loans are forgiven after a period.

The scheme ensures students can earn a living, repay their loans, and avoid default. In fact, the US has offered a version of this repayment scheme, but until recently lack of awareness and unnecessary complexity (pdf) has limited its uptake, although that’s changing. The value of loans in income-tied repayment programs has more than doubled from 12% in 2010 to more than 45% in 2017, according to the Congressional Budget Office.

Coding bootcamps, intensive months-long training programs to churn out well-paid tech workers, are some of the biggest proponents of ISAs. A CareerKarma survey of 27 US boot camps offering ISAs found the average contract required students to pay 13.8% of their monthly income after they began earning at least $42,476.

But the sector remains largely unregulated. Former Democratic presidential candidate Elizabeth Warren warned that ISAs could replicate the perils of private student loans “with the added danger of deceptive rhetoric and marketing that obscure their true nature.”

How much do you owe? The Cut interviewed 100 people in this sometimes funny, often harrowing account of the personal cost of debt for everything from medical bills from a cat bite to college tuition that never culminated in a degree.

A college education is not about Animal House. For most, it’s earning a ticket to the middle class, a stable income, and even health itself. Think of going to college today (or advanced vocational school) like a high school degree not that long ago: the minimum degree of education needed to compete in a global economy. Saddling people with enormous liabilities just as they start their lives delays marriages, derails careers, and ends the dream of home ownership. Countries are starting to realize that advanced economies can’t expect to have a middle class without offering advanced education.