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Student Loans Are a Big Problem. So Are Misleading Statistics

When you mix a trillion dollars, poor information, decisions based on emotion, and an endless pot of subsidies, you get problems. That's student loans. If you're looking for the next crisis, it may be a good place to start.

But billionaire investor Peter Thiel took the student-loan-bubble debate a step too far last week. The Washington Post's Wonkblog asked a group of experts to submit their "graph of the year." Thiel sent in this one:

This looks terrifying. It's also rather misleading.

Thiel compares total student loans with median income per household. That's misleading, because the number of people attending college in America has surged from just more than 15 million in 2000 to 22 million in 2011, according to the National Center for Education Statistics. Of course aggregate student debt has increased. Aggregate income has increased a lot, too.

A better measure is average student debt per-borrower, adjusted for inflation. The College Board tracks that figure, which isn't nearly as scary as Thiel's chart:.

Yes, real median incomes for college grads have declined. That's one of the most important stories of the last few decades.

But more important is the alternative to not having a college degree. The incomes of those with only a high school diploma have fallen more than those with a bachelor's degree. The ratio of average income for those with a bachelor's to those with a high school diploma has increased 20% in the last 40 years:

Source: Bureau of Labor Statistics.

A college degree is really expensive. But so is not having one. That's why it can make sense to spend money on an education even when real incomes for college grads are declining.

As someone who went through the college experience in the last decade, here's my advice to teenagers looking for a cost-effective route:

  • Take two years off after high school. Get a job. See what the real world looks like. Almost no one I've met knows what they want out of life at age 18. A lot of people who start college at 18 end up taking six or more years to graduate because they change their major so many times. Avoiding this outcome will save you a lot of money.
  • Go to a local community college for two years. Get your general-ed classes out of the way dirt cheap and figure out what you want to major in. Keep working. 
  • Go to a state college for another two years to finish your degree. No one will ever know you transferred. Your degree is from that school. And keep working. 

Most people should be able to do this with a minimal amount of debt (though it varies by state). Assuming that since private colleges are expensive college isn't worth it is too simplistic. 

No Pitch

Read/Post Comments (13) | Recommend This Article (26)

Comments from our Foolish Readers

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  • Report this Comment On January 03, 2014, at 6:27 PM, famiglia112 wrote:

    Likewise, treating all college graduates the same regardless of major is too simplistic.

    I'd love to see each of the above charts broken out by major.

  • Report this Comment On January 03, 2014, at 10:13 PM, rdchin wrote:

    Insightful As Usual. WayToGo Morgan.

  • Report this Comment On January 04, 2014, at 9:50 AM, taloft wrote:

    I agree. A Comp. Sci. major is going to make a higher median income than someone who majored in underwater basket weaving.

  • Report this Comment On January 05, 2014, at 11:59 AM, damilkman wrote:

    Great article. I would be interested in how much student debt is accumulated by students who do not graduate. Is that a problem or not?

  • Report this Comment On January 06, 2014, at 8:05 AM, JamesBrown wrote:

    Does any school offer underwater basket weaving as a major?

  • Report this Comment On January 06, 2014, at 10:05 AM, bamasaba wrote:

    There seems to be a college bashing agenda out there, as these kind of misleading statistics and charts are widespread. I'm not sure what the motive behind this agenda is, but it sure is a disservice to kids and their families who are trying to make an informed college decision.

  • Report this Comment On January 06, 2014, at 4:29 PM, TheRealRacc wrote:

    Cheapest school possible. Best advice available.

  • Report this Comment On January 06, 2014, at 4:52 PM, zymok wrote:

    Love the advice. Both my kids are going the CC/State University route, and my wallet is much relieved. I might point out that some scholarships (like the NM lottery scholarship) require enrollment the first semester after graduation, but for teens not so constrained, a couple of years work and maturation is a big advantage.

  • Report this Comment On January 11, 2014, at 12:35 PM, industrldisease wrote:

    Ok from what I read the aggregate income is going up yet all those with 4 years of post 2ndary ed or less is experiencing a shrinking income. Would we conclude that the wealthy class is the more educated. Is our financial elite, comprised of those with graduate level law, finance, bus. degrees, etc. Is the movement of money to the top 1 and 10 % associated with not only the shrewd manipulation of our political system - but across all institutions including higher education, or is it just the system running its natural path, like the game of monopoly.

  • Report this Comment On January 11, 2014, at 7:42 PM, LAURABB wrote:

    It really depends where you live. Is the community college full of students taking remedial classes because they bombed out in high school but the community college has open enrollment to anyone over 18? Not the best peers for the university bound students. Do the credits transfer anywhere? Often they do not and CC students who transfer to a university even in the same state have to retake a lot of credits. This negates much of the cost savings.

    I went to a four-year private college, living at home the first year. My parents were not rich. I worked part-time from the time I was 15 during the school year and more during the summer. I worked hard in high school and college and got a full scholarship my senior year. I finished in 4 years and got a good job after I graduated within 3 months. Had $2500 debt. Had I gone to a community college or state school I probably would not have been able to finish in 4 years

  • Report this Comment On January 11, 2014, at 9:24 PM, bbell46356 wrote:

    Speaking of simplicity, potential college students aren't equal. If you are a high achieving, academically oriented student then the community college route could be a disaster as you will not be challenged academically by your peers. There is something to be said for a traditional liberal arts degree that students looking to college for job training will never appreciate.

  • Report this Comment On January 12, 2014, at 10:57 AM, cmalek wrote:

    While I agree with Morgan's advice, the articles itself is meaningless. With the choice of proper data points from a database, any premise can be substantiated. Two people, by properly choosing their data, can prove mutually contradicting premises.

    As was (in)famously stated "There are three kinds of lies: Lies, Damned Lies and Statistics."

  • Report this Comment On January 13, 2014, at 4:51 PM, nmrguy wrote:

    Another misleading feature of this graph is showing the debt on an axis starting at 0 where it almost triples, but showing income on a compressed scale so the change from 51k to 47k (or so) looks like a large decline. This is a technique straight from the classic "How to Lie with Statistics" booklet.

    Income stagnation is one problem. Rising student debt and college cost is a second issue. Both are worthy of some discussion, but this graph tries to show some negative correlation and is just extra inflammatory.

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Morgan Housel

Economics and finance columnist for Analyst, Motley Fool One.
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