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:

Screen Shot

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. 

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Contact Morgan Housel at mhousel@fool.com. The Motley Fool has a disclosure policy.

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