Most Students Don’t Have Ruinous Debt. Plenty Do.

Photographer: Chris Goodney/Bloomberg

A community college, probably more typical view of the U.S. college experience than ivy-covered walls.

In an absorbing story today, Bloomberg’s Kathleen Howley reports on how super-sized student loan debt has locked 30-something Americans out of the housing market. It’s an unusual look at how the pieces of the consumer economy intersect, and how problems in one place turns into damage in another.

Howley highlights the burden on people with hefty private student loans; they owe more money than those with just government-guaranteed loans–and pay higher interest, too. That’s worth a closer look. Contrary to what many would guess, the volume of private student loans has actually fallen since 2008 (chart’s below, courtesy of the Consumer Financial Protection Bureau).

The credit crash, as well as public backlash, took some of the air out of the private student loan market. In particular it cut the high-interest rate financing at for-profit schools, as lenders realized that they were unlikely to be repaid. Much of the private loan meltdown we’re seeing now is the overhang of loans coming due, often with years of capitalized interest.

One other important aspect of the problem: By far the worst crisis is not the cost of graduating from college. It’s the cost of not graduating. The Atlantic‘s Derek Thompson  has pointed out repeatedly, and correctly, that college remains an excellent investment. It’s not, though, if you don’t finish it. Many of those in the worst boat are those who went to for-profit schools that have (or, at least until recently, had) a heavy share of high-rate loans and a low graduation rate. That is not a very big share of students–but subprime wasn’t the biggest share of the mortgage market, either.

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