Robert Kelchen Calcuates Debt-to-Earnings Ratio For 45,000 Post-Secondary Programs: A Treasure Trove of Data

 As Education Secretary Miguel Cardona observed recently, college graduates, on average, make about one million dollars more over their working careers than people who only have high school credentials. 

I'm sure that's true, but that fact doesn't mean that all college programs lead to higher incomes or that all programs are reasonably priced.

Robert Kelchen, a professor at the University of Tennessee, Knoxville, performed a valuable service by creating a dataset that compares program-level debt with earnings outcomes for more than 45,000 postsecondary programs. This dataset calculates the debt-to-earnings ratio for students one year after they leave their respective institutions.

Obviously, this enormous dataset can be analyzed in many different ways. My brief analysis examined programs with the highest debt-to-earnings ratios--those that left former students with three times as much debt as their first-year earnings.

Forty programs are in this category, and all but six are graduate programs. Five Branches University, a private institution in California, tops the list with a debt-to-earnings ratio for its master's degree in Alternative and Complementary Medicine of more than nine to one. Its students leave the program with an average debt load of $144,276  and an average salary one year after leaving the school of only $16,011.

Second on the list, with a debt-to-earnings ratio of almost eight to one, is Bastyr University's program in Alternative and Complementary Medicine. One year after leaving the program, its former students have a median income of $22,411 and an average debt load of $175,690.

In fact, of the 40 programs with debt-to-earnings ratios of more than three to one, eleven are programs in alternative medicine, complementary medicine, or acupuncture.  

Film, fine arts, and drama are also well-represented among programs with high debt-to-earnings ratios. Of the 40 programs with debt-to-earnings ratios of more than three to one, thirteen are fine arts, film, or drama programs.

Professor Kelchen's database prompts this question.  How much should students borrow to fund their education? 

Camilo Maldonado, writing for Forbes, recommends a borrowing limit of no more than two-thirds of a graduate's expected starting salary. Thus, if you expect your starting salary to be $50,000, you should borrow at most about $33,000. 

Applying that formula to Professor Kelchen's database, students graduating from almost 4,000 academic programs are leaving school owing more money than they can comfortably pay back.

As Maldonado pointed out, the federal student loan system is designed to lend students potentially more money than they can repay. The colleges don't care how much debt their students amass to finance their studies.

On the contrary, students must decide for themselves how much college debt is prudent to accrue. Unfortunately, as Professor Kelchen's database makes clear, a great many students are not making that calculation. 

In his commentary, Maldonado reminds us that the price of a college education is increasing almost eight times faster than wages. Thus, Maldonado warns, "This means that overpaying for an education is becoming increasingly disastrous." 

How Screwed Up is the Federal Student Loan Program? We Can Tell You, But Then We'd Have to Kill You!

 Betsy DeVos, the Wicked Witch of the Midwest, was perhaps the most despised member of President Trump's cabinet. As Trump's Education Secretary, she coddled the for-profit college industry and (in my opinion) bungled the Public Service Loan Forgiveness (PSLF) program.

Nevertheless, in a speech delivered in November 2018, DeVos revealed to the nation just how totally screwed up the federal student loan program really is. She deserves some credit for that.

Here's what DeVos said:

• The federal government holds $1.5 trillion in outstanding student loans, one-third of all national assets.

• Only one in four federal student-loan borrowers were paying down the principal and interest on their debt.

• Twenty percent of all federal student loans were delinquent or in default, which was seven times the delinquency rate on credit card debt.

• The debt level of individual borrowers had ballooned between 2010 and 2018 because students were borrowing substantially more money.

• The federal government's portfolio of outstanding student loans constituted 10 percent of our nation's total national debt.

Soon after giving this speech, DeVos engaged a private firm to determine just how bad the student loan crisis was. Jeff Courtney, a former JP Morgan executive, headed up this investigation, and here is what he found:

Although DOE calculated that it would eventually receive 96 cents of every student-loan dollar in default, in fact, it would only recover between 51 and 63 percent.

Courtney also found that DOE allows student-loan defaulters to sign up for new loans, which are used to pay off the defaulted loans. When that happens, the defaulted loans are categorized as paid in full when, in fact, they aren't paid off at all.

DeVos acknowledged that private businesses could not legally operate in this way. In fact, she said, if a private actor engaged in DOE's accounting practices, that person would "probably be behind bars." 

Of course, we know that Courtney's findings aren't the only evidence of DOE's financial skulduggery.  DOE has been putting distressed debtors into income-based repayment plans (IBRP) and counting the loans in these plans as performing loans.

But that is not correct. Approximately 9 million student borrowers are in IBRPs, and their monthly payments are not large enough to pay accruing interest. Thus, IBRP participants see their loan balances grow with each passing month, even when they make regular monthly loan payments. 

In fact, all 9 million IBRP participants are in default--if default means never paying off the debt.

In recent months,  Congressional members have been asking DOE to disclose the actual cost of the federal student loan portfolio, but Education Secretary Miguel Cardona hasn't been forthcoming.

Here is the essence of the matter. DOE knows the federal student loan portfolio is a trainwreck, but it hopes to keep the catastrophe a secret for as long as possible.  

It's like that old joke about the  CIA and classified information: We can tell you the truth about the student-loan program, but then we'd have to kill you.

Sources

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018. [The DOE link to this speech  was either taken down or obscured.]

Betsy revealed just how screwed up the federal student loan program really is.