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Posted: August 01, 2012

The Economist: Oh, please!

Tucker Hart Adams

I’m getting very tired of the headlines and hand-wringing about student debt. I realized how strongly I feel when a business professor whom I respect started in on the subject at a recent board meeting and I burst out, "That is such a bunch of BS!"

I assume the statistics we see quoted claiming $902 trillion in federal student loans for education, along with another $140 billion in private loans, are correct. I don’t doubt that 94 percent of those earning a bachelor’s degree borrow to help pay their tuition, double the figure 20 years ago. And, yes, education debt exceeds the $820 billion Americans hold in revolving credit (primarily credit card debt). Incidentally, revolving credit has fallen almost 20 percent since 2007. Americans really have made progress getting their financial house in order.

Do student loans mean young graduates have to put off buying a home for a few years? Probably. But where did we get the idea that one has a right to be a homeowner in his twenties? I remember a conversation with a German central banker in Denver on business who was shocked to find out that anyone under 40 could afford to buy a home.

Certainly many young people moved back in with their families during the Great Recession and its aftermath to save money. But they aren’t just new graduates with college debt. It’s happening in every category. Unlike when I was that age, living with one’s parents is now quite acceptable among one’s peers, perhaps even the "smart" thing to do. And I’m guessing those young people aren’t delaying the purchase of a car in order to pay their other bills.

The basic problem is that we keep referring to student loans as "debt." Technically, of course, that is true. But in reality it is an investment, an investment in human capital, to use the economic term.

How large an investment? According to the New York Federal Reserve Bank it averaged $23,300 in 2011, with 87 percent owing less than $54,000 and only 3 percent owing more than $100,000. It’s that 3 percent who get featured in the horror stories.

What is the return on that investment? For starters, an unemployment rate of 3.9 percent at a time when high school dropouts face an unemployment rate of 13 percent and those with only a high school education 8.1 percent. Even with the oft-reported problems recent graduates have had finding jobs in the last few years, the unemployment rate for college graduates is lower than it was a year ago.

With a community college degree, one can expect to earn 28 percent more than a high school graduate. With a bachelor’s degree it is 61 percent more. With a master’s degree 93 percent more. With a doctoral or professional degree 2.4 to 2.9 times as much.

Or to put it another way, expected earnings over the college graduate’s working life is $800,000 more than the high school graduate’s. That’s not a bad return on a $23,300 investment – about 9 percent a year.

I’ve said before that I don’t think everyone should go to college. But everyone should make it through high school and most through community college, where they can learn a skill or trade that prepares them to compete in a labor market that is now international. I would go so far as to argue that community college should be part of our free education system and that people should be required to stay in school until 18 or 19 rather than merely 16. It is one of the best uses of our tax dollars, perhaps
the best.

What do we get when we don’t invest in higher education? The highest rate of incarceration in the world, among other things. In 1990, California spent almost twice as much on higher education as it did on prisons. Now it spends almost twice as much on its prisons as on its universities.

So please spare me the handwringing about student debt. Let’s encourage everyone to invest in raising their human capital, whether as a skilled craftsperson, a business entrepreneur, a doctor … or even an economist.

Tucker Hart Adams, president of the Adams Group, monitored and analyzed the Colorado economy for 30 years. She can be reached via her website,

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Readers Respond

in spite of the last comment, I'm still on your side tucker and I see NO manipulations of facts in your article. Liberals will fight this idea of personal responsibility every time. We shouldn't have to take care of ourselves, the govt should do it. BULL These students with huge loans had parents adviser, etc etc and yet they incurred the debt. This entitled generation has dug their own hole and liberals want them to keep digging. By John Wray on 2012 08 15
Well, I couldn't disagree more, and it's so misleading to your readers to generalize and use statistical numbers that are inaccurate. The college system is horribly out of date and out of touch, and NOT a good investment of time and money for most would-be students in my opinion. As a business owner and entrepreneur all my life, I see college as a catch-all trap. One that compromises personality and creativity. The big lie, as part and parcel of the national joke of attaining the 'american dream'. How dare you tell readers to suck it up and go into deep debt in hopes they may land in a good career opportunity. Here's another statistic - most college graduates are not working in their degreed field, not even in a closely related field. Since higher learning institutions are for-profit, let's for once cut the bull, and tell it like it is. By Gary Paulin on 2012 08 14
The comments about: "wars, etc etc etc" which are pure distractions demonstrates how out of touch a large part of our society is. there's ALWAYS been wars etc etc etc but the average person DID NOT incur debt willy nilly. We've got to grow up By jOHN Wray on 2012 08 14
Awesome article Tucker. You sure brought out the liberals who want government to pay our way. You nailed it when you mentioned the facts about people under 40 driving new cars, buying homes and a LOT of other extravagances. I drove and old 1950 Chevy in the 70's etc etc. I guess I'm really old school, but incurring debt is ALWAYS a choice. Perhaps some consideration of the consequences might be in order.. Perhaps the next time a student gets all excited about "hope and change" they might consider hope for a job in their dreaming. and take responsibility for our actions or we're doomed as a country. I guess another great civilization is reaching it's end. sad By John Wray on 2012 08 14
So your argument is basically this: stop whining because a German guy was surprised?!?!? The analysis of this article is absolutely awful. Student loan debt is a serious national and international issue. This article neglects many alarming statistics about student loan debt. The default rate is soaring for all age groups, especially those aged 45+. Underemployment and flat wages plague college graduates, including those with advanced degrees. Tuition continues to soar, student loan interest rates are very high, and the whole college model is basically obsolete. One could go on and on. The calculation of ROI is flat-out wrong. You should have divided the incremental cash flows by total investment, not total debt level. Ms. Adams continues to be wrong year after year after year, and still be published. By Lee Joseph on 2012 08 14
Rather than spending money on useless wars and the most bloated military budget in the world (TWICE that of #2 China, and equal to the military budgets of the NEXT TEN countries put together), we COULD spend it on education at all levels. We could also pull back many of our overseas bases and stop being America: World Police. We could also ask why tuition is shooting up 4 times faster than inflation. We could, as well, work on a student loan forgiveness program for those who are willing to give something back to the community. It would cost less to do this than we spend in a month in Afghanistan. We, as Americans, need to look closely at our priorities and make people the priority By John Heckers, MA, CPC, BCPC on 2012 08 14
Loans are less necessary when society makes education affordable- and offers scholarships and grants and an option, and not simply load-up students with debt. By Media Mark on 2012 08 14
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