by Mish

In this case, a White House study allegedly proves Student Debt Helps, Not Harms, the U.S. Economy.


The White House just released a big report on student debt that contains all the familiar horrors about for-profit schools, indebted dropouts and students defaulting on their loans. But it has an interesting conclusion: That growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy.
That conclusion is sure to rankle the many student advocates and special-interest groups—from real-estate agents to employers seeking new tax breaks for their young workers—that argue student debt is a big “drag” on the economy. (Hillary Clinton and Donald Trump have each decried the rise in student debt.)
The surge in student debt occurred largely on President Barack Obama’s watch, though it began several years earlier. Since early 2009, when Mr. Obama took office, student debt has nearly doubled, to about $1.3 trillion today, according to the New York Federal Reserve.

Monstrous Report

The 77-page “Investing in Higher Education” report from the White House Council of Economic Advisers backs up its claim that “debt helps” with dozens of charts and studies from economists and academics.

Here are a few examples.

College Earnings Premium

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Cumulative Earnings vs. Debt

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Lifetime Earnings

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Charts Not in Dispute

The report has 77 pages and 45 charts. I do not dispute the charts.

But what do they show?

The problem with the study is it cannot prove what would have happened to those kids had they not gone to college.

Simple Question

Do the college kids earn more because they went to college or because they graduated from high school with an ability to read, write, speak coherent English, and do basic math?

The answer is likely mixed. Those with degrees in engineering, computer science, robotics, law, medicine, etc, likely did far better because of their degree.

But what about the kid with an English degree working as a retail clerk or manager at Target, McDonalds, or Home Depot?


Many of those who did not go to college were not bright enough or motivated enough to get into college.

Straight-up comparisons of those who went to college vs. those who didn’t are flawed.

Report Failures

Let’s assume that college is a good idea. There is still a question of how much college costs and why.

The report did not address unions, athletic coaches making millions of dollars, the massive rise in administrative costs, or pensions.

The report failed to mention Bush’s bankruptcy reform act of 2005 that made student debt non-dischargeable in bankruptcy.

The report failed to mention that costs soar every time government meddles in something.

Median Household Income vs. College Tuition

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The report did blame the “Great Recession” stating states cut payments to colleges. It appears the big acceleration in college costs started in 2002 not 2007-2009.

White House Conclusion

College remains an excellent investment overall, and the majority of dollars in the student loan market continue to fund investments with large returns to student borrowers and the economy. However, there is variation in college quality, and particularly during the recession, many students did not receive an education that allowed them to manage the debt they incurred. At the same time, many prospective students have been dissuaded from enrolling in college because of factors like poor information, high complexity, and credit constraints. With a commitment to addressing these barriers, the Obama Administration has enacted policies to lower college costs, improve information, simplify student aid, and cap student debt at a manageable portion of borrowers’ incomes.
Together these policies are a significant step forward in building a federal aid system that supports and encourages all Americans who wish to invest in an affordable, high quality college education to do so. …. To assist in this endeavor, the Department of Education has committed to creating a process that will enable federal researchers to examine loan outcomes at a borrower level. This data will allow these researchers to build upon the analysis provided in this report to better inform policy makers and the public about student debt.

Mish Rebuttal

The study is fatally flawed.

It is impossible to know what percentage of the earnings success of those who went to college is directly attributable to the simple fact that someone went to college.

The majority of those who do not go to college are already failed kids with poor reading, writing, and math skills.

Let’s be honest here. Most of the service economy does not require a college education.

The push to get kids to go to college is a great deal for the debt providers given student debt cannot be dismissed in bankruptcy. College is an uncertain deal to those taking on huge amounts of debt.

Expansion of student aid lending programs is part of the reason costs are rising just as hundreds if not thousands of “affordable housing programs” did nothing but raise the cost of housing.

Obama wants to get out the “facts”. But none of Obama’s “facts” addresses the issues I just mentioned.

The study was a waste of money and the conclusion is flawed. Obama’s self-serving education propaganda continues.

Mike “Mish” Shedlock

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