Why Not Understanding Statistics Is a Handicap

There are quite a few articles being published these days in anticipation of Joe Biden’s repeated and reaffirmed campaign promise on educational loan forgiveness. There’s a statistic that’s frequently cited in the discussion: an average of $50,000 in educational debt.

But there’s another statistic that’s just as important, quoted in this article at Forbes. The median student loan debt is $17,000. To get the average debt you sum the total amount of debt and divide by the number of borrowers. The median debt on the other hand is the amount for which half of the borrowers owe more and have less.

With such a large discrepancy between the average and the median it suggests that most borrowers owe a lot less than $50,000. My intuition is that there’s a fairly small number, probably mostly professionals, with educational debt much higher than $50,000.

I don’t think that educational debt forgiveness is a good policy at all but how you craft it depends on what you want to accomplish. If you were to set the cap on forgiveness at $30,000, I think that most of the people you’d be helping would be the poor and the middle class while when you set it at $50,000, by far the greatest benefit would be to the upper middle class and the rich. I’d means test it and limit forgiveness to certain degrees.

It would be nice to know what the standard deviation is but that’s another subject.

9 comments… add one
  • bob sykes Link

    A few years ago, there was a story about a young woman who graduated with a social work degree from Northeastern University (my alma mater) and a total debt of well over $200,000. Her parents had co-signed the loan (so three idiots) and were in danger of losing their home.

  • PD Shaw Link

    The Forbes link points to what I think is the informative stat: “The average student loan debt for members of the Class of 2018 is $29,200. . . .” That’s roughly the total of federal guaranteed students loans that one can take out over four years ($27,000) I assume that the median student loan debt reflects the fact that the debt is typically paid down over time after graduating. The median college graduate makes about $26,000 more _per year_ than the median high school graduate. Seems like its reasonable to loan $27,000, and reasonable to believe that a college student should be able to pay that over the course of 10 to 25 years at 2.75% interest rate.

    There seem to be three problem situations that are not typical:

    1. Does not graduate with a degree. Worst of both worlds, student loan debt, no increase in income.

    2. Professional degrees. These are the people taking out six figures in student loans.

    3. Private student loans. If the guaranteed student loans are insufficient, private student loans are available, but as Bob Sykes points out, these almost always require parents or someone else to co-sign who has good credit.

    The odd thing I read last week was that Biden (or whomever manages his twitter account) said that the federal government will pay off up to $10,000 in private, nonfederal student loans for “economically distressed” borrowers. The suggestion is that Biden doesn’t need legislation and I wonder if there is bank bailout money involved indirectly. Policy wise it helps people (perhaps parents, perhaps banks) for education bought on the top shelf from families that had assets to secure the loans in the first place.

    Perhaps this is what we can expect from divided government, we get the least good policy response because it requires the least consensus.

  • Re: the “problem situations” listed by PD Shaw, above.

    1. IIRC for the country with the highest percentage of college grads (Canada?) the percentage is under 50%. What is the other half of the population supposed to do? College for everyone is a deeply flawed policy. Some people just aren’t good prospects for college.

    2. Not all professional degrees are created equal. It’s too bad that so few people who pursue law degrees are aware of the economic realities of being a lawyer. Incomes in the practice of law occur in a bimodal distribution, i.e. a curve like a Bactrian camel’s humps. The hump on the right hand (high income) side is for graduates of Top 20 law schools. The low hump is everybody else. Last I checked the mode (most frequent) income in that lower income hump was around $35,000 a year. With an income like that and a six figure debt, getting out of debt will be difficult.

    That doesn’t mean that you can’t earn a decent living as a lawyer without graduating from a Top 20 law school but it does suggest that the odds are against it.

    3. Was it P. T. Barnum who said “There’s a sucker born every minute”? The effect of a subsidy is to increase willingness to pay. An increase in demand while capping the supply means that costs will increase.

  • steve Link

    I would limit it to somewhere around $25,000, means test it but only forgive up to about 80%-85% of the debt. There should be at leas some risk for the loans.


  • Grey Shambler Link

    There should be a path to bankruptcy for these loans, period.
    Here’s some advice from a guy who should know:

  • PD Shaw Link

    @Grey, I agree about needing a bankruptcy option. I think a lot of countries allow it so long as there are a number of years that pass from leaving college. Probably don’t want people to file bankruptcy when they start their working life and have a low starting salary and no assets. Everybody would just file bankruptcy out of college.

  • I have long thought that institutions of higher learning need to have more skin in the game when it comes to higher ed borrowing. As it is borrowing is actually in their interest.

    My suggestion would be that if a graduate fails to secure a job in their chosen field within 18 months of graduation, liability for the debt should be transferred to the institution. That might make them a little more cautious about the majors they grant and to whom they grant them.

    Just to cite one egregious example, every year the nation’s colleges and universities graduate more journalism majors than there are people with jobs in journalism. Every year. How do they think that’s going to work? The way I think it will work is that there will be a lot of unhappy, disappointed, indebted journalism majors. Why is it surprising that disappointed unhappy people are rioting?

  • CuriousOnlooker Link

    How is bankruptcy that much better for borrowers then income based repayment plans that are available?

    Income based repayment plans forgive the balance after 20-25 years. During that time, a borrower pays 10% of their discretionary income (AGI – 150% of federal poverty level).


    The department of education projected $435 billion of the $1.4 trillion loans the Federal Government has made will be written off through the income based repayment plans.

    No doubt the trickiest part to letting borrowers default on their loans is the Federal government would eat most of the loss, since it wrote most of the outstanding loans; unlike the mortgage crisis where it was banks or investors who took the majority of the hit.

  • Grey Shambler Link

    Once they sign on to the program.
    Fifteen years of trying to find work that allows you to pay the loans back makes you 37.
    So you give up and sign onto the 20-25 year program, at the end you’re what?
    Seven years from social security, that’s what. And, if you haven’t followed all the provisions in the program, you still owe it.
    There’s a reason bankruptcy laws were written, going back to the Torah.
    It’s not out of charity or pity. It’s to keep the economic gears from locking up. People in their prime consumer years, (about 47 years), are still looking back on quarter century old debt. They haven’t bought homes, cars, , on and on.
    This is from personal experience, minority kids are pushed into college debt more than whites. To meet the quotas.
    For those who should be at college and have a plan they fulfill, great. I’d like to have the numbers, I don’t. But most are sold a bill of goods. They aren’t prepared for college coursework in high school, put in 3-4 semesters of electives before they have to declare a major, then drop out. The debt doesn’t drop out, the debt is now their life. But hell, who cares, the school got their money, and for a minority with no job skills 20-40 thousand dollars is a mountain that makes them lose hope.
    Sure, who needs bankruptcy, there’s a program that frees you when you are old.
    IMO educational debt is no different than business debt, If it turns out unprofitable, the lenders lose, and the citizen can begin a fresh life.
    While they’re young enough to try.

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