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In our opinion: Before offering free tuition, take a look at the numbers

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Student loan debt topped $1.5 billion nationwide last week. The average borrower’s debt of $34,500 is $8,500 more than the average down payment for a home mortgage.

AP

Eyebrows were raised last month when student loan debt topped $1.5 trillion nationwide. As realtor.com quickly noted, the average borrower’s debt of $34,500 is $8,500 more than the average down payment for a home mortgage.

The implication was that young people today are being forced to forego home ownership because of student debt. That may be the case. Tuition and other costs associated with higher education keep rising, and graduates who have borrowed money must, of necessity, forego other financial goals until the money is repaid.

Because of this, some Democratic presidential candidates have proposed enlisting taxpayers to provide free tuition for all college students as a way to alleviate this problem. Before Americans jump on that bandwagon, however, they need to understand who is borrowing money and why.

The Brookings Institution answered some of those questions last week by publishing “Five facts about student loans,” using figures drawn from an event it hosted recently. It’s worth a close look. 

Perhaps the most illuminating of these is that the largest portion of student loan debt, about half, is money borrowed for graduate school, not for bachelor’s degrees. Graduate students make up only 26% of those whose households have student debt, and yet they have borrowed more than $700 billion combined. Those seeking a bachelor’s degree, meanwhile, make up 42% of the households with student debt, yet they account for only about 25% of the outstanding debt.

In fact, one of the other five facts is that the majority of students who graduate with a bachelor’s degree do so with little, if any, student debt. Thirty percent have no debt, and 23% owe less than $20,000. Less than 20% owe $40,000 or more. Significantly, students at for-profit schools borrow at much higher rates than those at more traditional colleges.

This is important because it grants a window into the reasons many people acquire debt. While not all graduate degrees lead to significantly higher earnings than undergraduate degrees, many of them do. As a general statement, someone with a graduate degree has a better chance of repaying loan debt without seriously harming financial goals than someone who borrowed heavily for a bachelor’s degree.

That leads us to a third one of the five facts, which is that the people who borrow most for college tend to have the lowest default rates. People seeking graduate degrees tend to earn enough to pay back what they owe. Among those who borrow to attend community college, on the other hand, 25% default within five years.

While we’re on the subject of large loans, Brookings found that only 6% of those who borrow owe more than $100,000. Most borrow much less, with 18% owing less than $5,000. The 6% of large borrowers make up 33% of the total debt.

Finally, Brookings cited a study by the Urban Institute that found students whose entire tuition costs were covered by scholarships or grants still borrowed money at rates similar to other students. The difference is they borrowed to cover living costs.

Making taxpayers cover tuition for all comes with a trail of unintended consequences, from a predictable surge in enrollments by less-than-serious students to anger from former students who have worked hard to pay down their debt. Taxpayers would be subsidizing some people who end up among the nation’s top earners.

To be sure, the nation should come to grips with the runaway cost of higher education, and with the attendant living costs that force students to borrow. But that will take hard work and innovation. 

Free tuition would not attack this problem. It actually would provide little incentive to curtail tuition costs, which ultimately would end up costing taxpayers more.

Correction: A previous version misstated the amount of student debt held in the country. It tops $1.5 trillion, not $1.5 billion, and graduate students owe more than $700 billion, not $700 million.