Experts discuss whether taking on student debt is worth it

In the latest Intersections podcast, experts Beth Akers and Jonathan Rothwell discuss with host Adrianna Pita the current state of higher education, student debt, and whether taking on that debt is worth it.

“This is a potential investment available to people in our economy to help them be more productive in the labor market and to help them have better financial lives themselves,” Akers, a fellow with the Brown Center on Education Policy at Brookings, said. She explained why people need “to think about this as cost-benefit analysis as they would with any other financial activity in their life.”

Rothwell, a former Brookings fellow and now senior economist with Gallup, explained that the traditional college-ranking organizations are trying to look at value-added issues, for example, “what is the college contributing to student outcomes rather than what does the selectivity of the school mean for what students are bringing to the school?” While at Brookings, Rothwell did work on a value-added approach to ranking colleges.

The discussion also took on the for-profit college sector, where, according to Akers, students “are facing some pretty bad outcomes when it comes to employment and being able to pay back their student loans,” a problem that she says requires another look at regulating this industry.

When asked about the students not completing college at all, whether at for-profit schools or not, Akers replied: “This is probably one of the more problematic areas in higher education.” Continuing, Akers added:

This idea that higher education is an investment comes along with the consequence that there is risk in that investment. Some people are going to go to college and have a great financial return, some people are going to go to college and end up worse off than when they started, that’s just inherent in the system we have … What we can do is create institutions in the government and in the private sector that basically mitigate that risk for students.

One solution to this risk she outlined is an income-driven repayment plan, wherein loan repayments fluctuate with the person’s income. “I think that solving the risk problem in higher education will solve a lot of the issues that we currently are blaming on debt more broadly right now,” Akers argued.

Rothwell pointed to another policy that could address the student debt problem: loan risk sharing, “where the federal government would to some extent share the risk of a loan default on federal loans with the institution itself, giving the institution an inventive to make sure that their students have successful careers after they leave and can repay their loans.” Rothwell explained that the federal government now subsidizes loans for these students “but essentially taxpayers are covering the risk of default and this is particularly acute in for-profit schools.”

In their discussion, Akers and Rothwell also spoke to educational investment as a public good, and their views of some of the presidential candidates’ education plans.

Listen to the full episode here:

Akers appeared on the Brookings Cafeteria podcast in 2014 to address the question, “Is there really a student loan debt crisis?

Rothwell appeared on the Brookings Cafeteria podcast in 2015 on the topic, “Is there a better system for college rankings?