08/29/2013 11:43 am ET Updated Oct 29, 2013

The Student Loan Debt Problem: Focus on Public Colleges

Which colleges are really to blame for the $1 trillion worth of student debt America holds? It turns out it depends on which aspect of the problem you want to focus on. The worst offenders are probably for-profit colleges. The real source of America’s student debt problem, however, is the country's public colleges and universities.

Everyone’s to blame for some part of the problem. According to a new article by Jordan Weissmann at The Atlantic:

While we tend to talk about higher education as an undifferentiated mass of institutions relentlessly hiking their tuition at the expense of students and the federal government, it's actually a vastly fragmented industry, split between the public and private, for-profit and non-profit, two-year and four-year, as well as various levels of prestige and price. And knowing which schools have contributed most to the debt problem might give us a clue about how to fix it, while telling us which institutions have the most to lose in any effort at reform.

If the question is, "Which colleges leave individual students with the biggest debt loads?" the answer is easy: private colleges.

The average private college borrower in 2008, the most recent year for which information was available, left school $27,650 in debt.

Certain private schools tend to generate good stories about student debt, because they're the sort of schools that result in $95,000 worth of undergraduate loans. The big villains here are certain second-tier private colleges, schools like American University and Northeastern University come to mind, because they’re the ones saddling students with huge financial burdens in their efforts to move higher up in the U.S. News & World Report rankings.

Here’s a Boston Globe story featuring a student who graduated from Northeastern with $96,000 in student debt and a degree in religious studies with a minor in East Asian studies. Here’s one about an Ithaca College graduate (communications major) with $120,000 worth of debt. Why did these colleges let students make such dumb financial decisions? But as a total problem they're really not so bad. About 16 percent of student attend private colleges and universities. The most exclusive private schools (the Browns and Amhersts and Dukes of the world) are actually rich enough to offer really good financial aid so students graduate with pretty low debt. The small, religiously affiliated schools are also not so bad, because they tend to be cheaper and appear to have some religious opposition to big debt, too.

If the question is, “Which colleges leave most of their students with unmanageable debt loads?” there’s a different answer: for-profit colleges. The average for-profit college borrower left school $33,050 in debt.

For-profit schools are probably the worst individual actors here, since they generate large debt but, because their schools aren't themselves particularly well-regarded, they don't do a very good job actually getting people good jobs. This is why the default rate on student loans is highest here.

But if the question is, “Which colleges have really changed the country and made it so that most young people start their professional lives with debt that takes years to pay off?” (and this is, I think, the best way to approach the college debt question) the answer is more interesting.

The real story about the growth in student loan debt comes from public colleges. Because these schools are cheaper the total debt levels are relatively low. The average public college borrower left school $20,200 in debt.

But because the vast majority of college graduates come from these schools (70-80 percent) this is the real story of American debt. Two decades ago, virtually no one who graduated from public colleges had any debt. Today $25,000 in the red for a degree from Cal State is normal.

Now $20,000 or $25,000 worth of debt is manageable. As the Washington Monthly's “bang for the buck” list shows in this year’s college rankings, it’s mostly public colleges that provide students with the most affordable educations. But it's still really, really troublesome for the country. Debt still matters if debtors can make regular payments. Facing professional life with $20,200 worth of student loans totally impacts career and lifestyle choices, where you can live and what you can afford, when you get married and when you have children. It also impacts the sort of risks you can take and whether or not you feel you can afford to start your own business or expand the one you have.

Over time state legislatures provided less money for public colleges, but state schools continued to cost more and more to operate. So everyone got comfortable with debt from public institutions. State colleges, sensibly enough, realized that if student were willing to assume $10,000 of debt to graduate from their institutions, well, why not make them take on more debt? And then the colleges could build bigger buildings and newer facilities to attract more students to apply. And this is how an entire generation of young professionals got into debt.

For-profit colleges are, as President Barack Obama put it recently, a sector that is “making out like a bandit" and drawing huge profits from student loans. But only 13 percent of American students attend proprietary colleges. It's a pretty small-scale criminal.

There are great villains here, for sure. The tactics of for-profits and many private colleges are really awful, leaving students with debt they have no hope of repaying. But the most despicable offenders are exceptions; they aren’t responsible for the most serious problem, which is just that normal American young adult lives are now totally dominated by student loan debt.

That’s all about public colleges and how much they cost. [Cross-posted at the Washington Monthly]