Friday, February 24, 2012

Nothing about student loans makes sense to me

This interactive map of student loan debt demonstrates something that has always baffled me: the seeming lack of any real correlation between a student's willingness to pay high prices and take on massive debt for a post-secondary education, and the quality of that education.

Move the slider to the right, and you'll see what I mean. High amounts of student loan debt, in part, clump around large East Coast and West Coast cities, which makes sense, because the cost-of-living in these places is so high. But there are plenty of Podunk Us in the rural Midwest that are, apparently, forcing huge amounts of debt on to their students. Various art institutes seem to be particularly bad about this: by the time you've reached the upper tiers of the slider, about half the remaining dots seem to be some sort of art school.

It's truly something I don't understand. Of course, I don't think consumers make economically optimal decisions in all instances, and of course, the (at least initial) cheapness of student loans encourages people to take out more money than they probably should. But it defies reason that many thousands of people would be willing to go so enormously in debt to attend mediocre liberal arts colleges. And the apparent indebtedness of art students is even more bewildering. How, exactly, do they expect to ever pay those loans off?

Two competing explanations, I guess:

Major irrationality - Students really are just completely oblivious when it comes to purchasing college degrees, and the idea that different college degrees have different values is incomprehensible to large chunks of the population -- most of all, art-oriented students, a fact that art schools have happily taken advantage of.

Major rationality - Students are just reacting to non-dischargeable student loans. The potential of lenders to garnish wages and for debt to hobble a student for decades after graduation is of much less concern to students with little or no future earning potential (i.e., students at mediocre schools, and art students). Students at these schools are therefore more willing to load up on loans.

I don't really like either of these explanations, though. Someone throw me a bone and tell me what's happening here.

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