I recently wrote about the Texas Public Policy Foundation’s College Graduate Earnings: 2022 report. On the same day that TPPF issued its college earnings report, they issued a report titled College Student Loan Debt as a Percent of Earnings: 2022.
Once again, the report utilizes data published through the U.S. Department of Education’s College Scorecard. Unlike the previous report which displayed earnings data by credential and academic field, Andrew Gillen and his TPPF colleagues created a metric for this report called Debt as a Percent of Earnings (DPE). DPE shows median student loan debt as a percentage of median annual earnings.
Mr. Gillen writes that higher education programs with a DPE less than 100 percent are financially safe because the typical student graduating can afford to repay their student loans. When a program’s DPE exceeds 100 percent, this indicates that a graduate will struggle to repay their loans.
The report’s cutoff point of a DPE of greater than 100 percent indicating a potential difficulty for the graduate to repay their student loans reminds me of the articles published last summer by the Wall Street Journal about high levels of debt incurred for graduate programs. Using a tool developed with data sourced from the College Scorecard, the WSJ reporters allowed their readers to select a graduate program and match the median annual earnings for graduates with the median debt by schools.
Gillen’s rationale for measuring student loan debt as a percent of annual earnings is simple. He writes that student loans can be used to make worthwhile educational investments, or they can be wasted in the form of conspicuous consumption (a topic worth discussing on another day). He states the obvious. Borrowing $100,000 to earn a master’s in theater is riskier than borrowing the same amount to attend medical school. To know whether debt is excessive, a consumer/prospective student needs to know the potential earnings associated with the degree.
The report begins with a simple table illustrating the median debt, earnings, and debt as a percent of earnings (DPE) for the most recent period published by the College Scorecard. With an overall DPE of 55 percent, the situation looks good.
It’s important to note that Gillen footnotes that different weights are used to calculate the median values. The number of borrowers is used for median debt and the number of employed graduates who received financial aid is used for median earnings. To determine the appropriate DPE ratio, Gillen used the same weight as for debt (# of borrowers).
Table 2 shows the difference in DPE by credential. Like the data reported by the WSJ, the ratio increases for graduates of graduate degree programs.
Table 3 provided in the report shows the DPE by state and credential. Gillen notes that there are some significant differences between states (median DPE for associate degree recipients in North Dakota is 30 percent whereas the same figure for Arizona is 71 percent) as well as between credentials in states (median DPE for bachelor’s degrees in Michigan is 63 percent versus the DPE for professional degrees in Michigan is 252 percent). I noted that Florida’s DPE for bachelor’s degree recipients is 55 percent whereas its DPE for professional degrees is 224 percent.
Like the College Graduate Earnings report, Gillen and his colleagues present figures showing debt as a percent of earnings (DPE) by academic field for each of the major credentials. Notably, the list of programs at the top of the figure for bachelor’s degrees is nearly the reverse of the figure for earnings for bachelor’s degree recipients.
This figure surfaces a few additional thoughts for me. If the median debt levels for all bachelor’s degree programs are the same, the ratio would be highest based for the degree programs with the lowest median earnings. If colleges and universities based their tuition and fees charges on the earnings of their graduates, lower earning academic fields should have lower tuition and fees. How novel. I’m not aware of any institutions that take that approach for their undergraduate degrees.
Gillen concludes the report by noting that DPE can be used as an accountable metric, “allowing policymakers to hold colleges accountable for the labor market outcomes of their students.” He also notes that this will be the focus of a forthcoming TPPF report.
I like the simple metric of using DPE versus the somewhat convoluted calculations used in the government’s Gainful Employment calculations. If the College Scorecard would publish the accurate DPE ratios of colleges for each of their academic fields, tuition and fees (and loans) would likely decrease. There would be more of a market-based decision than what appears to be a decision based on brand reputation. I’ll look forward to reading the next TPPF report when it is issued.
