We are Melissa Korn and Andrea Fuller, reporters who have written at length about student debt, Ask Us Anything!

Hello - I'd like to get your perspective on how SLABs play a role in the education system, if at all, in your research? (SLABs are Student Loan Asset Backed Securites, and are used in banking similar to the way Mortgage Backed Securities did before the 2008 crash.)

My curiosities are two fold-

1. How cancelling student debt would affect SLABs and Wall Street's balance sheet, and could this be a reason why Washington isn't really talking about it cancelling student loans anymore?
2. Do you feel the removal of the SAT and PSAT are beneficial? Given the sad state of tuition costs, i fear it will lure unwitting people into the endless lifetiem of debt for the gain of banks / wall street.

SLABs were more of a factor before 2010. The federal goverment makes loans directly to borrowers now, not through banks, and the share of loans made through private lenders has shrunk dramatically.

I'll be honest that because private loans make up a fairly small portion of the student-loan pie these days I haven't written in depth about the Wall Street impact recently. (I also write about college admissions and a bunch of other higher ed topics!) Private student loans tend to be limited to borrowers with higher credit scores or who are otherwise seen as safe bets (students at top-tier law schools, for instance), so they're not as risky an ABS as they perhaps were in the early 2000s. --MK

Responding to this since this question is so popular.

About 86% of outstanding federal student loans are direct loans from the government to consumers. My understanding is that SLABS only pertain to bank-based loans. The government guaranteed bank-based loans under the FFEL program, which ended in 2010, as Melissa noted. There are still bank-based loans, in the form of private loans, but the vast majority of debt is federal.

Melissa and I have been focused on a totally different aspect of student debt this year -- the ways in which wealthy private colleges use Graduate Plus and Parent Plus loans as money makers. And our eBook is more focused on helping borrowers make informed decisions. Accordingly, we haven't dealt much with this.

However, I’ve reached out to someone on our economics team at WSJ who will know more about SLABS and their history! Feel free to reach out to me directly here if you have more questions. -- AF

What percent of student debt is held by people with advanced or high-paying degrees? Does this skew perspective on those with debt they can't repay?

E.g., my doctor friend has 10x the student debt of a undergrad degree, but will easily pay it back. However, "per capita" he adds a lot to the total volume of debt.

As of the fourth quarter 2021, just over half of borrowers owed less than $20,000. Fewer than 10% of borrowers owed six figures, though the share of big-balance loans is growing.

Since undergrad debt is capped ($31,500 for dependent students and $57,500 for independent students), a lot of those big-dollar balances are from graduate students. (Some are also from parents of undergrads.)

But keep in mind that advanced degrees don't necessarily lead to lucrative careers. Your doctor friend may indeed be able to pay off his loans without much strain, but there are many who struggle -- in fields including social work, education, public health and physical therapy. --MK

And a lot of that graduate debt is likely from private student loans, not government-backed loans, so they're saddled with it until it's paid back and it's not subject to the moratoriums or potential forgiveness being discussed here.

When I went to law school, the maximum for government loans barely put a dent in my tuition, so like 70% of my student debt was incurred through private loans. I've since paid off my government loans but still have six figures of private loan debt that's basically like a mortgage payment I'll have for decades.

So depending on when you went to law school, this may have changed. As of 2006, the government uncapped graduate student loans -- graduate students can now borrow up to the cost of attendance. So for law school, a lot of folks are borrowing $150k+ in federal student loans, the data we've looked at shows. (It's less true for MBA's -- people there tend to rely more on the private market.) -- AF

advanced degrees don't necessarily lead to lucrative careers.

Isn't an expensive advanced degree that isn't going to be very lucrative more of a luxury?

Let's say yes and no.

You don't need a master's to become a filmmaker. And while you do need a master's to gain licensure in a number of fields, there's no requirement that you get it from a private university. It's worth doing your research to see if the earnings prospects are markedly better or worse at individual schools -- we found in some programs, the cheaper public option had a higher earnings upside.

Another thought, though. In order to enter fields like social work, special education and occupational therapy, you generally do need to get that advanced degree. Do we as a society only want wealthy people to pursue these careers? Or do we want people who represent a broader swath of the population -- and reflect the communities they're serving -- to pursue these lines of work?

--MK

There are some degrees that a lot of people are interested in studying, but that don't have a lot of jobs in that field. Some science subjects are like this. Anthropology, history, biology, sociology, etc. Humanities as well. Basically, the number of graduates exceeds the number of job openings.

In order to have a fighting chance to get a job that is related to your degree and pays more than pittance, you must have a masters degree and sometimes even a PhD in these fields. So when you finish your bachelors, you have two choices: Give up on your dream career and a subject you are passionate about and find a boring office job that takes anybody with a pulse and a finished bachelors. Or you do your hardest to continue on and finish your masters and hope you are one of the lucky ones.

Far too many choose the latter. It is a bit of a sunk-cost fallacy, in for a penny, in for a pound. You already got the bachelors, you might as well continue down the path you started.

Think of all the English majors who dream of becoming a tenured professor for English. Far too many realise after they have already done their masters or their PhD that their chances of becoming a tenured professor aren't good and that their dream is not going to happen.

We have a case study in our ebook of someone who didn't get into PhD programs, so he enrolled in a pricey MA program. He got into a PhD program later ... but now has a ton of debt! There are definitely trade offs to this path. And we have a chapter on PhDs that talks about limited job prospects, and how enrolling in an unfunded PhD program is a huge risks. It's a hard road. -- AF

Since undergrad debt is capped ($31,500 for dependent students and $57,500 for independent students)

Capped by whom?

My daughter is getting her loans through Sallie Mae, and they are not capped at all.

Capped by the federal government. People can borrow private loans up to any amount the banks allow them to. -- AF

As I understand it, barely 1/3 of students qualify for a Federal loan (my daughter does not).

Should more students be covered?

A portion of federal loans are earmarked for students with financial need -- subsidized loans, for undergraduates. But unsubsidized loans for undergrads and graduate students, as well as Grad Plus loans, are available for pretty much all students, regardless of whether the school says they have financial need. There are caps on the unsubsidized and subsidized loans, but Plus loans can cover up to the full cost of attendance. Even Parent Plus loans have a low bar to qualify -- it's not about credit rating, it's about whether you've had an adverse credit action.

Private lenders can be pickier, and often are. Students with little credit history may need a cosigner, and parents with poor credit could be turned down outright. --MK

I thought Parent Plus loan eligibility is tied to Financial Aid qualifications determined by your FAFSA?

Are they available to all parents w/o an adverse credit history?

Yes, Parent Plus is generally available to all parents without an adverse credit history. The program, actually, was intended to be a way for higher earning parents to get liquidity. It would help the parents, the government would make money based on interest, everyone would win. Except it turned out that a huge chunk of parents using the program are low-income ... and we see folks making < 50k taking out six-figure loans. -- AF

You dodged both questions.

What percent of student debt is held by people with advanced or high-paying degrees? Either answer this, give an estimate or simply say you don't know or do know but are unwilling to answer!

Second question "Does this skew perspective on those with debt they can't repay?" Same as above.

Not a deliberate dodge we're just hopping around a lot of questions here!

A few things I know off the top of my head: People who went to graduate school owe about half of outstanding debt dollars. Most people aren't high-dollar borrowers: Fewer than 10% of borrowers owe six figures.

I'm not sure off the top of my head what percent of loans go to high-earning borrowers, e.g. people at white-shoe law firms baking $250k+.

However, it's worth noting that many folks who go to graduate school aren't high-earning (teacher, social workers ... see chapter 5). In fact, people in fields requiring a MA make less, on average, than those requiring a BA, according to the BLS. (Again: teaching, social work).

-- AF

I have always thought it disingenuous to refer to loans as "financial aid" and that term should be reserved for scholarships and grants (true no strings attached monetary aid). I always thought the first step to change is stop calling these loans something that they are not.

Has there been any research done on the effect of calling loans "aid" on the amount people are willing to take out?

I'm not sure if there's been research about the effect of calling loans "aid," but we definitely see tons of schools still doing this. They'll refer to free money like grants and scholarships in the same sentence as loans and work-study, as if it's all the same. IT'S DEFINITELY NOT!!

There's been an effort, started by the Obama administration, to make aid award letters more uniform and clarify what these terms mean. It's helped somewhat, but there are still schools that play fast and loose with their descriptions of various forms of aid. We give a few screenshots and examples in our ebook of what is and isn't a straightforward way of discussing aid. --MK

What are the main hold ups keeping the student debt problem from being resolved?

Welcome to the chat! So, a lot of this has to do with dysfunction in Washington. Everyone agrees that the current system is broken, but no one agrees on how to fix it. Democrats favor broad-based loan forgiveness (of varying degrees) but that's a non-starter with Republicans, who in large want the government out of the student lending business. While everyone in Washington ignores the issue ... colleges are the one who benefit! They get all this uncapped, no-strings-attached money from the federal government. They like the current system as is. - AF

Democrats favor broad-based loan forgiveness (of varying degrees) but that's a non-starter with Republicans, who in large want the government out of the student lending business.

Could you speak more on this? It would seem to me if we did do mass loan forgiveness we probably shouldn't keep loaning money from the government. If we were to continue doing it what changes would be needed?

Honestly, given the political realities of Washington, mass forgiveness doesn't seem like it's REALLY on the table right now. It's something that gets more buzz in activist communities than in Congress. But I think you raise a salient question -- if the government forgave all the loans ... would that mean they had to forgive them in perpetuity? That would certainly create a massive taxpayer liability. -- AF

Neither party seems willing to actually do something about it though.

To me, this seems like a problem created by government. So how can we expect it to be solved by the same government?

That, detective, is the right question.

Correct. The government created un-capped Parent Plus and Grad Plus loans in the 90s, and early 2000s, respectively ... and it really hasn't come up that much sense. As we reported on this the past year, we found that it was hard to find instances where someone had pushed a change and gotten shut down. There has been very little engagement on fixing the underlying systemic issues here. --AF

Aren’t the banks the winners who get massive loans guaranteed by the government?

Actually that's a common misconception! Until 2010 banks were heavily involved in the student debt market. But then the government moved away from that program where the government guaranteed bank loans (FFEL) and moved to direct lending. So the government cut out the middle man. -- AF

And the universities...

DEFINITELY the universities. That's what we've been writing about the past year. Places like NYU and USC receive more in federal student loan dollars than almost anywhere else. There's little incentive for them to reduce costs. -- AF

I sort of address this in another question below, but basically ... Washington! A) There's not an easy solution. B) Republicans and Democrats disagree on how to "fix" the current situation (broad-based forgiveness versus getting the government the heck out of student lending) C) I think a lot of people in Washington are truly unaware of the extent of the issues with student debt. In response to our stories, there were definitely folks who were stunned students were allowed to borrow 400k+ ... a lot of people in DC don't know that much about how the system created decades ago works. - AF

What was the most surprising thing you learned during your investigation?

There's an assumption that an Ivy League (or other prestigious) degree leads to success. But that's far from a guarantee.

Our investigation found many such schools -- which often offer undergrads generous financial aid -- leave lots of grad students with high debt loads and paltry earnings. I was surprised to see just how plainly some administrators talk about graduate programs as moneymakers for the institutions, and they don't see much reason to prioritize scholarship aid to grad students even if the grads are drowning in debt after.

--MK

Why is nobody talking about capping the interest rate on student loans? Some loans currently are at 7 or 8%. If debt is not going to be forgiven, reducing the interest rate on existing loans would at least offer some relief to borrowers and allow people to reduce principal quicker.

That's a very good question! The government based some of its projections regarding how much it could make from the loan program using certain interest rate assumptions. Our WSJ colleague Josh Mitchell wrote a whole book that gets into some of this! It's really fascinating, and pretty wonky.

Rates for new federal loans change annually, but are fixed once you take out a loan. Undergrads get the best federal rates; when Grad Plus was created there was this baked-in assumption that grad students could handle the higher interest rates because they were going into high-paying careers.

Sometimes private loans are cheaper, although they tend to have less flexible repayment options. Definitely worth shopping around if the federal rates tick back up. --MK

How dangerous is student debt for the US economy? If a generation struggled to keep up, wouldn’t that resonate throughout the economy?

Tldr: Potentially very dangerous.

Any money going to student loans is not going to another expense or investment -- retirement, mortgage, rent, food, entertainment. We spoke to scores of graduates this past year who said they were putting off having a family or rethinking kids altogether, didn't think they could feasibly get married, hadn't taken a vacation in forever, and otherwise had trouble thinking about the future because of their loan balances. Even if they were on income-based repayment plans, the hefty total due was daunting.

And as the current generation of borrowers become parents, and their kids head off to college, mom and dad can't afford to help foot the bill. Which means the younger generation may need to borrow, perhaps even more, and we dig ourselves deeper into this hole. --MK

Would you agree that the government funding of student loans (FFEL), first begun in 1965, has contributed to the rise in college tuition?

If the government is paying, doesn't that incentivize colleges to charge more?

I've always felt this is a sort of self fulfilling prophecy. The government loaned money to students to pay for college, the Universities then hiked up prices, and the government kept giving loans. If Biden actually steps up and cancels the debt, he will only be undoing a problem created by the government.

How can more government involvement in college education, beyond canceling the debt, result in anything other than further problems?

This is definitely controversial, and I suggest you read our colleague Josh Mitchell's book, The Debt Trap, which explores the history of the student loan program. But I will say, for my own two cents, that yes, it seems that colleges have little incentive to control costs under the current system. Also, I've talked to a lot of students who have dreams of debt forgiveness that aren't likely to come true given the realities of politics in Washington ... having that hope has prodded some folks to take on bigger debt loads than they might otherwise have. -- AF

Has there been any traction on plans to finance college through investors (e.g., you get 10% of graduate's future earnings for 10 years)? Seems like it would correctly incentivize everything.

Income-share agreements have gained a bit of steam, but still haven't caught on at scale. And the Education Department is now looking more closely at how they're regulated, which could affect how much they grow going forward.

In those programs, students agree to pay a % of future earnings, and they often don't have to pay anything if their income is below a certain level. Investors might find it appealing when students are getting engineering degrees, which can lead to higher paychecks, but if lots of English majors sign up it might not be as lucrative.

Bottom line is there could be a return on an investment like this but it's no sure thing. --MK

Melissa: can you do the death metal scatting vocals bit from the song Twist by Korn?

This is only for WSJ+ subscribers.

Alas, it's probably for everyone's benefit that I don't even try. --MK

NPR did a story yesterday about how it is still financially smart to go to college. I don't quite know where they got that, but is it accurate?

Big "it depends"! In our eBook, we talk about how yes, on average people with higher education make more money. But not always. For example, careers that require Master's degrees pay *LESS* on average than those requiring a BA, according to the BLS. Some degrees led to lower median pay than for the average high school graduate. So while, on average, it makes financial sense to go to college, some degrees are money pits. Taking on $200k+ in debt for a career that leaves someone making $30k ... it happens! So people need to research the earnings prospects in their fields carefully. -- AF

What are the most 'money pit' degrees?

Chiropractic school, film MFAs and beauty school associate's degrees have pretty bad debt-to-earnings ratios across the board. So do lower-tier law schools, since fancy law firms recruit from a fairly limited list of programs.

MBAs tend to pay off, no matter where you go.

But it really depends on the school and degree. We detail some surprises in our ebook. For instance, George Washington University history majors who took out federal loans earned a median $46,673 two years out. Biology majors from Swarthmore, meanwhile, earned a median $25,194. And University of Phoenix computer programmers pulled in a median $54,967, undermining the argument that for-profit colleges are inherently a waste of money and private schools with national brands are a sure bet. --MK

The student loan forgivenesses programs (PSLF) have notoriously denied forgiveness for the majority of applicants. There was a directive to improve the program and make PSLF work the way it was intended. Have you seen any appreciable change to the program? What does the future of PSLF look like?

As someone who chose an industry where PSLF was available, it’s disheartening to know I may qualify, yet still be turned down due to a broken system.

So this year the Biden administration changed PSLF to make it easier for public sector workers who didn't previously qualify (because of all the weird loopholes) to qualify. So if folks got denied before, they should try again! That said, there is some risk associated with expecting the program to work as it is now in a decade ... different administrations may take a different approach to how strict they are in letting borrowers qualify -- AF

Long ago I was a journalism major for a little while. It didn't take very long for me to realize it wasn't my cup of tea. However I did learn and still retain some knowledge from a few of my classes/professors. One of the main things was to write to my audience for my editor/publisher by using words and phrases that would keep my audience on the hook.

The use of flamboyant writing with 'shock' words was stressed fairly often. This plus a lot of people in the journalism industry are/were psychology and/or sociology minors or double majors (not because they wanted to go into that field but because it would be beneficial to their journalism career). Learning that has made me critical of the entire journalism industry.

Your post has some shock words and hooks. Do you think you can rewrite things without shock words or hooks? To me things like crucial data, elite universities, crisis, UNACCEPTABLE, privilege, deceit, scandal are part of the problem with current reporting. Has stuff like this been so ingrained that's it's second nature? are your editors/publishers telling you to hook and lead your readers like this? are you using this writing style deliberately of your own free will in hopes to leading readers towards a specific goal? Something else?

Alas, WSJ had nothing to do with the title of Melissa's book (which contains the words unacceptable, privilege, deceit, and scandal) ... so no, we can't change it. I think if you read our articles, you would find them very measured. Our goal as the WSJ is not to lead people to a specific conclusion. Some people read our articles and say "this is why the government should get out of student loans; others say "this is why student loans should be forgiven." I'm not sure how "crucial data" is a shock word though ... earnings data really is crucial for anyone who is making a decision about a program! -- AF

Why should student debt be perceived as a major issue? It affects a portion of society that is more qualified to take care of it's bills.

Should graduate student debt be separated in discussions around student debt? The individuals who accrue loans for graduate school either have higher incomes than the population or they've decided to take loans for a degree that obviously can't pay for the loans.

Right, not all of us have loans. But most of us do pay taxes.

And economists and education experts have been warning for years that the federal student-loan program is a growing fiscal crisis. The government stands to lose hundreds of millions of dollars from the program, as many borrowers barely make a dent on their principal under income-based repayment plans.

How to make the math work? Congress could raise taxes, increase the deficit or reallocate funds away from other services to make the loan program whole.

Also, when a portion of the population is setting aside money for loan payments, that means the funds aren't flowing elsewhere -- to mortgages, or retirement savings, or even vacations and local restaurants. The ripples from high debt levels spread pretty far and wide. --MK

Your argument about graduate school generally makes sense, but I would argue the following. As an example, in the field of higher education, you generally HAVE to have at least a master’s degree to get a job. Jobs in this field include career advisors/consultants, academic program directors, etc. Despite needing an advanced, usually expensive secondary degree, starting salaries in this field are incredibly low, in the range of something like 35k to 45k if not less, but without the Masters they will not be employed AT ALL in their field.

Now, you make the argument that essentially says “why would you go into a field knowing these facts about projected income”, which is a fair question. But if every single person with who would have picked a major/field of study with low or uncertain salary expectations (higher ed, english majors, art majors, etc.) instead chose to get accounting degrees (which have a clear job associated with the degree and offers better pay), there would likely be too many accountants compared to demand, which could drive salaries down. Same for engineering, or other areas that are more stable when it comes to salary.

Simply put, there may just not be enough financially safe jobs to go around if every single person decided to only go into this field. Trades offer a decent alternative, but not everyone has the aptitude to work in many trades.

We talk about this a lot in the master's chapter of our eBook -- I'm still stunned that the pay for fields requiring a MA is LOWER than that for one requiring a BA. But in teaching, for example, there's a wide range of options for that MA. Is the expensive MA from an Ivy League school going to lead to higher pay than the cheaper one from a state school? Not necessarily. -- AF

It gets more complicated when the schools develop misleading advertisements to make the grad degrees seem more lucrative. I think it’s an assumption to say that it’s obvious which degrees will lead to the ability to pay for the loans and which don’t.

That's actually been the focus of a lot of our reporting. Take the USC social work program -- a lot of people who enrolled did so assuming that a USC degree would give them top pay. But in fact, the government data show, USC graduates ended up making LESS than a lot of their peers ... and yet they had six-figure debt. People make a lot of these decisions on assumptions -- the data hasn't been available until recently. -- AF

How much student debt do / did you have, and what did you do to repay it?

Fair question! So I was very, very, very fortunate. We talk in Chapter 2 of our eBook about how there's a myth that elite colleges are unaffordable for low- and middle-income families. So I was one of those folks who went to Stanford without having to pay tuition because my parents made < $100k. I did work study and I had a few outside scholarships, so I didn't end up with loans. This path is not available to the vast majority of people in America, so again, incredibly fortunate. It drives me nuts, though, how most people assume these schools are out of reach -- my parents' accountant told them they couldn't afford Stanford. People don't understand that need-based aid exists. -- AF

Are you now, or have you ever been associated with the band Korn?

Nope. But my grandfather did wear a Korn baseball cap well into his 90s! (He was not a fan of the music, but appreciated the public awareness of our family name.) --MK

Hello, thank you for your AMA on this topic. Do you think it is a good idea for the Biden, or any administration, to cancel student debt via executive order, without congress (I know) first addressing the predatory lending practices that lead students to acquire that debt to begin with? I'm concerned that if one generation of student debt is relieved by a debt bailout, that it will simply lead to later generations stuck in the same predicament and wanting another bailout, much as we have seen in the predatory practices of banks, housing markets, airlines, agriculture, churches, fossil fuels etc . . .

I think you touched on one of the core issues about loan cancellation: Sure it might help current borrowers, but what about the students graduating next year? Or the year after?Or a decade from now? Helping current borrowers might be an easy political win but it doesn't actually fix this issue in the long run.

The problem is, and as we've mentioned in a few other answers, there seems little chance of a more comprehensive overhaul of the student loan system that could have lasting impact on borrowers for years to come.

There's lots of talk about how the people with big loan balances are all grad students in lucrative careers. Yes, doctors and dentists borrow a LOT. But so do social workers, public health officials and many nonprofit leaders. It's worth diggin into how much they owe and earn -- and what impact forgiving their loans would have on the federal government's finances -- before jumping to wipe the slate clean for everyone. --MK

Why do students choose to be nurses and go $100,000 in debt?

Actually, nurses can make a really good living! Median earnings just a few years out of school can be in the high five or low six figures with an associate's or bachelor's degree, not just a master's, so going deep into debt for this type of job isn't a necessity. And even if someone does borrow a fair bit, they're likely able to cover the loan payments. --MK

Do you think the PSLF program will keep going?

I talk a little about PSLF in another post, but in short: it's hard to say. The Biden administration has made it much easier to get PSLF, even for those who didn't previously qualify. But this is expensive! Many Republicans want to get Washington out of the student loan business, and accordingly, could make changes that make PSLF harder to get, as it was under the DeVoss administration. -- AF

Would sudden, sweeping student loan forgiveness stimulate the stock market? If all student loans were forgiven today, what would the S&P 500 look like tomorrow?

When the moratorium on student loan payments was enacted early in the pandemic, we saw borrowers pay down other debts, piece together down payments and have a little more breathing room to cover basic expenses. Some socked the money away for savings. Some took vacations. But generally they weren't putting the money into the market.

Whether other investors would see loan forgiveness as a net positive for the economy, one worth betting on in the stock market, is a bit more complicated an answer. Sure, cash would flow elsewhere if not needed for loans, but forgiveness for current borrowers still doesn't fix the underlying issues with college costs and student debt in the long run, so it might not really be cause for a significant market rally. --MK