New Roosevelt Paper Exposes Flaws in Conventional Understanding of Student Debt

Higher education, labor experts show student debt drives systemic economic insecurity

NEW YORK, NY – With total student debt in the U.S. reaching a record high of over $1.5 trillion, the Roosevelt Institute today released a new paper, The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality, analyzing the harmful role that student loan borrowing and debt plays in the economy. The new research explores the ways that systemic issues in the labor market, including employers’ power to shift the cost of job training onto workers and students, have intensified and continue to fuel higher levels of debt. The research also provides insight into the individual and societal effects of this growing challenge, including the ways that Black and brown Americans are disadvantaged by today’s higher education system. Ultimately, the paper challenges the dominant literature and conventional wisdom that drive the pursuit of higher education, concluding that student debt exacerbates income inequality and threatens the broader economy’s stability.

Authors Julie Margetta Morgan and Marshall Steinbaum find that:

  • Despite commonplace assumptions, more education has not led to higher earnings;
  • Student debt is burdening a larger and more diverse share of the population than widely assumed;
  • Contrary to the notion of a “skills gap” as the driver of declining wages, the true cause of the problem is growing credentialization, which occurs when employers demand higher education levels for a given job or salary; and
  • These trends exacerbate economic disparities for people of color, who pursue more higher education credentials—and take on more student debt—to attain the same salaries and jobs as their white peers.

“Previous research has significantly understated the systemic impact of student debt on the labor force and the broader economy,” said Marshall Steinbaum, Research Director and Fellow at the Roosevelt Institute. “If higher education is the toll for admission to the middle class, it comes at an increasingly high price, leading to impaired social mobility and rationed access on the basis of race. Today’s student debt crisis reflects this reality and shows that the belief that higher education ‘pays for itself’ is nothing but a myth.”

“With the increasing credentialization of higher education, more students feel pressured to take on debt in order to find jobs,” said Julie Margetta Morgan, Fellow at the Roosevelt Institute and Executive Director of the Great Democracy Initiative. “Media, policymakers, and borrowers themselves have said that student debt is not a serious problem because higher educational attainment leads to economic gains for workers—but our research shows that student loans are not living up to that promise. This paper helps explain the frustration that Americans feel when policy experts and lawmakers insist that student debt is not a problem—despite the debt’s obvious effects on many Americans’ daily lives.”

Morgan and Steinbaum’s new research builds on their previous work analyzing and confronting today’s student debt crisis. Earlier this year, Morgan authored Who Pays? How Industry Insiders Rig the Student Loan System—and How to Stop It, which explains how the current student loan system favors industry insiders over student borrowers. Steinbaum is also the co-author of The Macroeconomic Effects of Student Debt Cancellation, published by the Levy Institute, which analyzes the impact of a one-time, federally funded cancellation of all outstanding student debt.

About the Roosevelt Institute

Until the rules work for every American, they’re not working. The Roosevelt Institute asks: what does a better society look like? Armed with a bold vision for the future, we push the economic and social debate forward. We believe that those at the top hold too much power and wealth, and that our economy will be stronger when that changes. Ultimately, we want our work to move the country toward a new economic and political system: one built by many for the good of all.

It takes all of us to rewrite the rules. From emerging leaders to Nobel laureate economists, we’ve built a network of thousands. At Roosevelt, we make influencers more thoughtful and thinkers more influential. We also celebrate—and are inspired by—those whose work embodies the values of both Franklin and Eleanor Roosevelt and carries their vision forward today.