In yesterday’s post, I described how I believe The New York Times in a front-page story misrepresented the state of student loan borrowing. I pointed out that the Times story prominently (above the fold on page one of the Sunday Times) featured the statistic that 94 percent of all graduating bachelor’s degree recipients borrow to pay for higher education, a figure that was far in excess of other data published by the U.S. Department of Education and known to those of us who conduct research on financial aid. After having the figure questioned by a number of people, most prominently economist Sarah Turner of the University of Virginia, the Times finally issued a correction and edited the story. It now states that “About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders, according to a Department of Education survey of 2007-8 graduates; the total number of borrowers is most likely higher since the survey does not track borrowing from family members.”
This last hedge leaves open the door that perhaps its earlier claim that 94 percent of students borrowed to finance college, if one included borrowing from relatives. But the Department of Education data don’t allow us to determine this number. There is also the issue that borrowing from family members is different from borrowing in the federal student loan programs or from a bank. Borrowing from family members is much squishier (yes, that is a technical economics term) in that the contracts are not as enforceable and there is sometimes a fine and indeterminate line between what is a loan and what is a gift. In addition, mom and dad are unlikely (in most cases, at least) to resort to the kind of draconian debt collection practices that have been highlighted in the media recently. And unlike student loans taken out from the federal government or a bank, borrowing from the Bank of Mom and Dad can most likely be discharged under bankruptcy.
Because of these differences, the norm in conducting research on financial aid is to focus on borrowing in the federal student loan programs or from private, i.e. bank, sources. The Times would be best to stick with this standard.