Solve for the equilibrium

by on February 21, 2013 at 4:46 am in Economics, Education | Permalink

Most people assume a degree in the arts is no guarantee of riches. Now there is evidence that such graduates also rack up the most student-loan debt.

A Wall Street Journal analysis of new Department of Education data shows that median debt loads at schools specializing in art, music and design average $21,576, which works out to a loan payment of about $248 a month. That is a heavy burden, considering that salaries for graduates of such schools with five or fewer years’ experience cluster around $40,000, according to

The story is here.  And here is some sad news in particular:

New York’s Manhattan School of Music had the second-highest median debt load, at $47,000. Graduates with up to five years’ experience earn an average of $42,700, according to PayScale.

Which school is number one?:

Among the 4,000 colleges and universities in the federal database, the Creative Center in Omaha, Neb., a for-profit school that offers a three-year bachelor’s in fine arts, had the highest average debt load, at $52,035. Median pay for graduates of the school with five or fewer years’ experience is $31,400, according to

I say that’s a school in future financial trouble.

1 Nick February 21, 2013 at 5:11 am

Maybe this calls for a little federal help ala-FDR-style relief for artists during the Great Depression?

2 Kevin February 21, 2013 at 5:28 am

Give graduates an ability to discharge debt acthrough bankruptcy —

3 Kevin February 21, 2013 at 5:29 am

Give graduates an ability to discharge debt acquired to finance education through bankruptcy — then let the chips fall where they may.

4 Cyrus February 21, 2013 at 7:00 am

And bankruptcy the day after one graduates will become a popular means of funding college.

5 Andrew' February 21, 2013 at 7:31 am

That might affect a potential employer’s view of your trustworthiness signal. That’s not to say that debt predicated on a future ability to repay doesn’t have some special considerations, but the status quo certainly seems nonsensical.

6 tgrass February 22, 2013 at 10:30 am

Wouldn’t it signal intelligence?

7 Matt February 21, 2013 at 9:09 am

That wouldn’t be an issue if the loans weren’t backed up by the federal government – lenders would simply charge higher rates to reflect the greater risk. There would no doubt be incredible amounts of whining about high interest rates on student loans though, so the removal of federal support is unlikely. Perhaps the current arrangement where they can do just about anything to recover the money you owe is best.

8 Kevin February 21, 2013 at 9:57 am

I’m thinking about a system which uses private lenders (ie. if banks didn’t think they’d recover they wouldn’t issue the loans in the first place).

9 Dan Weber February 21, 2013 at 11:01 am

No one would lend more than $10,000 to a student because of the obvious desire to discharge debt.

And this would finally put some price pressure on college.

10 Andrew' February 21, 2013 at 11:50 am

And what if you simply said the college is responsible for half?

11 Foobarista February 21, 2013 at 6:17 pm

The student loan market would go poof. The day after, tuitions crash, universities have massive layoffs. A bit later, survivors and startups emerge from the rubble with drastically lower cost profiles.

And why is this a bad thing, exactly?

12 Rich Berger February 21, 2013 at 9:07 am

And watch the loan market dry up, or parents be required to co-sign the loans. Maybe that would be a good thing.

13 dead serious February 21, 2013 at 9:40 am

And college tuitions would fall as a result. Sign me up.

14 Roy February 21, 2013 at 5:45 am

I am sort of getting sick of the whole attack on Art School. An arts degree isn’t so bad if you actually learn a skill and have talent, it is certainly better than quite a few “studies” degrees. The problem is that a lot of people pursuing the BFA and especially the MFA don’t get the first and lack the second. The part everyone seems to ignore is that to succeed in the arts you need to be ambitious and make your own opportunities, and this is true whether you go to East-West Valley State or Parsons. If you hustle and have talent you can go a long way, and even a music teacher can get their loans paid off if they hustle by giving, etc… It takes hustle but most of life does.

However I really doubt any art school in Omaha is worth that, and even though I know nothing about the Creative Center, I would suspect based on some experience that Omaha’s glorified community college would be a better bet anyway, so I wouldn’t be surprised if the Creative Center’s students weren’t just signaling their cluelessness.

15 Andrew' February 21, 2013 at 6:03 am

Does a degree in art make your art better? I’ve argued it doesn’t make your engineering much better…

16 zbicyclist February 21, 2013 at 7:48 am

Why would a degree in art make your engineering better?

Seriously, a PE has indicated mastery of at least some relevant material at some time, and a likelihood of real-world experience. An MFA? No.

I realize PE isn’t a degree per se but a professional certification; I’m choosing to confuse the two.

17 Andrew' February 21, 2013 at 7:53 am

Excellent. You take the pre-PE upon graduation and then the PE after some years of ‘apprenticeship’. It would be interesting to do a test where you take the final PE immediately. It’s not a perfect test because the PE tests a lot of convnentional stuff that is learned in academia. It would be great if there were a PE-like test that was a perfect signal of real-world engineering.

18 Finch February 21, 2013 at 10:25 am

It’s hard to make a PE-type test useful in a fast-moving field. That’s why PEs are important in civil engineering, while in computer engineering nobody cares about them. I’d think, as you suggest, that there might be some way to increase the emphasis on the portfolio-of-design part of the certification, and deemphasize the test-of-whatever-people-thought-was-important-in-1997 part. Isn’t a Canadian PEng more like this? Is anyone familiar with it? Do Canadians get PEngs in fast-moving fields?

19 axa February 21, 2013 at 8:05 am

It is not an attack. It’s a discussion about the average situation of art graduates. When the average people is in trouble, help is needed. In this case the help is information to choose a university based on how much debt you’re going to rack up.

You can criticize the same way the retirement system. Why is there a retirement system? Everybody can save every month, invest in stock or real state and have enough resources for a good retirement. Right? Stupid old people that lacked the ambition to make their own opportunities while young.

20 Ryan February 21, 2013 at 12:31 pm

This. Leaving high school, this is the exact information students should be supplied — parents too. Information to make a proper decision is the help.

21 The Anti-Gnostic February 21, 2013 at 8:15 am

The problem is not art school but its funding via guaranteed loans and a contrived secondary market. This is classic malinvestment.

22 prior_approval February 21, 2013 at 8:48 am

‘I say that’s a school in future financial trouble.’

I’d say that’s a school where a few select people have already made out like bandits.

23 Ricardo February 21, 2013 at 12:30 pm

No. Bandits take from the unwilling. These people are taking from the willing — however unwise that willingness might be.

24 byomtov February 21, 2013 at 6:10 pm

Swindlers also take from the willing. Are they not bandits?

25 Non Papa February 21, 2013 at 8:57 am

This might be a stable equilibrium for rich kids whose parents are happy to help pay their Little Snowflake’s loans. We shouldn’t expect that future earnings are the only source of future loan payments for these kids. In fact, Manhattan School of Music might be a good case study — only 17% of their population receives Pell Grants (about the same as at Vanderbilt) compared with ~40% of the total population. I freely concede that this doesn’t apply to a place like Creative Center but the “rich kid art schools” might be ok.

26 Phil February 21, 2013 at 9:40 am

People do not study art in order to make money. Comparing debt to salary misses the whole point of studying art.

27 The Anti-Gnostic February 21, 2013 at 10:19 am

Nobody is knocking art. The problem is the economic-train-wreck-financing scheme we’ve come up with so people can study art.

28 TheAJ February 21, 2013 at 12:27 pm

Oh brother. What percent of total student debt is from students studying art?

The bulk of the problem is at the for profit “universities” where they think they are learning employable business skills but in reality are not.

Liberal Arts Majors are a convenient target, because, you know, it has the word “liberal” in it and therefore associated with lefites and therefore must be bad and stupid. But the fact is that NYU, for example, has one of the highest debt loads but a default rate of less than 3%. On the other hand, the ITT Technical institutes have a default rate of 30%. Whats the bigger problem here?

29 The Anti-Gnostic February 21, 2013 at 2:03 pm

The bigger problem is they are now the single largest “asset” on the Fed’s balance sheet. And again, it’s not just art degrees; it’s all the other largely unmarketable crap as well.

30 Dan Weber February 21, 2013 at 11:03 am

50 years ago people still studied art in college. But they didn’t go into debt, because no one was willing to lend money, and so the price was much smaller.

And they also lived like artists during college. (Which all college students did.)

31 dan in philly February 21, 2013 at 9:46 am

If they were good in math, they would be getting their degree in a more useful field, so maybe this is correlation?

32 Ricardo February 21, 2013 at 12:32 pm

+1. Omitted variable bias.

33 dead serious February 21, 2013 at 9:48 am

Maybe on every bursar’s office window there should be a sticker akin to those on new automobiles:

Average 4-year tuition: $X
Average 4-year all-in cost (tuition plus room & board plus books): $Y
Average starting salary of graduates: $Z

Better yet, this information should be in Forbes’ and US News’ “top college” list details.

34 zbicyclist February 21, 2013 at 12:34 pm

I think you need to do the math for students (ALL students, even econ majors): “If you finance all of this at current rates, you will be paying $xxx per month for the next y years”.

35 dead serious February 21, 2013 at 1:39 pm

Co-sign. The more transparency, the better.

36 Thomas February 21, 2013 at 11:19 am

You all obviously haven’t heard about income-based repayment and public service debt forgiveness. There’s no problem here. You borrow $50,000 for art school, have a great time–really, enjoy yourself, yolo–you graduate (or, well, you end your studies), and you get a job making a little over $30,000 a year at a non-profit or with the government. (In the art world, there’s often little difference in any case.) You pay about $2000 a year for ten years, and you’re done. There’s no crushing debt burden here.

37 Ryan February 21, 2013 at 12:37 pm

I, for one, have heard about and have a significant other who utilizing that tool right now. There’s only so many of those positions to be filled is the problem and largely, they’re based (fluctuate?) on state revenue. Furthermore, we came to find out that not all NONPROFITS are created equal in the government eyes either.

38 Ryan February 21, 2013 at 12:42 pm

… and I’m not saying that THAT is the “problem” per se. Apologies for the grammatical issues.

39 TheAJ February 21, 2013 at 12:46 pm

Its not the problem, its a moronic projection that some people like to throw out there. Because you see, what lawyers really intend to do is spend 15 years working at $50K in the public sector just to get that loan repaid. They’re too nefarious to consider a private sector job at 60K that would allow them to pay off the loan AND earn a few extra bucks. No, those yolo types, so nefarious, so excited to take those $30K jobs to pay off that debt!

40 Thomas February 21, 2013 at 3:39 pm

We’re talking about art students and whatever it is that art students become, not lawyers presumably. There’s nothing nefarious about responding to incentives. It’s quite normal. As for whether a lawyer with significant debt–many law graduates have nearly $200,000 in student loan debt, and average student loan debt is something like 100,000. Moving from 50,000 to 60,000 in income means you pay $1500 more a year on your student loans, in addition to taxes, benefit phaseouts, etc. (For a family of 4, the ACA exchange subsidy phaseout would cost $1600 over that income increase.) The biggest benefit is that nonprofit employees (when qualified–has to be a non-religious charitable nonprofit) get loan forgiveness after 10 years. Moving to a job that pays 10,000 more per year but doesn’t eliminate the obligation after 10 years is not a smart move. Is all this disincentive enough to keep someone from taking a higher-paying job? Maybe!

41 TheAJ February 21, 2013 at 5:06 pm

Okay, a few things – a little surprised to see after you throw out assumptions and accusations (art majors are doing it for the debt forgiveness, art majors go into public service jobs, etc), that you suddenly start trying to prove calculations on made up numbers. That’s a little weird. (you also ignore the fact that these people will still have to service the debt, therefore still be paying 7% on the full amount through year 10, compared to someone who is actually paying off the principal)

Rather than demonstrating your ability to estimate the impact of marginal tax rates and health insurance costs, why don’t you describe

– how many art students go into public service, or atleast how many that do go in with $50K in debt or whatever number you’d like to use.
– what percent of students actually have the intent of doing this, and what percent actually do end up doing this.
– how many of these jobs are there anyway?

Moving to a job that pays 10,000 more per year but doesn’t eliminate the obligation after 10 years is not a smart move.

Assuming your wage growth in the private sector and in the non-profit sector is the same . . which it is not.

Is all this disincentive enough to keep someone from taking a higher-paying job? Maybe!

Is it material? Its funny, because if you actually speak to lawyers, most that want to eliminate that debt take the route of “selling out” and going corporate after they’ve had enough of public service, rather than the other way out.

42 Zach February 21, 2013 at 11:25 am

One equilibrium: as things get worse and worse, nervous people place more and more emphasis on a piece of paper that allows them to distinguish themselves from the crowd. If unemployment fell by half tomorrow, people would leave the school and tuition would fall. It’s not that people are betting on the degree; they’re betting against their prospects without a degree.

43 TheAJ February 21, 2013 at 12:42 pm

People that want to get a degree do not go to art school. They go to a for-profit school or they go to a state school and get a degree in “business.” People who go to art school do so because that is what they are good at and they are looking to maximize whatever artistic skill set they have.

44 TheAJ February 21, 2013 at 12:40 pm

Tyler, did you take a look at the actual raw data supplied by the WSJ? By the way, thats pretty cool that the WSJ did share the raw data, that’s awfully rare.

Compare the Manhattan School with the Creative Center. They both have $50K debt loads but youll see the Manhattan School has a default rate of less than 1% while the Creative Center has one of 15%. This tells me that one is a legitimate academy where people who have certain talents are able to pursue a passion or skill they are good at. Apparently, graduates can pay back the $500/month on their $40K salaries. The other looks like a bogus profit center that does not seem to offer much career opportunity and does not even have a wikipedia page. It is unfair and inaccurate to paint a broad brush over “art” academies without distinguishing the notable ones from the bogus ones.

Furthermore, it looks like these schools have a few hundred students each, and are therefore drops in the bucket in the bigger scheme of things. I’m sure this won’t stop some obsessive types from fixating on this the way they fixate on the Black Panthers as evidence of Obama’s new fascism.

Look at Swathmore College, a prototypical liberal arts school – located in the northeast, douchey sounding name, its got it all. The default rate of students at that university is 1.6%, average debt load of $17K. Compare that to the Unversity of Phoenix.

Hell, look at the other universities with the same default rate:

Tufts University
Swarthmore College
King’s University
Cornell University
University of Western States
Grinnell College
Boston University
Quinnipiac University
George Washington University
Bentley University

Lots of private universities with high debt loads but ow default rates. Atleast we know people attending these universities are eventually paying their loans off, , implying they are earning something of an income after graduation.

45 Finch February 21, 2013 at 5:06 pm

Do you not think it just says something about who’s attending the school? Kids who go to Swarthmore have parents who won’t let them default and can afford to keep that promise. Kids who attend ITT Tech don’t. Kids who go to Swarthmore are probably smarter and more conscientious as well. Send them to ITT Tech and the default rate there would plummet.

A simple (and maybe naive) examination suggests ITT Tech is doing something good by teaching what it does, and Swarthmore is not. ITT Tech’s task is just harder.

46 maguro February 21, 2013 at 6:20 pm

Sure, most of it is probably selection bias, but from a public policy perspective I’m not sure that really matters. The government shouldn’t be guaranteeing loans to schools where default is a likely outcome, regardless of the reasons behind it.

47 TheAJ February 21, 2013 at 7:22 pm

Well yes, I agree about you and Swarthmore . . . this makes sense . . so can we lay the whole “liberal arts majors caused the student loan crisis” meme to rest please? Its one of the dumbest memes out and I still don’t uderstand why someone like Tyler would continue to perpetuate it.

A simple (and maybe naive) examination suggests ITT Tech is doing something good by teaching what it does, and Swarthmore is not. ITT Tech’s task is just harder.

Actually that’s not an examination at all, its just something you literally just made up right now on the spot. What examination from the low default rates at Swarthmore (and high grad rates) and high default rates at ITT would lead you to this conclusion. If you actually wanted to do a real examination you would compare the performace of ITT Tech students with the performance of schools like Southern Illinois and other places where people with 900 SATs can get in.

48 Floccian February 21, 2013 at 2:00 pm

That is bad because their are ways that they could get teh same thing much cheaper but really anyone with above average inteigence can easly amortize $52,035. Further $31,400/year is easily enough to amortize $52,035 in debt especially at todays interest rates.

49 uffy February 21, 2013 at 2:52 pm

All the ITTs and Everests, etc. seem to be a much larger issue than art schools according to this data.

50 Cappy Cap February 22, 2013 at 6:31 pm
51 Jason February 25, 2013 at 12:48 pm

I’d love to see a comparison of the top 1000 business and how many of the CEO/presidents have a BS compared to a BA.

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