The $339,200 college debt example hurts more than it helps

LOS ANGELES (Reuters) - Democratic presidential hopeful Martin O'Malley revealed last week that he and his wife borrowed $339,200 to put their two eldest children through college, the latest of many scary anecdotes about massive student loans.

    Using outlier examples like these to make political (and journalistic) points is common, but loans like the O'Malleys' are not typical. In fact, stories about them may do more harm than good.

    "It can potentially frighten off those lower-income people who can most benefit from higher education," said Justin Draeger, president of the National Association of Student Financial Aid Administrators. Without a post-secondary degree, it is much harder to move up the economic ladder or even remain in the middle class.

    O'Malley has proposed making public universities "debt-free" by lowering tuition, increasing Pell Grants and making loan repayments income-based. The former governor of Maryland has used his own example to underscore his reasoning in campaign messages.

    However, many families fail to see college as even a possibility today because they overestimate its cost, said Terry Hartle, senior vice president for government and public affairs of the American Council on Education.

    "The farther down the income scale you go, the greater they overestimate," Hartle said.

    Here is the reality: The average net cost for tuition, fees, room and board, meaning what families actually paid after grants and scholarships were deducted from the sticker price, was $12,830 at four-year public colleges and $23,550 at private schools in 2014-15, according to the College Board.

    The average student loan balance for bachelor's degree recipients, meanwhile, is $35,000, said financial aid expert Mark Kantrowitz, publisher of education resource site Edvisors.com and author of "Filing the FAFSA."

    For many, that is probably a manageable amount of debt, given that 2014 graduates earned an average $45,478 in their first year out of school, according to the National Association of Colleges and Employers.

    Parent PLUS loans are a different matter. Unlike federal student loans, which are limited to $5,500 the first year, parents can borrow the complete cost of a college education without regard to their ability to repay. Unlike students, parents cannot count on higher incomes from the education they are financing to help pay the debt.

    The O'Malleys borrowed more than "99.9 percent" of parent PLUS loan recipients each year, Kantrowitz said. Fewer than one in five bachelor's degree recipients who graduated this year had parents with federal parent PLUS loans, and the average balance per parent PLUS loan recipient in 2014 was $14,595.

    Of course, some colleges charge a lot more than others. Tuition and fees at Washington's Georgetown University, where the O'Malleys sent their eldest daughter Grace, total $48,611 for the fall. Their second daughter, Tara, attended College of Charleston in South Carolina, a public institution that charges out-of-state tuition and fees of $27,868. By contrast, the University of Maryland, in their home state, charges less than $10,000.

    O'Malley has said he and his wife took out parent PLUS loans so their children could attend the schools they wanted without accumulating their own debt. (The O'Malleys have two younger sons to educate, as well.)

    "We shouldn't be punished for working hard and following our dreams," Grace O'Malley, a public schoolteacher, wrote to supporters in a recent email highlighting her father's debt-free college plan.

    The whole scenario makes it too easy to dismiss the O'Malley daughters as spoiled and, by extension, to assume that parents and students who struggle with education debt have only themselves to blame.

    But that would obscure the very real debate about how we pay for college. Rising costs and debt burdens still affect many students and their parents, and these serious problems should not be shrugged off because of one family's ridiculous loans.

(Editing by Beth Pinsker and Lisa Von Ahn)