Student loans are a hot topic among both college-bound students and graduates with loan debt, as the total outstanding debt among Americans surpasses $1 trillion, according to recent estimates. Given just about anyone can obtain a student loan, and there are virtually no qualifying criteria for borrowers attending post-secondary institutions, many borrowers enter these loans without adequate future planning. Additionally, with student loans being federally guaranteed, a bankruptcy cannot eliminate these loans and a borrower essentially only has one option to get rid of the loan — repay.
With all of the attention and sometimes negative light this topic receives, it may lead students to wonder whether or not the benefit of borrowing to earn a college degree outweighs the costs associated with student loans. These costs not only include the loan’s principal and interest but also the costs associated with beginning one’s life and career in debt. Pew Research published a recent report entitled Young Adults, Student Debt and Economic Well-Being. The report analyzes characteristics of student debtors. This summary of the report’s key findings may help prospective borrowers answer the big question: is it worth it?
Around 4 out of 10 households where the head of household is under the age of 40 have some student loan debt. The median debt amount among these borrowers is $13,000. This may sound low considering the average yearly cost for tuition alone at an in-state school is around $9,000. However, many of these borrowers have already repaid a portion of their loans, and some of these borrowers attended college during time periods when tuition costs were lower.
From the 1991 academic year to the 2011 academic year, the average cost of tuition, fees, room and board rose from $11,653 to $19,339. However, when you adjust upward for inflation, the cost over the 20 year term increases only slightly ($20,283 vs. $20,382).
The median income among young college-educated households is $58,000. Student loans have little impact on income as this figure tends to be the same whether the head of household owes student debt or not. Among households without a bachelor’s degree, median income is slightly higher in households with some student loan debt. This increase is likely due to the head of household having at least some post-secondary education.
Those with no student debt tend to have higher net worth than those who have student debt. The median net worth among college educated households with student debt is $8,700. For those with no student loans, their median net worth is around seven times greater at $64,700.
Households headed by a person without a bachelor’s degree had median net worth’s of $10,900 if they had no student debt. For those with student debt and no bachelor’s degree, that number reduced to $1,200. Therefore, a college educated household with student debt has a lower median net worth than a non-degree holding household without student debt.
On the other hand, some student debtors have higher assets than non-debtors. Among households headed by a young person with a bachelor’s degree, those with student debt had around $9,000 more in total assets than those without debt.
3. Other Debts
Other debts like credit card debts and auto loans amounts were overall higher for student borrowers. Sixty percent have credit card debts, 43 percent have vehicle loan debt, and 56 percent have a home loan. For those with student debt, the median total debt amount for the household is $137,010, compared to $73,250 for a household without student debt. In respect to leverage, the ratio for those with student loans (around 67 percent) was higher than those without such loans (around 35 percent). Debt-to-household income comparisons produce similar findings, where student debtors’ percentages doubled their non-debtor counterparts.
4. Overall Finances
Although student debtors are generally in more financial distress than non-debtors, only 15 percent of student borrowers are at the point where more than 40 percent of their monthly income goes towards repaying debts. For around 40 percent of borrowers, debt exceeds the value of their assets and they do not have the ability to liquidate assets to repay all creditors.
Of those who borrowed money to attend college, nearly 30 percent are unhappy with their personal finances, while less than 15 percent of non-borrowers are unhappy.
Although student borrowers tend to have a bit more financial strife, 84 percent of borrowers feel their education either has or will payoff for them. For those debtors, borrowing for college is paying off.