Student Debt Gets Worse By Degrees
A Survey of Consumer Finances (SCF), administered by the Federal Reserve Board, has yielded some circumspect observations. The analysis discussed here bucks the trend of recent headlines braying over the student debt crisis. Between 1989 and 2010, the ratio of students signing loan papers to students with signed sheepskins has gone up – but only for those moving on to graduate programs. These are the students who are incurring more debt before starting their careers.
The surveyors, fellows of the Brown Center on Educational Policy at Brookings, conclude that though the total amount of student debt has risen significantly in the past twenty years, the rise is mostly attributable to the corresponding rise in the number of baccalaureate candidates pursuing higher degrees in graduate programs. Furthermore, the median Debt to Income (DTI) ratio, though not flat, has fluctuated little from a level ratio of 3 ½% to 5% since 1992.
The analysts, Beth Akers and Matthew M. Chingos, found that one-quarter of today’s student debt increases come from the higher achievers. Their average student debt load has risen from $10,000 in 1989 to $40,000 in 2010. The mean annual income increase of $7,400 has kept pace with an $18,000 increase in loan obligations. In other words, student debt has kept pace with lifetime incomes. Each has scaled up to keep DTI manageable. The ratio has even dropped overall, tracking from 15% to 7% of household income during the survey period. There is a caveat in place here, though. The term length has increased significantly, extending beyond the usual ten years it takes most to pay off student loans. Payments don’t rise, but they go on for longer periods.
This may not be as rosy a picture as the survey proffers. The headline on the www.brookings.edu posting is a little misleading. It asks if the student loan crisis is on the horizon. But the survey doesn’t assay that horizon, nor does it make any attempt at defining it. Instead, Akers and Chingos soft-pedal the numbers just a tiny bit. They hint that the featured cases in recent media headlines don’t represent new or emerging trends. The assertion that only 2% of young graduate households have over $100,000 in debt feels like a band-aid for a broken bone. The associates haven’t much to say in this report about the much higher numbers of young professionals, degrees in hand, struggling to pay just half that debt in a sluggish economy hop-scotching through a fiercely competitive job market. Brookings may have their numbers in hand – but they are unhelpful, enshrining a dubious status quo without addressing a solution to a concrete problem which cares not a fig for ratios.