Report: Student debt haunts graduates

Sunday, May 18, 2014 - 20:00 YT&Twebzine

Newly minted graduates with debt from student loans are more likely to accumulate even more bills as they start their adult lives, according to a Pew Research Center analysis.

    The report, Young Adults, Student Debt and Economic Well Being, documents the burden of student debt. In an analysis of government data, the center found that roughly 4 in 10 households headed by an adult younger than 40 had some student debt.
    On the upside, those with a college degree have a higher income than those without. The typical household income for the group Pew describes as “college-educated student debtors” is $57,941. That’s nearly twice as high as the income for households led by those without a bachelor’s degree --$32,528.
    Here are four takeaways from the report:

1. The net worth of households headed by college graduates without student debt is roughly seven times greater than households headed by college graduates with student debt.

Obviously, college graduates without student debt are better off than graduates with debt. But the gap is staggering. The typical net worth of households headed by a young college-educated adult without student debt is $64,700, according to the Pew Center’s analysis of the most recent Survey of Consumer Finances. The typical net worth of a college-educated adult with student debt is $8,700.

2. Typically, householders with student debt owe about $13,000, according to the report. Before they can begin to shovel out from that burden, they end up with even more debt. Indeed, student loan debt is only one part of the problem. Other debts quickly accumulate.

“Student debtor households are accumulating less wealth, in part, because they tend to owe relatively large amounts of other debt as well, from car loans to credit card debt,” Pew researchers wrote. “Among the young and college educated, the typical total indebtedness (including mortgage debt, vehicle debt and credit cards, as well as student debt) of student debtor households ($137,010) is almost twice the overall debt load of similar households with no student debt ($73,250).”

3. Why do student debtors carry more overall debt? The Pew analysis doesn't address this question. But researchers suggest that these young householders simply can’t get their footing.

“It may be the case that the burden of student debt makes it more difficult for young adults to gain financial traction in other areas of their lives,” according to the report. “It may also be the case that with the rising share of young adults enrolling in college these days, economic gaps between those who borrow for college and those who do not may be widening.”

4. Households headed by those with student debt experience greater financial stress.

For example, it is more likely that they will make late payments and owe more than the value of their assets. Among homeowners, those with student debt are more likely to be underwater. “In theory, a household can liquidate its assets in order to pay off outstanding debts. By this measure, young, heavily leveraged student debtors are clearly in a more financially precarious position than other young households,” the report says. “About four-in-ten college-educated student debtors possess total debts exceeding the value of their assets; hence asset liquidation will not entirely meet their outstanding debts in the event of job losses and other unforeseen economic shocks.”
For those without student debt, only 5 percent have outstanding debts in excess of current assets.

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