Student Debtors Are No Worse Off Than They Were 20 Years Ago

Student debt can cause some regrets, a new survey finds.
A recent study found that even though the media often fixates on students weighed down by exorbitant loan payments, very few college graduates have actually accumulated that kind of debt. –AP

Although hysteria over the student debt crisis has reached a new high, the outcry may be overblown, according to a study released by the Brookings Institute Tuesday.

The study found that even though the media often fixates on students weighed down by exorbitant loan payments, very few college graduates have actually accumulated that kind of debt.

Less than 2 percent of debtors have debts that total more than $100,000. Only about 7 percent have more than $50,000 of loans to repay. By contrast, 58 percent of student debtors have accumulated less than $10,000. The middle cohort, students who have between $10,000 and $20,000 of debt, totals around 18 percent of student debtors.


Study authors Beth Akers and Matthew Chingos conclude that student debt is still a problem, just not a new one.

Students have had to pay off loans for years and according to the Institute, those loans are not too much more costly than they were 20 years ago. In fact, the study found that the typical student debt burden has remained relatively stable over the years.

A typical student debtor now has to pay 4 percent of their monthly income to repay their loans. That figure has remained relatively constant since 1992, when it was 3.5 percent.

Extraordinarily, the percent of income devoted to loan repayment actually seems to have decreased since the late ‘90s when students were forced to pay 4.3 percent of their annual income.

So why did those fluctuations occur?

One might expect the portion of income devoted to student loans to rise dramatically as college tuition—particularly at state universities facing draconian budget cuts—has increased.

The Institute, however, traced an opposite trend.

College graduates, the study found, now have higher earning potential and can therefore more easily pay back monthly payments, which the Federal Reserve Bank of New York recently found to total about $160 per month for the average person.


Given that graduates now devote almost the same percent of their income to loan repayment as they did 20 years ago, study authors concluded that today’s typical borrower is no worse off than someone who graduated during the ‘90s.

The authors also asserted that there is little evidence to suggest that the economic downturn has exacerbated student debt. Contrary to some apocalyptic forecasts, widespread student loan debt has not created a permanent drag on the economy.

While the study dismisses some concerns over increased debt, it does point to another grave problem: college dropouts are now far more likely to have student loans.

The number of dropouts burdened by loans has risen from 11 percent to 41 percent, the study found. Since they never finished college, it is often far more difficult for those dropouts to land a job that has a salary adequate to pay off their loans.

The study authors therefore seem to suggest that it is not the college grads struggling to pay off loans, but instead an overlooked cohort— college dropouts—who are hit hardest by debt.

The theory certainly has a staying power. It is without a doubt a unique approach to the problem. But study authors also overlook some aspects of the loan crisis that deserve more attention.

First, the study focuses on the median rather than the mean.

Had the study focused on the mean, or average, it may have come to a radically different conclusion. Indeed, survey results confirmed that average student loan levels have increased significantly since the ‘90s.


Secondly, the study focused primarily on college graduates, while doing little to incorporate graduate school debt into its analysis.

Many commentators agree that a graduate school degree has proved even more vital to entering the highly competitive workforce. Those grad school programs can drop more loans totaling thousands on the shoulders of struggling students, whom the study only briefly addresses.

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