The growing public interest in student loans in recent years can be explained by some numbers that really matter (like crossing the threshold of $ 1 trillion in the amount of total outstanding loan debt) and some that are less significant (anecdotal reports of occasional baristas who have racked up $ 120,000 in debt, an outlier when the average is about a quarter of that ).
The exact data points that tell the real story of the severity of the student debt crisis are to some extent in the eye of the beholder. But Mark Kantrowitz, one of the country’s foremost student aid analysts, offers a way to tackle the issue by a new paper. He tries to define what unmanageable or “excessive” student debt looks like (as many others, including the Obama administration in its paid employment regulations, have done before it), then uses the best available data (as imperfect as it is) to gauge how many have it.
Kantrowitz finds that the proportion of undergraduate student loan borrowers who graduate with debt he defines as excessive (having to spend at least 10% of their gross monthly income on debt repayment) has actually remained fairly low. constant over the past two decades, at about one in four. This is the good news.
The bad news is that the proportion of all graduates who have had to borrow to pay for their college education has steadily increased, resulting in a significant increase in the proportion of all graduates who hit the excessive debt threshold – to 14.4 percent in 2007-2008, up from 11.9% in 2003-4 and 9.8% in 1993-4, according to data from the federal government’s Baccalaureate and Beyond longitudinal study. Students in certain low-paying fields (theology, communications, and agriculture, for example), women (who typically earn less than men), and low-income students are more likely than their peers to have excessive debt, Kantrowitz finds .
Kantrowitz, a financial aid consultant and analyst with particular expertise in data processing (math and computer science graduates from MIT and Carnegie Mellon), does two main things in the article: advocate for his definition of excessive debt, then apply the definition to the group of borrowers.
Much of the current discourse on student loan – fueled by horror stories of outliers with six-figure debt and mind-boggling national debt numbers – suggests that student debt is an unequivocal problem, one to be avoided as much. as possible. But as the Obama administration did in its paid employment rules, Kantrowitz argues that just looking at an individual’s debt amount doesn’t tell us much because it doesn’t provide any context as to whether a borrower can repay it.
“The debt on a six-figure student loan may be excessive for a borrower who only has a bachelor’s degree in a low-paying liberal arts field, but not for a borrower who obtains a graduate degree, such as a medical doctorate in a lucrative specialty like oncology, cardiology or orthopedics, ”writes Kantrowitz. “To determine if student loan debt is affordable, the monthly loan payment must be compared to monthly income. “
Looking at the census and other historical data, Kantrowitz concludes that “student loan debt at graduation should be considered affordable if monthly loan payments assuming a 10-year repayment term are less than 10 years. % of gross monthly income…. Student loan repayments will still be affordable, but more difficult for the borrower, if the repayments are less than 15% of gross monthly income.
While it might make sense to expect more borrowers to graduate with growing debt, that doesn’t appear to be the case, Kantrowitz notes. As the graph below shows, the proportion of undergraduates who graduate with debt has remained the same (and even declined significantly) since the early 1990s, according to the latest three versions of the federal survey on the baccalaureate. (And it wasn’t much lower in the mid-1970s, although it did drop over the next 20 years.)
What has increased, however, is the proportion of all students who borrow to finance their undergraduate studies, and the amount they borrow, as this graph shows – the former reaching its current level of 71% in average of one point per year. since the early 1990s, and the latter has almost quadrupled over the same period, reaching around $ 35,000:
Overall, this has resulted in an increase of about 50% over this period (and more than a doubling over the last two decades) in the proportion of all graduates who have debts that Kantrowitz deems excessive:
Kantrowitz adds another layer of analysis, based on the Bachelor and Beyond Graduates survey, which the Department of Education also produces. He says graduates with what he considers excessive debt are more likely than others to say that:
- University was not worth it (35.8 vs. 22.2%)
- Student debt influenced their work plans (64.3 vs. 41.6 percent)
- They delayed buying a home (49.8 vs. 38.1%)
- They were late in having children (36.4 vs. 27.9%)
- They worked more than one job (33 versus 23.4 percent).
Questions and limits
Sandy Baum, another well-respected financial aid researcher, said Kantrowitz’s analysis was useful and generally sound. She noted, however, that the use of first year earnings data is “problematic”. Since income will generally increase during the loan repayment period, “the numbers are almost certainly exaggerated”.
Terry W. Hartle, senior vice president of government and public affairs at the American Council on Education, said the analysis deserved attention because Kantrowitz is “one of the most sophisticated and experienced analysts in the world. country in terms of student loans ”.
He cited the potential limitations of the data, however. Hartle noted that the latest data examines students who graduated in 2007-2008, “it’s not a good year for a new college graduate looking for a job.”
And many changes in student repayment options since then mean, Hartle said, that Kantrowitz’s analysis is unlikely to reflect “the experience that borrowers today are facing.”
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