Last week, the Senate reached a deal on student debt interest rates. Going forward, interest rates for undergraduates will be set at the Treasury note rate plus 2.05 percent, or at 8.25 percent, whichever is lower in a given year. In the discussion leading up to this decision and discussions around student debt in general, folks often talk about aggregate debt totals, average debt totals, delinquencies, and other related topics. Rarely, however, do you hear much discussion about which economic classes actually carry most of the student debt.
The class question is somewhat complicated by the fact that (traditional) college students occupy a transitional stage in their life trajectory: they have one foot in childhood and another in adulthood. As a result, it is not immediately obvious which economic class to place them in. Do they belong to the economic class they are coming from or the one they are going into? Data exists on both fronts, but for the purposes of assessing debt burdens, I think it generally makes more sense to place a student debtor in the economic class they are going into. It would be perverse indeed to suggest that the student debt held by an accountant making $100k a year is borne by the lower classes because that accountant’s parents are or were poor.
In order to calculate student debt levels broken down by economic class, I conducted my own analysis of data from the 2010 Survey of Consumer Finances. One limitation of this analysis should be noted upfront: because people tend to increase their incomes and decrease their student debts as they age, the following graphs will probably understate the extent to which debt burdens fall upon those higher in the income distribution.
The above graph shows the average student debt burden for families with student debt, broken down by income percentile. So the bar furthest to the left says that families in the poorest 20 percent who carry student debt carry an average debt balance of $20,009. The bar furthest to the right says that families in the richest 10 percent who carry student debt carry an average debt balance of $43,439. And so on.
Looking just at the average debt totals of indebted families can only tell you so much. To get a fuller picture you have to know what percentage of each income group has any debt at all. The above graph shows that the percentage of families with at least some student debt marches upwards pretty consistently: the richer a family is, the more likely it is that they have some student debt. But this trend falls off once you reach the richest 10 percent, presumably because they are much more likely to have retired their student debt already.
The above graph shows the average student debt of all families broken down by economic class. So, unlike the first graph which shows the average student debt of indebted families, this graph shows the average student debt of all families, including those with no debt at all. To me, this graph shows, better than any other, what the true class composition of student debt is. The average debt burden of the richest 20 percent of famlies is 2.1 to 2.7 times that of the poorest 20 percent of families.
When I showed these results to Mike Konczal of the Roosevelt Institute, he theorized that the gap between the classes on debt is largely a function of graduate and professional degrees. As the below graph shows, it is certainly the case that higher-earning families that carry student debt are much more likely to have received a graduate-level degree.
However, graduate school does not tell the full story. As the below graph shows, even when you exclude people with graduate degrees from the calculation, richer indebted families still tend to have substantially higher average debts than poorer indebted families.
Whatever else there is to say about student debt, it cannot be said that debt falls primarily on lower income households. You would expect, from what we know of the college wage premium, that debt would primarily fall on higher income households, and indeed that’s what you find. For those worried about the distributive impact of policies, this is a reality that must be contended with when constructing policy responses to the student debt issue. One way to respond to the student debt issue in a way that is senstive to this distributive reality is to implement a Pay It Forward tuition-financing system similar to what Oregon is currently considering.