The Demographics of Student Loan Debt

By Lindsay Frankel
Inside Subprime: February 19, 2020

The student loan debt crisis is a growing problem in America that poses a threat to the greater economy. In the last quarter of 2019, student loan borrowers owed a collective $1.6 trillion, and the amount of outstanding debt has been steadily growing. To make matters worse, two in 10 adults are behind on their student loan payments. Borrowers are under so much financial stress that only a third think the cost of obtaining a bachelor’s degree was worth it. 

But some borrowers are struggling more than others. To get a complete picture of the student loan debt crisis, we’ve looked at how student loan debt affects people of different ages, races, and income levels, as well as how outcomes are different for for-profit college students. 

Student loan debt and age

About one third of adults under 30 have student loan debt, as opposed to 15 percent of all adults. Common sense might lead one to conclude that the most recent graduates have the most debt, but that’s not accurate, at least not in the case of federal direct loans. According to data from the Department of Education, borrowers ages 25-34 have the most debt. At $454.6 billion, they owe more than three times as much as borrowers ages 24 and younger. 

Even more surprising is the impact of student loan debt on older adults. Borrowers ages 35-49 saw the greatest increase in debt from the previous year and have the highest delinquent balances. This may be because more parents are taking out loans to fund their children’s education. 

While the amount undergraduates can borrow is capped, there’s no limit to the amount parents can borrow for their children. Yet parents taking on debt won’t see the same benefits as undergraduates, whose earning potential will increase with their education. As more and more adults take student loan debt into retirement, it’s clear the student loan debt crisis is a problem that crosses generations. 

Student loan debt and race

The racial disparities in outcomes for student loan borrowers start with the need to borrow. More black and Hispanic students took out loans for undergraduate and graduate school than whites, according to the National Center for Education Statistics. Black and Hispanic students also borrow more on average and were more likely to be unemployed four years after graduation. 

Just how much more of the debt burden are black students taking on? Four years after graduation, black students held an average of almost $53,000 in student loan debt, nearly twice as much debt as their white counterparts, the Brookings Institute found. And black college graduates are more likely to default, with 7.6 percent falling behind on payments as opposed to only 2.4 percent of white graduates. These numbers are supported by an analysis that found default rates double in black-majority zip codes. 

It should be noted that there are limitations in collecting race-level data. The U.S. Department of Education doesn’t typically track borrowers by race, and neither do credit bureaus, which are prevented from doing so by the Equal Credit Opportunity Act. As such, a clear picture of racial disparities in the student loan debt crisis is difficult to obtain. But current research makes it apparent that student loan debt has a higher price tag for black and Hispanic students, and black and Hispanic graduates were more likely to report very high levels of stress from education-related debt, according to the NCES. 

Student loan debt and income

The climbing collective debt total is in part due to a rapid increase in borrowing among students from high-income families. The share of graduates from low-income families borrowing has remained relatively consistent, increasing from 69.6 percent to 75.6 percent over the course of a decade, while the share of graduates from high-income families has doubled to 60.2 percent. And graduates from high-income families had the highest average debt balances as well. 

This is likely due to the degrees they choose and where they choose to study, and does not indicate that students from high-income families will struggle more to repay their debts, but instead is reflective of the rising cost of college tuition. This data also belies the narrative that borrowing behavior among low-income students is what is driving the student loan debt crisis. 

Similarly, graduates with the highest income (independent of their families) owe the most. College graduates earning more than $97,000 hold 34 percent of all outstanding debt, more than any other income quartile. Typically, more education leads to more debt, but it also leads to higher earnings, which is consistent with these findings. However, the debt-to-income ratio among graduates reveals an opposite trend. Student loan balances account for 22 percent of aggregate income for the lowest income households and only 8 percent of earnings for the highest income households. So while higher earners may be driving the student debt crisis, lower-income households are struggling more under the weight of their student loan debt. 

Student loan debt and college type

For-profit enrollment soared over the same period that the collective debt balance rose. In recent years, as scrutiny of the for-profit sector has increased, enrollment has decreased, but the debt burdens of for-profit students remain. 

There are similarities in borrowing behavior between for-profit students and nonprofit private college students. These students are more likely to borrow and borrow in higher amounts than students attending public institutions. But there are key differences as well. Only 40 percent of for-profit students are enrolled in bachelor’s degree programs, as opposed to about 90% of those enrolled in 4-year public and private nonprofit institutions. 

At the same time, for-profit colleges have the highest percentage of female and minority students, and these students come from families with the lowest parental education. They’re also less likely to graduate and are more likely to take on higher amounts of debt than students attending private nonprofit institutions, even though those institutions cost more. Furthermore, they’re less likely to be employed and more likely to default on their loans. In fact, twelve-year default rates sit at 47 percent for all for-profit attendees, and are no more than 13 percent in all other sectors. 

Who’s struggling the most?

Student loan debt can cause financial stress for anyone, but certain groups are struggling more to repay the debt they take on. Black and Hispanic students have higher average debt balances after graduation, and debt takes up a greater percentage of lower-income borrowers’ earnings. Parents are taking on debt without reaping the benefits. And for-profit students are met with worse outcomes than attendees of any other type of institution. 

As the cost of tuition has increased and the amount of available funding has dropped, family incomes have failed to keep pace. As a result, student debt has far-reaching effects even beyond the students themselves. It’s everyone’s problem, but the most vulnerable populations are experiencing the most hardship. 

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