Study: Students who borrow more, earn more

Top fifth of households by income accounts for one-third of student debt

Graduates carrying the largest amount of student debt are generally ones making the most money, according to a study by Reuters.

The news organization's analysis of the Federal Reserve's Survey of Consumer Finances data shows that young adults earning high annual incomes owe more than the average household. Twenty years ago, the inverse was true. 

Since 2004, U.S. student loan balances have quadrupled to $1.1 trillion and caused officials to voice concerns about the effect on home buying and consumer spending. Loan delinquency rates are above historical averages, and unemployment rates remain elevated, adding to the worry.

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But the triennial survey, most recently published in September 2013, suggests concerns are overblown.

The data demonstrates that high salaries typically follow high borrowing. The report found:

  • The top fifth of households (those earning more than $101,000 per year) accounted for about one-third of all student loan balances;
  • Households owing at least $60,000 and headed by people ages 20 to 40 years old averaged $82,000 in annual income; and
  • Most loan balances are held by individuals earning at least $60,000 per year.

"There's no bubble here," says Sandy Baum, professor of higher education at George Washington University, "people who borrow a lot tend to end up with high paying jobs."

Reuters profiles one student who borrowed $120,000 to attend Massachusetts Institute of Technology for engineering. Mid-career, the average MIT grad earns $128,800 annually. Another student graduated from William & Mary School of Law with $200,000 in debt, but now makes $160,000 per year.

Despite rising tuition prices, in 2013, four-year college graduates will, on average, cover their investment in higher education in 10 years thanks to higher wages. In the 1970s, it took the same group about 20 years to do so.  The pay increase results from a shortage of highly-educated workers in a technology-focused economy, according to experts.

"Debt is a tool," says Beth Ackers, a Brookings Institution researcher who found income stayed steady relative to student loan payments in the past 20 years. "If anything, I'd want to encourage lower income people to take more advantage of it," she adds.

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However, the higher debt levels still worry officials. Federal Reserve Chair Janet Yellen pointed out that for the bottom half of families, student loan balances jumped from 26% of annual income in 1995 to 58% in 2013.

Following the 2008 recession's onset, delinquent student loans skyrocketed to almost 12% in 2012. They fell to 10.9% in 2014—still nearly twice the average from 2003 to 2007.

Others in the Obama administration assert some colleges set tuition prices too high and fail to prepare their students for good jobs—leaving them struggling to make loan payments after graduation (Lange, Reuters, 11/3).


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