Are We Overreacting to the Student Debt Crisis?

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overreacting-to-student-loan-debtBy now, it’s common knowledge: Across the U.S., hundreds of thousands of borrowers are finding it impossible to pay back their student loans, and we’re likely headed for a student debt crisis.

But what if this widely held belief is, well, wrong?

According to a pair of researchers from The Brookings Institute, the impact of student debt is a lot smaller than we’ve been led to believe, and there’s minimal evidence of an impending crisis.

The Real Impact of Rising Student Debt

The researchers, Beth Akers and Matthew Chingos, analyzed data from the Survey of Consumer Finances administered by the Federal Reserve Board to figure out how the education debt levels and incomes of young households changed between 1989 and 2010. Unsurprisingly, average debt levels have risen significantly, from a median of $3,517 to $8,500, after adjusting for inflation.

Still, the authors argue that the majority of graduates aren’t burdened by massive student loans the way the media often makes them out to be. For one, the researchers say one-quarter of the increase in student debt since 1989 is a direct result of the fact that Americans are now pursuing more education, especially graduate degrees. For borrowers with a graduate degree, the average amount of debt increased from about $10,000 in 1989 to more than $40,000 in 2010.

Akers and Chingos also point out that increases in the average incomes of American college graduates have roughly matched the growth in student debt levels. According to their analysis, between 1992 and 2010, the average income in households with student debt increased by about $7,400, while the average amount of debt increased by $18,000. Lastly, the authors find the median monthly payment made by student loan borrowers has remained relatively stable, at about 3.5% of monthly income, over the last 20 years.

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What is troubling, the researchers say, is the number of people who take on student loans, but don’t complete college. Their results showed that, for households with some college but no bachelor’s degree, the amount of debt increased from 11% to 41%.

The Future of Policymaking Around Student Debt

Based on their findings, Akers and Chingos suggest that policymakers focus their efforts less on students with the largest amount of debt, who may not really need the help, and more on borrowers experiencing serious financial hardship.

At the same time, this research doesn’t obscure the fact that paying down debt can be difficult for any borrower. Learn more about how to repay your student loans with our comprehensive guide.