Student debt hurts household wealth for decades

Newly minted college graduates, about to exchange their caps and gowns for (if they’re lucky) workplace attire, are about to encounter a stark division that will follow them for a good part of their adult lives.

A new report from the Pew Research Center underscores the stronger financial footing of young college-educated Americans who don’t have any student debt compared to the position of their peers with student debt.

On average, households headed by young Americans (which Pew defines as under 40) without student debt have about seven times the net worth ($64,700) as those with student debt ($8,700).

There’s virtually no difference in income between these two groups of college-educated Americans. But the relative size of an apartment, or the kinds of vacations that are affordable, sometimes has little to do with the numbers on a paycheck in those early years and a lot to do with how much of that paycheck gets pocketed (not to mention extra, familial sources of wealth).

As the only kind of debt that rose throughout the Great Recession, student debt became second only to mortgages as the largest type of debt owed by American households by the end of 2009.

Nearly 40 percent of households headed by a young adult had student debt in 2010. What they owe, of course, ranges, but the median level left to be paid off is around $13,000. In 2001, only 22 percent of households headed by young adults had outstanding student debt.

And having student debt often means carrying other kinds of debt, too. For example, a college-educated household with student debt runs about $137,010 in the hole, which could include mortgages, vehicle, credit card and student debt. Total household debt for similar households without student debt is about half that.

Pew’s findings, based on the Survey of Consumer Finances, do not tell us why student debtors tend to carry more overall debt, but it’s not difficult to hazard a guess. The authors of the study suggest that student debt is so burdensome it may preclude debtors from paying for other services. Or, they hypothesize, this data may be a reflection of the fact that a rising share of Americans are now enrolling in college, widening the gap between those who need to borrow to pay for their education and those who don’t.

Student debt is more prevalent among higher educated households and those with managerial occupations. Presumably, it takes more money to attain a higher degree and level of job.

So those graduating this month, whatever their financial situation, shouldn’t lose heart. Earning a bachelor’s degree is still a good investment. The typical household income of a graduate with student debt is still almost double the income of a household head who did not complete a bachelor’s degree.

Why are graduates taking so long to pay off their loans — loans that weigh on the entire economy? Paul Solman explored that question in 2012, when student debt topped $1 trillion.

Even when they struggle to pay, declaring bankruptcy does not absolve graduates of their student loan debt.

The Occupy movement tried to organize a mass repudiation of student loan debt. We spoke to activist David Graeber about that fight. But it never took off. The frustration is still there, though.

So when is it appropriate for that debt load to be forgiven? Many graduates are not even aware that they’re eligible for student loan assistance or forgiveness programs. Paul Solman tackled that question in a follow-up report.