They think they’re better than me!

And they are probably correct:

How Student Debt Reduces Lifetime Wealth.

Student debt has skyrocketed over the past decade, quadrupling from just $240 billion in 2003 to more than $1 trillion today.  If current borrowing patterns continue, student debt levels will reach $2 trillion in 2025.  Average debt levels have risen rapidly as well: two-thirds (66 percent) of college seniors now graduate with an average of $26,600 in student loans, up from 41 percent in 1989.

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This brief attempts to quantify just how much these soaring debt levels impact college-educated households’ financial stability over a lifetime. It creates a model using data from the Federal Reserve Board’s Survey of Consumer Finances and other datasets to estimate household debt and assets, comparing the projected debts and assets of a college-educated household with average levels of education debt to a similar household without debt. It finds that, over a lifetime of employment and saving, $53,000 in education debt leads to a wealth loss of nearly $208,000.

I don’t want to cut and paste the entire article, but it is pretty thorough and has lots of pretty graphs.  I tried to show a bit of this with my calculations in this post.  But hey, I don’t get paid to look at all that stuff and do more thorough work like the authors do.  Their key findings:

  • Our model finds that an average student debt burden for a dual-headed household with bachelors’ degrees from 4-year universities ($53,000) leads to a lifetime wealth loss of nearly $208,000. 
  • Nearly two-thirds of this loss ($134,000) comes from the lower retirement savings of the indebted household, while more than one-third ($70,000) comes from lower home equity. 
  • We can generalize this result to predict that the $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households. 
  • The wealth loss will be greater for households with larger-than-average levels of student debt: students from low-income families, students of color, and for-profit students.

 

 

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Categories: Opportunity Cost, Student loans

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