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April 01, 2012

A Little Perspective on Student Loan Debt


There is little evidence to suggest that the average burden of loan repayment relative to income has increased in recent years. The most commonly referenced benchmark is that a repayment to gross income ratio of 8 percent, which is derived broadly from mortgage underwriting, is “manageable” while other analysis such as a 2003 GAO study set the benchmark at 10 percent. To put this in perspective, an individual with $20,000 in student loans could expect a monthly payment of about $212, assuming a ten-year repayment period. In order for this payment to accrue to 10 percent of income, the student would need an annual income of about $25,456, which is certainly within the range of expected early-career wages for college graduates. Overall, the mean ratio of student loan payments to income among borrowers has held steady at between 9 and 11 percent, even as loan levels have increased over time ..."

And here:

Borrowing among students at the median is relatively modest: zero for students beginning at community colleges, $6,000 for students at four-year public colleges, and $11,500 for students at private nonprofit colleges. Even at the 90th percentile, student borrowing does not exceed $40,000 outside of the for-profit sector. Examples of students who complete their undergraduate degree with more than $100,000 in debt are clearly rare: outside of the for-profit sector, less than 0.5 percent of students who received BA degrees within six years had accumulated more than $100,000 in student debt. The 90th percentile of degree recipients starting at for-profits have $100,000 in debt; so a nontrivial number of students at for-profits accumulate this much debt, but the situation is still far from the norm."

This is why I'm so suspicious of news stories filled with heart wrenching anecdotes, but short on statistics.

Attending a pricey for-profit school isn't a civil right, nor is it compulsory. It's a choice, as is the mode of financing one's education.

Posted by Cassandra at April 1, 2012 07:38 PM

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...and I wonder how one could pick a major, just as (as someone mentioned here) "women's studies", go $100,000 in debt and then blame the country for the subsequent lack in finding a job.

Thankfully as you pointed out the number of such stupid people is low.

Posted by: Bill Brandt at April 2, 2012 08:12 AM

Back in the dark ages before the Internet, at my undergraduate, private, expensive college, I had a summer job that wound up paying for one of my four years there. My parents paid for a year. I had an ROTC scholarship that paid for the rest. Aside from that particular combination of funding, my case was typical.

My classmates had scholarships, and/or parents who could afford to pay more (and, indeed, my scholarship was a windfall: prior planning and [gasp] budgeting had let my parents and I set aside those other two years of money already), and/or they had part-time jobs in town, while being full-time students, and/or they had college-sponsored work-study assistance.

And yes, some few students borrowed the money. But these classmates, before they borrowed, agonized over whether they'd be able to pay back their loans. Some ended up turning down the loan offers because they doubted their ability to honor that commitment.

Far from the implication of another part of the linked article, Some students borrow too little: ...who are eligible for student loans do not take up such loans—thus forgoing the subsidy..., my classmates--all progressives at that Progressive school--took their ability, and their obligation, to repay very seriously. They didn't like the subsidy aspect at all.

What's changed?


Eric Hines

Posted by: E Hines at April 2, 2012 06:47 PM