Board of Governors of the Federal Reserve System

Education Debt and Student Loans

Among young adults who attend college, it is increasingly expected that at least a portion of their education will be financed through a student loan or through other forms of borrowing. The survey asks respondents about their use of borrowing to finance their education and the status of any loans that they incurred. The results show that the repayment status of student loans is highly correlated with the respondents' family background and the type of institution that they attended. In particular, individuals who either did not complete their degree or who attended a for-profit institution are disproportionately likely to fall behind on their student loan payments.

Student Loans Overview

Thirty percent of adults report that they borrowed money to pay for expenses related to their own education, including 17 percent who currently owe money on these loans and 13 percent who borrowed money that they have since repaid. Among those who completed at least some education beyond high school, 43 percent acquired at least some debt to finance that education, and 53 percent of those who completed at least a bachelor's degree acquired at least some debt in the process. Consistent with the higher rate of borrowing among recent cohorts of college attendees, the fraction of adults who have ever borrowed for their education is slightly above that observed in the 2015 survey. Further reflecting recent increases in educational borrowing, for each level of education, the likelihood of borrowing is highest among those ages 18 to 29 (figure 27).

While education debt is often in the form of student loans, this is not the exclusive form of borrowing to pay for higher education expenses. Among respondents who report that they currently owe money for their own educational expenses, 94 percent report owing money on student loans, but 20 percent have education-related credit card debt, 5 percent have a home-equity loan or line of credit used for education expenses, and 4 percent have education debt of some other form.⁴⁰

Among respondents who report that they currently owe student loan debt for their own education, the mean level of this debt is $32,731 and the median is $17,000.⁴¹ (The median amount of education debt is consistently lower than the mean due to some individuals with large levels of debt.) Considering other forms of debt for one's own education, the median amount of education-related credit card debt among those who have this debt is $2,500 and the median education-related home-equity loan is $10,000. Looking at all debt acquired for the respondent's own education combined, the median level of education debt is $19,000 (table 29).

Not all respondents who have outstanding education debt are currently making payments on all of their loans. Thirty-eight percent of respondents with outstanding student loan debt from their own education indicate that one or more of their loans are in deferment, so they do not currently have to make payments on that loan. Among those who indicate that they currently are making payments on one or more loans for their own education, the average monthly payment is $393, with a median monthly payment of $222.

Table 29. Form and amounts of debt currently owed for own education

The burden of education debt also extends beyond just the person obtaining the education. One way in which some parents or other family members assist with education debt is through direct assistance to help the borrower make loan payments. When borrowers are asked whether anyone else, such as a parent, is helping with debt payments for their education, 19 percent report that this is the case.⁴² The frequency of such assistance is greater among young borrowers. Fifty-two percent of borrowers under age 25 report that someone else is assisting them with these education debt payments, which is partially reflective of the high rate of assistance among those who are still enrolled in school (table 30).

Table 30. Receipt of assistance from others with education debt payments (by age)

Percent

Another way that family members may help cover the costs of education involves incurring education debt in their own names (either through a separate loan or through a co-signed loan with the student). In addition to the 17 percent of individuals who currently owe money on loans for their own education, 4 percent owe money for a spouse's or partner's education and 5 percent hold debt acquired for a child's or grandchild's education. Similar to that observed for the education debt for one's own education, the debt taken on for a child's or grandchild's education is not always through a formal student loan and sometimes involves a home-equity loan or credit card debt (table 31). Reflecting that some individuals owe money for multiple people's educations, overall, 23 percent of individuals say that they currently owe money on any education loans.

Table 31. Form of education debt incurred for one's own education and for a child's or grandchild's education (by whose education the debt funded)

Percent

Student Loan Payment Status by Demographic and Education Characteristics

Among respondents who currently have outstanding student loans from their own education, 19 percent are behind on their payments. This compares to 18 percent who reported that they were behind on student loan payments in 2015 and 14 percent who reported being behind in 2014.⁴³

The likelihood of being behind on payments is greatest among those who completed less education. Thirty-four percent of respondents who completed some college, a certificate, or a technical degree and who have outstanding loans are behind on their debt, and 13 percent of those who completed an associate degree are behind.⁴⁴ In comparison, 11 percent of respondents with outstanding loans who completed a bachelor's degree and 3 percent of those with a graduate degree are behind.

Notably, the inverse relationship between one's level of education and the likelihood of falling behind on payments also means that respondents with higher levels of student loan debt actually, and perhaps counterintuitively, have a lower rate of falling behind on payments than those with lower levels of debt. Nineteen percent of respondents with less than $10,000 of outstanding debt, and 20 percent of those with between $10,000 and $25,000 of debt, are behind on their payments. Among respondents with $100,000 of debt or more, the fraction of borrowers who are behind is a lower 8 percent. This is consistent with the pattern of delinquency on education debt by loan levels that was observed in the 2015 survey.

One limitation of focusing exclusively on those who currently owe money on their education debt when evaluating repayment status is that it excludes respondents who have successfully repaid their loan. As a result, it is possible for population groups that have a high rate of rapid repayment to appear as though default rates are high due to the exclusion of these successful repayments. Recognizing the value of including all loans when looking at the status of repayment, the remainder of this section considers the repayment status of all borrowers, including both those who have completely repaid their loan and those who have not. Among all respondents who have ever incurred debt from their own education, 10 percent report that they are currently behind on their payments, 45 percent have outstanding debt and are current on their payments, and 44 percent have completely paid off their loans.

First-generation college students who took out a student loan for their education are disproportionately likely to report being behind on their payments.⁴⁵ As was also observed in both the 2014 and 2015 surveys, among respondents under age 40, first-generation college students who ever borrowed are more than twice as likely to be behind on their payments as borrowers with a parent who completed a bachelor's degree (figure 28).

Similar differences also emerge based on the race and ethnicity of respondents. Black and Hispanic borrowers are much more likely than white borrowers to be behind on their loans, and are less likely to have completely repaid their loans (figure 29). The divergence of student loan repayment rates by race and ethnicity suggests that the burden of unmanageable student loan debt may be of greater concern, on average, among individuals who are black or Hispanic than it is for white individuals. There are several potential explanations for the observation that black and Hispanic borrowers, as well as those from lower socioeconomic backgrounds, are more likely to fall behind on their loan payments. In particular, it may be due to differences in their likelihood of degree completion, differences in the wages received for a given educational credential, different levels of financial support from one's family, or differences in the availability of a financial safety net to help them manage the payments if the degree does not pay off.

One may expect that the type of institution attended could affect the ability to repay student loans. The survey observes that borrowers who attended for-profit institutions are more likely to report being behind on student loan payments than those who attended public or nonprofit schools (table 32). While 6 percent of students who attended a public institution and 8 percent of those who attended a nonprofit institution are behind on their student loan payments, 22 percent of those who went to a for-profit institution report that they are behind.

Table 32. Payment status of student loans acquired for own education (by institution type)

Percent

This lower repayment performance for students who attended for-profit institutions may be partially attributable to differences in the rate of return across education sectors.⁴⁶ However, it also could relate to the educational backgrounds of students who attend these different types of schools. Over 95 percent of respondents who attended for-profit institutions went to a school considered by the Carnegie Classification to be an inclusive, part-time, or two-year institution. In contrast, over half of students attending nonprofit or public institutions went to schools with selective or more selective admissions criteria.

In order to assess whether the differences in payment status between attendees of for-profit, nonprofit, and public institutions is simply due to differences in their selectivity, the student loan payment status of respondents who attended for-profit schools can be compared to that of students who attended part-time, two-year, or inclusive public or nonprofit institutions, excluding those who attended selective or more selective public or nonprofit schools. (A similar comparison was considered for the value of degrees in the "Higher Education and Human Capital" section of this report.) When doing so, the gap between public, nonprofit, and for-profit institutions shrinks but does not disappear completely. Eleven percent of students who borrowed to attend a part-time, two-year, or inclusive public or nonprofit institution report that they are behind on their student loans. While this is a higher rate of being behind on loans than that seen for all students attending public or nonprofit institutions, it remains below the 21 percent of students who borrowed to attend a two-year or inclusive for-profit institution who are behind.

 

References

 

 41. Respondents who indicate that they have other debt for their education are asked to specify its form. Among those who provide additional specificity to this follow-up question, the most common responses are auto loans, personal loans, or borrowing from relatives. Return to text

 42. Based on the frequency of debt and reported debt levels, this implies about $1.18 trillion of total student loan debt levels nationally for one's own education based on the SHED responses, which compares to $1.28 trillion of student loan debt observed in the Federal Reserve Bank of New York's Consumer Credit Panel data in the third quarter of 2016 (see Household Debt and Credit Report Q3 2016, www.newyorkfed.org/microeconomics/hhdc.html). However, the aggregate loan total from the SHED does not include loans for which the recipient of the education is not a co-signer of the loan--as loan values are not asked in these instances--and does not include cases where respondents have a loan but do not report the amount. Since this additional debt will appear in the Consumer Credit Panel data, this limits the ability to conduct a direct comparison of student loan debt levels. Return to text

 43. It is not clear whether the monthly payment amounts reported in the survey include these payments made on behalf of the borrower by others, or if payments made on behalf of the borrower are in addition to the totals presented here. Return to text

 44. The comparison to 2014, however, should be treated with some caution, as the question structure changed between 2014 and 2015. Return to text

 45. The rate of being behind on payments for those with some college, a certificate, or a technical degree includes respondents who report that their highest degree is a high school degree or less who also report that they have debt. These respondents likely incurred debt for higher education, but given their lack of completion of a higher degree, still consider their highest level of education to be their high school education. Return to text

 46. First-generation college students are defined here as those who do not have at least one parent who completed a bachelor's degree. Return to text

 47. See David J. Deming, Claudia Goldin, and Lawrence F. Katz, "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?" Journal of Economic Perspectives 26, no. 1 (Winter 2012): 139-64, for a discussion of the rates of return by education sector. Return to text