Student loan debt makes graduate net worth 7 times lower than non-borrowers
May 19 2014
By: Brian Smith
LANSING -- The average household net worth for a young college graduate with student loan debt is only $8,700, while graduates without student loan debt have an average seven times higher, a new Pew Research report shows.
The report looks at households headed by a college graduate under age 40 and finds that households with student loan debt also tended to owe an average of $137,000, almost twice as much debt overall as households without student loan debt.
"Specifically, student debtor households are accumulating less wealth, in part, because they tend to owe relatively large amounts of other debt as well, from car loans to credit card debt," senior economist Richard Fry wrote.
Household incomes are roughly the same for college graduates, whether they borrowed or not, the Pew report states.
The relatively low net worth of households with student loan debt poses additional challenges in the event of financial hardship, the report argues, because it limits the options available for young adults.
"About 4-in-10 college-educated student debtors possess total debts exceeding the value of their assets, hence asset liquidation will not entirely meet their outstanding debts in the event of job losses and other unforeseen economic shocks," the report states.
A recent analysis by economic researchers with the Federal Reserve Bank of New York found home ownership rates for young college graduates are extremely low, and the Pew report finds that even graduates who do manage to buy a home aren't doing well.
"A minority of young adult households own their primary residence. But, when they do, student debtors are more likely than households without student debt to be 'underwater,' i.e., the outstanding mortgage balance as well as other loans secured by the primary residence exceeds the value of the residence," the Pew report states. "For example, 21 percent of college-educated student debtors are underwater on their primary residence, compared with 11 percent lacking student debt."
Since 2001, the median debt-to-income ratio for young households headed by a college graduate has grown from 108.3 percent to 204.6 percent in 2010, the last year for which data is available.
The ratio represents the percentage of annual income that would be necessary to pay off a household's entire debts.