The Morning Economic Report
5:30 am
Mon July 7, 2014

Student Debt - 7/7/14

When looking to explain the continued lackluster performance of the U.S. economy or the sputtering housing market, the topic of student debt is almost assuredly to emerge.  Anecdotes shared around water coolers create the impression that high levels of student debt are typical – that there are baristas with $75,000 in debt and poets who need to come up with $100,000. 

But according to writer David Leonhardt, such instances are not particularly commonplace.  They are outliers and our intense focus upon such situations is "warping out understanding of bigger economic problems."  According to him, the share of income that young adults devote to loan repayment has remained fairly steady over the past 2 decades – this based upon data released by the Brookings Institution.  Only 7 percent of young adult households are associated with more than $50,000 in debt. 

By contrast, 58 percent of such households have debt below $10,000 and an additional 18 percent have between $10,000 and $20,000.  Accordingly, the problem seems not to be the graduates of top tier schools that have significant debt – many of them will do just fine.  Rather, the problem revolves around those who emerge from college with a modest amount of debt, but failed to obtain a degree.