Student debt leads to smaller nest eggs

Some might have rethought college if they’d known

By Kathy CanavanCollege graduate with tuition price tag, vertical

More than three-quarters of former college students wish they could have a do-over for their student loans, and almost half say they might not have gone to college if they had known how college debt would morph their futures, according to a new survey by Citizens Financial Group.

About four out of 10 U.S. households headed by an adult younger than 40 is shouldering some student debt, according to the Pew Research Center. That’s the highest number on record. The median outstanding debt is about $13,000.

In Delaware, 56 percent of students who graduated last year had student loan debt, and the average debt per borrower was $33,649, higher than the national average of $29,400.

Although lifetime-earnings figures clearly show that college is a good investment, student loan debt is now second only to mortgage debt in size and adults under 40 with student loans lag behind their debt-free peers.

Among households headed by college-educated adults under 40, those with student loans tend to have lower net worth even when their salaries are equal. They are also much more likely to have car loans and credit card debt.

Among college-educated adults under 40, 60 percent of college borrowers have credit card debt, compared with 39 percent for non-borrowers. Forty-three percent have car loans, compared with 27 percent for non-borrowers.

The survey showed young householders who borrowed for college also report being less satisfied with their financial situations than those who didn’t. Only 14 percent of college-educated non-borrowers said they are dissatisfied with their financial situations, versus 29 percent of those who borrowed.

In cases where two former students have equal income, typically the one with student debt has a lower net worth, according to the Pew survey. Among households with nearly identical income, those with no student debt have about seven times the nest egg of those with no debt. That gap extends to adults under 40 who never earned a degree but went into debt for college. Non-grads with no debt accumulate about nine times as much wealth as those with debt.

Typical total indebtedness – mortgage debt, car loans, credit card debt and student debt – is almost twice as high among college-educated young adults with student debt, according to the Pew study.

Nearly a quarter of former students ages 18-to-40 say they cannot make their monthly payments, according to the Citizens survey. And nearly three-quarters of current college students say they are concerned that they will not earn enough to pay off their loans.

Their fears may not be well founded. The 2013 median weekly salary for college-educated workers over age 25 is $1,108, according to the Bureau of Labor Statistics. That’s far more than the average of $651 for a high school diploma and or $727 for those with some college but no degree. The median weekly earnings for those who have earned a master’s degree is $1,329. Those with doctoral degrees earn a median salary of $1,623, and those with professional degrees earn $1,714.

High school graduates can expect lifetime earnings of  $1.2 million on average, according to U.S. Census figures. Those with bachelor’s degrees can expect $2.1 million, and those with master’s degree earn an average of $2.5 million. Persons with doctoral degrees earn an average of $3.4 million over their lifetimes, and those with professional degrees earn an average of $4.4 million.

The unemployment rate for college graduates is also lower – four percent compared with 11 percent for those with no high school diploma, 7.5 percent for those with a high school diploma only and 5.4 percent for those who have earned an associate’s degree only.

Eighty-four percent of young graduates who borrowed to fund their education said that college has paid off for them or that they believe it will in the future, according to Pew.

“What is occurring here is an investment in human capital,” said John Stapleford, the economist who heads the Caesar Rodney Institute, a Newark free-market think tank. “If the conditions exist for maximizing the use of one’s human capital – freedom to travel, no labor market discrimination, private property rates where you can keep what you earn, competitive labor markets — there is no economic development investment that exceeds education.”

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