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 A Reuters analysis of Federal Reserve data shows that over the
past two decades the young with higher incomes have gone from owing
less of the debt than the average household to owing considerably
more.
U.S. student loan balances have quadrupled since 2004 to $1.1
trillion (688.84 billion pounds), prompting credit rating agency
Standard & Poor’s and others to express fears the borrowing could
crimp consumer spending, especially home buying, and eventually lead
to the painful bursting of a bubble. Worries over high loan levels
have also been voiced by President Barack Obama and more recently,
Federal Reserve Chair Janet Yellen.
Without doubt, many families struggle to pay the rising costs of
college, and high levels of unemployment have only added to the
distress. Delinquency rates on student loans remain well above
historically average levels.
But the analysis of the Federal Reserve’s Survey of Consumer
Finances, a triennial survey published in September with 2013 data,
makes it clear that heavy borrowing is usually rewarded with big
salaries. The increased concentration of debt among the well-paid
should ease concerns that the surge in debt is a wider economic
threat.
The data show that most of the nation’s overall loan balances are
held by those earning more than $60,000. Moreover, among households
that owed at least $60,000 and were young, defined as those headed
by someone between 20 and 40 years of age, average income last year
was $82,000.
 This includes people like Larry Perrone.
His journey into the legal profession started at the private Florida
Coastal School of Law in Jacksonville, Florida. He had been working
as a bartender and planned to borrow around $130,000, figuring he
could make $80,000 a year as a lawyer at a private practice.
Perrone did well in his studies, and after a year and a half
transferred to the more expensive William & Mary School of Law in
Williamsburg, Virginia. That meant more borrowing, but potentially a
lifetime of higher earnings because his degree would be stamped by a
much more prestigious school.
"If you're going to get a tattoo, do you go to a really expensive
place or to a cheap guy? It wasn't a really difficult decision for
me," Perrone said.
In 2008 after graduating nearly $200,000 in the red, he took a job
at a big firm in Washington, making $160,000 a year. "It worked out
well." He initially put off buying a home, but finished paying his
loans this year and is now eyeing a condo in Florida.
THE WOW FEATURE
Perrone's story is part of a larger trend in which heavy borrowing
is increasingly rewarded with big salaries. Seen another way, as the
salaries of the well-educated have grown relative to everyone else
over the last quarter century, so has the borrowing that has paid
for their training.
By last year, the top fifth of total households by income, or those
making more than $101,000, was on the hook for roughly a third of
student loan balances, nearly twice their share in 1989, according
to the Fed survey. At the beginning of the period, student loans
were mostly held by middle income families - the next two fifths
down the income ladder. But their share fell sharply by 2013 and the
share of the bottom two fifths held about steady.
The data does not show the income of students’ parents so it is not
possible to draw conclusions about the backgrounds of heavy
borrowers. The numbers do suggest, however, that worries that
America is heading for a debt crisis over student loans are
overblown.
“There's no bubble here,” said Sandy Baum, a professor of higher
education at George Washington University. “People who borrow a lot
tend to end up with high paying jobs.”
 Take Baker Logan, who borrowed about $120,000 to get an engineering
degree from the Massachusetts Institute of Technology, which data
firm Payscale ranks as a top three school for long-term alumni
earnings. The average mid-career MIT grad makes $128,800 a year.
"MIT has that name, so you immediately get that wow feature when
you're talking to employers," Logan said. He graduated this year and
is working at a consulting company in Woburn, Massachusetts. Logan,
who asked that his current income not be disclosed, expects to pay
off his 30-year student loan ahead of schedule.
The data also suggests that the more you study, the more you earn,
even if it means building up much larger debts.
Last year, a young American household with student debt and a main
breadwinner with four years of college owed $32,000 and earned about
$61,000 on average.
The income is a third more than the earnings of a family with just a
high school diploma.
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And the rewards were even higher for young families that have a
member who did graduate studies. They owed $55,000 but this came
with an income of $99,000 on average.
Jason Delisle, an education policy expert at the New America
Foundation in Washington, has analyzed government data and estimates
that about 40 percent of current U.S. student loan balances were
taken out to finance grad school. This, he says, should temper
worries about the debt burden's wider impact.
"It's almost like the problem goes away," said Delisle, who used to
be a senior analyst on the Republican staff of the U.S. Senate
Budget Committee. TOO LITTLE OF A GOOD THING
While more Americans go to college and grad school than a generation
ago, annual growth in enrolment has slowed since the 1980s and many
economists believe this has been a key force in lifting the incomes
of the affluent relative to the rest of the country.
The theory is that the supply of well-educated workers is falling
short of demand in an increasingly high-tech economy, pushing the
wages of college grads higher.
This makes it easier to pay back money borrowed for increasingly
pricy educations. New York Fed researchers said in September that
even though college tuition has soared in recent decades, higher
wages mean a four-year college grad in 2013 will on average break
even on their investment in about 10 years, half the time it took
for students who graduated in the 1970s.
Rising debt levels nonetheless worry some policymakers, including
Yellen. Citing the same Fed survey, she noted in October that for
the bottom half of U.S. families by net wealth, student loans
balances grew to 58 percent of yearly income in 2013 from 26 percent
in 1995.
The Obama administration worries that some colleges, particularly
private ones, might be overcharging students for degrees that don't
lead to good jobs. The impact of the 2007-09 recession has weighed
heavily on this group, as it has on those who borrowed for college
but dropped out before graduating.Kris Parker graduated with a law
degree from Florida Coastal and about $200,000 in debt but has
struggled to make enough money to make loan payments. "My credit has
been ripped apart," he said. "I can't buy a car. I have a hard time
buying furniture."
Student loan bills at least three months past due rose sharply after
the recession to hit nearly 12 percent in 2012. Delinquencies have
fallen steadily since late last year and were last pegged at 10.9
percent between April and June, but that is still nearly twice the
average rate between 2003 and 2007.
Still, the administration is wary of the view that big student debts
are inherently bad.
"Rising debt has paid for an increase in the numbers of people able
to receive higher education ... and has therefore raised incomes and
increased growth," Deputy Treasury Secretary Sarah Bloom Raskin said
in September in a speech on student loans and the economy.
Raskin cited research by Brookings Institution researchers Matt
Chingos and Beth Akers, who found monthly student loan payments have
held steady relative to income over the last two decades. "There is
a great deal of integrity and stability in the student loan market,"
Raskin said.
For the Brookings researchers - who attribute the stability in debt
burdens to lower interest rates, longer payment periods and higher
incomes - there are dangers in America's angst over student loans.
"Debt is a tool," said Akers. "If anything, I'd want to encourage
lower income people to take more advantage of it.”
(Reporting by Jason Lange in Washington; Additional reporting by
Rebecca Elliott and Elvina Nawaguna in Washington; Editing by David
Chance and Martin Howell)
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