U.S. Student Debt Burden Falling More On Top Earners

Too Little Of A Good Thing

While more Americans go to college and grad school than a generation ago, annual growth in enrollment 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."