Thursday, July 11, 2013

Student Loans: An Economic Anchor?

In the past, those with student loans had more debt that those without such loans, but also had similar credit scores and were more likely to have a home loan or a car loan. The reason, of course, is that hose with student loans also are more likely to have attended colleges and universities, and the improved job prospects from higher education in some sense outweighed the student loan debt. But now the pattern has altered, as Meta Brown and Sydnee Caldwell of the New York Federal Reserve report.

Here are a couple of illustrative figures looking at home loans and car loans. Notice that up to about 2008, those with student debt were more likely to have home and car loans. Since then, they have become slightly less likely to have such debt.



Here's a figure, showing credit scores for 25 and 30 year-olds, with and without student debt. Notice that up to about 2008, credit scores were similar for those with and without student debt--essentially, the higher level of debt for those with student loans, who were also more likely to have home and car loans, was counterbalanced by their higher earning power. But since 2008, the credit scores of 25 and 30 year-olds without student debt have risen, while those with student debt have been flat or slightly declining.

Of course, these numbers are averages. Probably the key fact to remember about student debt is that there is enormous variation in the payoff to higher education depending on the school you attend, your major, whether you complete a degree, and other factors. For previous posts on student loan issues, see "Student Loan Snapshots" (March 4, 2013) and "Average College Student, Average Loan"
(March 27, 2012).