Student loan debt: insight into economic well-being issues

Abstract

The purpose of this study is to investigate economic well-being issues related to student loan debt. The sample used for this study was extracted from the Baccalaureate and Beyond survey. The focus of the study is the extent to which repayment of student loan debt is a financial hardship for graduates. Two debt-to-income ratios of 1) total monthly debt payments over total monthly household income and 2) total educational debt payments over total monthly household income are used as outcome variables. How students pay for a higher education is a critical component of family and public policy. The purpose is achieved through analyses of data from approximately 6,500 students who graduated from a four-year institution in the United States in 1992-1993. The results indicate that for this cohort, in the economic conditions of the time, the benefits of borrowing to acquire a college education outweigh the costs of having to repay student loans. Less than 12% of the respondents had a monthly student loan debt-to-income ratio of 8% or more in 1997. In similar studies the benchmark for real debt burden is defined as occurring when the ratio of loans payments to salary equals or exceeds 8% of gross income. Although this study found that student loan debt is not a financial burden for the majority of students, it appears the overall level of debt for some respondents is quite high. Analysis of the data for finds that over 35% of the respondents have more than 35% of their monthly income going to debt payments. The results of the study indicate that overall total debt is a concern. Policymakers must be aware of the need to educate people on the burden of incurring high debt loads as well as create interventions that results in a decrease in people's debt loads. Methods of intervention could include: reverting to lower student loan limits, individualized counseling,