Helping to Enslave You: Student debt at $1.3 trillion

From [HERE] and [HEREEvidence overwhelmingly shows that the average earnings premium to having a college education is high and has risen over the past several decades, in part because of a decline in real average earnings for those without a college degree. In addition to high private returns, there are substantial social returns to having a well-educated citizenry and workforce. A new development that may have important longer-term implications for education investment and for the broader economy is a significant change in the financing of higher education. State funding has declined markedly over the past two decades, a trend that has coincided with a significant increase in college tuition. To cover the rising cost of college, students and families have increased their reliance on student loans, funding a greater share of an increasing overall college cost. While the federal student loan program has undoubtedly helped mitigate the impact of higher costs on college access and enrollment, more and more students now leave college with higher amounts of debt. Given these trends, it is critical to understand whether holding student debt has affected young Americans’ later life outcomes, such as homeownership. 

Previous work has documented that student debt holders endured a sharper decline in homeownership during the recession (relative to those who did not hold student debt), and that a college education is associated with a higher probability of becoming a homeowner. But there is significant heterogeneity among those who go to college and across the type of colleges students attend, and past research has not been able to disentangle how different types of educational attainment and student debt interact to impact the likelihood of owning a home. In this blog post, we begin to close that gap, merging two unique data sets to address the following questions: 

  • How do homeownership-age patterns differ between college attendees who incurred student debt and those who did not?
  • How do these differences, and overall homeownership level, vary by type of degree and graduation status?
  • And how does homeownership vary with the amount of student debt and with family background?

We shed light on these questions using a rich data set that matches the New York Fed Consumer Credit Panel (CCP), based on Equifax data, to National Student Clearinghouse (NSC) education data, allowing us to track student debt and educational attainment over time for a representative sample of young adults. Because we observe not only whether an individual owes student debt and has attended college, but also graduation status, level of degree obtained, and homeownership status, we are able to further disentangle the relationship between different education levels and homeownership. Throughout this discussion, it is important to note that our analysis is descriptive and, while suggestive, the statistical associations shown do not necessarily imply causation; at least part of what we uncover could result from differences in the kinds of people who choose to attend college.  

We focus on individuals born between 1980 and 1986 and track their college attendance and homeownership rate by age. In our analysis, we measure college attendance by entry into higher education by age twenty-six and define student borrowers as those having any student debt at any point between ages twenty-seven and thirty. Homeownership is defined as having a mortgage at any time prior to age thirty. [MORE]