College graduates with student loans accumulate less lifetime wealth than their debt-free classmates, according to a study released this month.
“Though a college education remains the surest path to a middle-class life, evidence has begun to mount that student debt may be far more detrimental to financial futures than once thought, particularly for those with the highest levels of debt: students of color and students from low-income families,” writes Robert Hiltonsmith. His study was published Aug. 1 by public policy organization Demos.
Using a variety of datasets to create a model of indebted and debt-free households, Hiltonsmith’s analysis highlights some striking realities for those saddled with student loan debt. These five student loan stats stuck out:
1. A dual-head, college-educated household with average student loan debt loses nearly $208,000 of wealth in a lifetime.
Sixty-six percent of college students graduate four-year institutions with an average of $26,600 in student loans. If both heads of house carry that burden, the family is paying off $53,000 in student loans, which impacts the ability to spend and save.
2. Student loan debt has quadrupled in 10 years.
That means student loan debt now totals $1 trillion nationwide. That statistic was available before this report, but it takes on new meaning with Hiltonsmith’s analysis. Factor in the calculations from this study, and that $1 trillion in debt translates to $4 trillion in lost wealth for a household with education debt.
3. Nearly two-thirds of that wealth loss comes from lower retirement savings.
That’s $134,000 lost in a lifetime. As recent college graduates organize their finances, they should not only address loan payments but also plan to save for retirement. Take away the loan payments, and those grads have more money to save.
4. Debt-laden households earn less than debt-free households over their lifetime.
The model estimates show an interesting comparison: Graduates with loans initially earn more money than their counterparts without loans. As time goes on, the earning levels of debt-free graduates grow at a higher rate and surpass the salaries of indebted graduates.
The study’s findings show less job flexibility and mobility for earners with education debt, likely because of the need to meet monthly loan payments.
5. Those with student loan debt pay more to buy a home.
Specifically, households with education debt face higher interest rates and monthly payments on their mortgages. Based on the study’s model, education debt makes a difference in early life milestones.
“Debt-free households purchased more expensive homes, put down a larger down payment, and paid a lower mortgage interest rate than indebted households as well,” Hiltonsmith writes.
This impacts home equity for households with student loans, and more than a third of that $208,000 wealth-loss figure is attributed to lower home equity.