The New York Times writes today not about the student debt woes of Millennials, but the student debt woes of Gen Xers:
As of the first quarter of this year, members of Generation X held about a quarter of the nation’s outstanding $1.6 trillion in student loan debt — to the tune of nearly $49,000 per borrower, according to TransUnion, the credit reporting bureau.
....For people like Renita Thompson of Washington, D.C., the fast-approaching deadline makes planning for the future more challenging. Ms. Thompson, 51, is earning a bachelor’s degree in human resource management and owes between $75,000 and $80,000 in a combination of federal and private student loans.
It's all but impossible to get detailed data by age for student loans, but enough is available to say that this description is wildly misleading.
First, that $49,000 average is a mean, not a median. That means it's inflated by the astronomical loan balances of a small number of doctors, lawyers, and business grads.
Second, this is the average among people who still have debt. Almost by definition, these are the people who borrowed the largest amount of money (i.e., doctors, lawyers, and business grads).
Third, it says nothing about how many Gen Xers still have loan debt. The answer is about 15%, nearly all of whom are folks who earned professional degrees and are now earning high salaries. Among the ordinary Gen Xers who got their BA and then entered the workforce, almost all have already paid off their loans.¹
Fourth, Renita Thompson is extremely non-representative of borrowers. She's 51 and apparently getting a BA from a private, for-profit college like DeVry or the University of Phoenix. The median amount borrowed by 4-year public school grads is around $20,000.
I almost don't pin any blame on the reporter who wrote the Times story since it's so damn hard to get numbers for student debt that make sense. But I can blame her for choosing such an obviously unusual and misleading example of Gen X student debt. Everyone does this, and it should stop.
¹I'm pretty sure of this, but I admit that it's a bit of a guess. Straight-up data on the number of borrowers at different ages and levels of debt doesn't seem to be available, so it has to be extrapolated from other sources.
The Times has an political agenda so they pick an example that they think supports that agenda.
Ms. Thompson is 51 and earning a degree in a subject that is unlikely to increase her income by a huge amount. if you assume she has 15 , years left to work she would need to pay back 5k a year in principal. If you assume an amortizing loan at reasonable interest rate, probably 7 or 8k a year. She will probably default. The only reason she can borrow so much is that the lenders know they will be repaired - the loans are guaranteed. This is just bad public policy. She will be hurt and the taxpayers who will absorb the costs of her default will be hurt.
How did we get into this stupid place?
Yeah, I didn't see in the story where it said Ms. Thompson was going to one of those diploma mill for-profit schools, but even if she's not, going back to school at this point in her life/career -- and paying full fare for it to boot -- does not seem like a particularly sound financial decision.
Good rule of thumb: take on as little debt as possible for your undergrad degree by looking for 1. a school that will give you a generous financial aid package (even if it's not your "dream school") or 2. a reasonably-priced public university or community college and 3. Never, ever, ever, pay for a graduate/professional degree in *anything* but business, law, or medicine. Unfunded MAs are the biggest scam in higher ed. And if you want a Ph.D but the program won't fully fund you with a complete tuition waiver and stipend, move on.
"...But I can blame her for choosing such an obviously unusual and misleading example of Gen X student debt. Everyone does this, and it should stop..."
It doesn't seem like the incentives of our media are going to change this cherry-picking dynamic. It's too easy, feels too good, outcompetes proportionality and context.
I'm a gen-Xer and I paid off my last student loans about 10 years ago -- about 25k -- all from my undergrad degree. But I've been lucky to have been gainfully employed since that time without any major health or financial crises to derail things, so there but for the grace of God go I, etc.
Most of the tough student loan debt stories I see involve 1. POC w/o the generational wealth to have afforded college costs up front and who 2. either delayed going to college and had to do it part time, which costs more, or went to a local/lower-tier school that couldn't offer a good financial aid package, so they took on loans. I also read about a lot of people who got suckered into master's programs that cost 100k+, in fields where the average salaries come nowhere close to letting you pay off that kind of debt (and afford anything else). So a combination of structural racism/poverty, poor information/decision making, and predatory marketing by unscrupulous schools.
If someone is smart enough to be able to earn a Master's degree, how is it they wouldn't have the foresight to see the field(s) they were targeting were such that there was no way to pay-off that much debt? Or, to borrow from the expression, can any ham sandwich get a Master's degree these days?
I think it's a sunk cost thing. They get all excited about getting an advanced degree because they've seen some promotional material saying that they could make "50% more!!!" or something with a new degree and then they apply and get admitted, and then see the price and think, well, I've come this far, and my family will be so proud of me, and I'll get that raise and...
They just don't pencil out what paying back 150k in loans, even with their new base salary -- if they even score that -- will really look like.
Getting a master's degree doesn't prove that one is smart, except perhaps in a limited number of fields that require it (e.g., hard sciences and math-related degrees). But even there, just because one is smart at one thing doesn't mean one is smart at another thing. Remember Ben Carson? Apparently a brilliant surgeon, but TBH he struck me as dumb as a box of rocks on literally everything else. There are far more "smart" people like Ben Carson than people who are smart in general.
1. More whites than POC lack generational wealth.
2. The suckering is mostly done by rich liberals. How many times have you read that students should study what inspires them and that other things are more important than the income they will get after graduation? What is the usual political affiliation of the people who write and say this kind of thing? Wasting the price of a house on self actualization is a luxury of the rich.
Smarter trolls please.
Seriously.
In other words, you know I'm right and you find that annoying.
1 there are more whites than blacks. By like 8x.
1b there are racists and bigots out there who will fuck up anyone they want to, spoiling the wealth effect for minorities.
2 based on what, exactly? Self-identified Republicans have more wealth on average and median than Democrats. https://www.pewresearch.org/religion/religious-landscape-study/ They own more property, and are involved in more scams, tax and otherwise, and their governments are more poor and rule over poorer states and districts.
Today Kevin tells us that the typical stats on Gen X student debt are misleading and should be largely ignored.
But a few days ago Kevin used this same Gen X student debt info to tell us that Millenials dont actually have a student debt problem because look at how much worse the Gen X'ers have it.
This seems a tad bit....disingenous.
The student debt situation us a total disaster for general education and the future of thr US workforce. Articles like this are a service for the country as people need to remember how stupid and destructive our chosen approach has become.
Whining that the media is using an outlier is a bit silly (the media does this is in every article on every topic), why should it stop? Maybe the news should cover all the traffic locations where traffic is moving along smoothly today.....or all the countries where wars arent happening and the soldiers who are serving at a desk far from the front lines or the ex-presidents who arent coup-ing. Maybe so!
"Today Kevin tells us that the typical stats on Gen X student debt are misleading and should be largely ignored.
But a few days ago Kevin used this same Gen X student debt info to tell us that Millenials dont actually have a student debt problem because look at how much worse the Gen X'ers have it. "
Yup. For the record, I think it's this post that is the correct one. The other one was just another in Kevin's narrative series.
Although he is probably right in his footnote that most X'ers have probably paid off their debt, and those X'ers who have debt today are probably not an apples to apples comparison with Millennials or Gen Z as they are either still stuck with loan balances for some reason (probably misfortunes) or they chose to return to school later.
I think what this really reflects is the reality that it is impractical to go back to school to start over. Our educational system gives you one shot to get it right.
It is totally practical if you study something useful each time.
...and don't encounter health, family health, or other economic disasters in the meanwhile.
Applies equally to credit card debt, home mortgages, business loans, etc
No reason to give special breaks for education loans.
Something not mentioned is that for professionals like doctors with stable jobs these loans can have really low rates. My wife's loans are less than 2%, with a rate like that we are paying them off as slowly as possible. I would guess there are a lot of outstanding loans like this for gen x, professional degrees with rates so low that people who could pay them off aren't doing so because it makes more sense to put that money into stocks.
Regarding a comment above about not going back to school, I went back twice in my latest 20s and again in my 30s and did well. But I went to state schools, had good credit, didn't have kids, and saved before going back each time. It can work but only if you actually have a plan and are privileged enough that you can live below your means for a bit and work full time while doing school part time.
I didn't know that was a thing - and it's a good point. If you can earn a higher return than your loan's (fixed) interest rate by putting your extra money somewhere else, of course you should do that.
People talk a lot about how it's expensive to be poor, but not enough about how it's inexpensive to be affluent. There isn't enough awareness of what finance is like for the better off and it distorts conversations about debt. We are top decile, not top percentile, and live below our means, lenders are just about giving money away for free when someone is in this position, or were till about five years ago. Easy to make more off of equities than we were paying for loans. This is probably an important part of those high loan balances when talking about older loans.
In my previous partnership we were also somewhere in the top decile ish, or top quintile at least. Financing was cheap and easy, all the way until the recent rate increases. After that, given that we were relatively affluent, the availability of higher rates of return from just parking cash in certain accounts would also make things easier...
I do think it's under discussed. Also, the why of it - it seems to me that things are made easier for the affluent by making things harder and more punitive on the less affluent. By squeezing the unwashed masses for every spare penny, banks and other financial entities can afford to offer (relatively) lucrative incentives and products to their actual constituency: the affluent. Access to these things is the siren's call behind the "American Dream" marketing.
My wife is 44 and we still have a few thousand dollars left on her loan from graduate school. She's a teacher and did a five and a half year program and got her bachelors and masters at the same time. (Parents covered the bachelors, she took a loan for the masters.) The rate is about 2.5%. We could have paid it off already but it makes more sense to put extra money into other investments or pay off other higher-interest debt.
Yeah, but if you're not a doctor with a stable income, the rates are like credit-card high. Even for past debt.
Kevin,
I don't have detailed data to work from any more than you do, but I think your model for student debt dynamics is just wrong. Ceteris paribus, professional school borrowers borrow more, and so would take a longer time to pay, sure. But ceteris is not paribus: most professional school borrowers earn more, and are eager to pay down student loans. Successful Gen X professionals who may have borrowed a lot are now, I suspect, mostly debt free.
What keeps student debt persistent is low earnings leading to payments less than interest and also to penalties and fees. For incautious borrowers with low earnings, balances have grown over time despite a long-if-imperfect history of payments, due to capitalization of interest and penalties. (Biden's reformed IDR may really help with this!)
Gen-X-ers who continue to have debt are, I suspect, likely a mix of people who took on debt for graduate and professional school, as well as just undergraduates. What continuing debtors share has little to do with their initial borrowings or choice of schooling, but failure to pay (nearly always attributable at least in part to low incomes) enough to get through a barrier of interest and penalties and into paying away underlying principal owed.
Loans offered through private lenders can have really low rates. In my own case it was well under 2%. At rates like that it makes no sense to pay off early. Pay the minimum and put that money into investments instead. I don't know how much professional borrowing is like this, but those tend to be large loan amounts and I would guess this is a big enough part of it to really skew the numbers. On an anecdotal level I know others have done similar things, it's lower than a mortgage rate, why pay it off any sooner than you have to?
tzimiskes - we have a similar experience to what you describe. My wife had debt from medical school. It was inexpensive, but not the sub 2% you mention, so we waited to pay off this debt. While we no longer hold her medical debt, it was a informed financial decision, versus desperation, that resulted in us carrying this debt for many years.
We watched rates closely and refinanced a few times. Same thing with our house where we got to 2.125, they were basically giving money away at certain points over the last decade.
This is a good point. We'd need quantitative information to break down the two cohorts, strategic slow payers of advantageous loans versus lower-income slow payers who struggle to net-paydown due to interest, penalties, and fees. On the one hand, strategic slow payers probably are disproportionately professionals, who start with high balances. On the other hand, most of the last gen-x-ers would have been paying undergrad for around 20 years, grad for around 15, so unless the loan terms permit interest-only maintenance, even strategic slow payers should have paid a substantial portion of their balances down by now.
Choice of schooling drives low income which drives failure to repay.
No it does not. Life happens and you can have degrees from top schools but drowning in debt because suddenly your education is for something not needed at the moment and then you get sick. Architects got hit hard, there's a glut of lawyers and MBAs are a dime a dozen.
OTOH I'm making more than my sibling with the top notch degrees. I have a quality BA from a quality state school but it's in History.
My granddaughter, age 25, got a PT degree, She finished her undergrad without any debt, partly through IB courses in high school and finishing in three years. They recently changed to require a Phd for physical therapy, and school is too hard to also have a part time job. She owes +100K in student loans. The average salary is $70 K. She will not be getting married, starting a family, or buying a house for a long time. Her older sister has an MBA, has recently paid off her debt, and makes a lot more money. We need more physical therapists than we do another MBA.
jwc123 - I am one of those evil MBA types. Further, I agree with "We need more physical therapists than we do another MBA."
Of course, money is not the only form of compensation one typically receives from a job.
I have an MBA but my employer paid for. That is the same for many of my friends. I would always encourage anyone seeking an MBA to look for an employer that will fund all or at least part of the tuition.
And this is so, so wrong. There are a bunch of degrees that require lots of education and the salaries are too low after graduation yet the jobs service a vital public service. Therapists both physical and mental, teachers and social workers come to mind.
The biggest problem isn't professionals with debt, but failed professionals with debt.
School teachers and lawyers and engineers who went for a degree, but life got in the way.
My friend was in law school and he was almost failing out, as they had a curve you had to beat in each class. Worse, his mother contracted cancer while he was there and he had to go take care of her convalescent care.
There's no waiver for the 8% loans for cancer - and that's the rates his predatory lenders were assessing while home loans were in the 2% range.
There's no way for him to pay it off now. He owes more on it than I do for a house in Santa Cruz.