I S Is a Student Loan Crisis on the Horizon? d L C i i h H i ? Understanding Changes in the Distribution of Student Loan Debt over Time f St d t L D bt Ti Beth Akers, Matthew Chingos, and Alice Henriques Brown Center on Education Policy Brookings Institution g Upjohn Institute Student Loans Conference University of Michigan October 26, 2013
Bi B d St d Big Bad Student Debt t D bt • $1 trillion – oh no! $1 trillion oh no! • Outliers make good stories • Typical debt burdens less sensational, but lots of evidence that they are growing • Could dynamics of increasing debt and stagnant incomes create a crisis in the market g for student loans?
R Research Questions h Q ti • How has the incidence and distribution of How has the incidence and distribution of student loan debt changed over time? • Ho • How has the financial well being of student has the financial ell being of st dent borrowers changed over time? • Which student borrowers face the greatest financial hardship as a result of student debt? • Today: Question #1
D t Data on Debt D bt • IPEDS: based on survey of institutions only IPEDS: based on survey of institutions, only capture federal loans • NCES (e g B&B BPS) detailed b t selected • NCES (e.g., B&B, BPS): detailed, but selected cohorts and limited period of observations • College Board: self ‐ reported • Consumer Credit Panel: longitudinal, but no g , link to earnings
S Survey of Consumer Finances f C Fi • Nationally representative cross ‐ section of Nationally representative cross section of households administered every 3 years • We se data from 1989 to 2010 • We use data from 1989 to 2010 • Captures current loan balances and has multiple measures of earnings
S Survey of Consumer Finances f C Fi • We examine total outstanding education debt We examine total outstanding education debt of households with average age 20 ‐ 40 – Reflects borrowing and repayment to date Reflects borrowing and repayment to date • Debt calculated on per ‐ person basis in 2010 d ll dollars • Apply survey weights throughout
P Part I: Trends Over Time t I T d O Ti • Big increases (tripling) in incidence and Big increases (tripling) in incidence and borrowing • People are more likel to borro • People are more likely to borrow and they’re and the ’re borrowing more
Table 1. Incidence and Amount of Debt Over Time, Age 20-40 Those with Debt Year Y I Incidence id M Mean Debt D bt C ll i Cell size Mean Median 1989 14% $806 $5,810 $3,517 971 1992 1992 20% 20% $1 498 $1,498 $7,623 $7 623 $3 730 $3,730 1 323 1,323 1995 20% $1,475 $7,521 $3,577 1,429 1998 20% $2,539 , $12,826 , $8,027 , 1,362 , 2001 22% $2,881 $12,939 $6,156 1,307 2004 24% $3,402 $14,204 $7,503 1,246 2007 2007 28% 28% $4 583 $4,583 $16,322 $16 322 $9 728 $9,728 1 144 1,144 2010 36% $6,502 $17,916 $8,500 1,865
Trends in Debt over Time, Households with Average Age , g g 20-40, 1989-2010
Cumulative Distribution of Education Debt, Households with Average Age 20-40, 1989/ 1992 and 2010 1 .9 tage ative Percent .8 Cumula .7 .6 0 20000 40000 60000 80000 100000 Total Education Debt 1989/1992 2010
Tracking Cohort Debt over Time, Age 20-25 in 1989/ 1992 g , g 5 9 9/ 99 through Age 38-43 in 2007/ 2010
P Part II: Decomposition t II D iti • Debt levels and trends vary by educational Debt levels and trends vary by educational attainment • We might • We might worry less about increases in debt orr less abo t increases in debt that are driven by sound investments in education education
Table 2b. Summary Statistics, Individual Level, Members of Households with Average Age 20-40 g g Maximum Education of Household Year Female Debt HS or less Some Coll BA Graduate 1989 1989 50% 50% 26% 26% 17% 17% 6% 6% 52% 52% $806 $806 1992 45% 27% 21% 7% 52% $1,502 1995 43% 30% 20% 7% 53% $1,475 1998 1998 44% 44% 29% 29% 19% 19% 8% 8% 53% 53% $2,539 $2 539 2001 45% 26% 21% 8% 54% $2,881 2004 41% 30% 21% 9% 53% $3,402 2007 40% 31% 20% 9% 53% $4,583 2010 38% 31% 22% 9% 53% $6,502
Incidence of Debt by Educational Attainment 1989-2010 Incidence of Debt by Educational Attainment, 1989-2010
Average Debt by Educational Attainment, Among g y , g Those with Debt, 1989-2010
Si Simple Reweighting l R i hti • Step 1: Calculate 2010 debt by educational Step 1: Calculate 2010 debt by educational attainment • Step 2: Calculate weighted average of Step 1 • Step 2: Calculate weighted average of Step 1 using 1989 educational attainment as weights • 1989 average debt: $806 • 1989 average debt: $806 • 2010 average debt: $6,502 (increase of $5,696) • 2010 reweighted: $5,343 (increase of $4,537) ‐ > explains 20 percent of increase p p
Reweighted (simple method education only) Reweighted (simple method, education only)
Multivariate Reweighting i hti i t R M lti
Table 3. Summary Statistics, Household Level, Average Age 20-40 2010 1989 2010 reweighted i h d Maximum Education HS or less S o ess 41% % 31% 3 % 42% % Some Coll 29% 32% 29% BA 20% 24% 20% Graduate G d 9% 9% 13% 13% 9% 9% Race/Ethnicity of Household Head White 72% % 62% % 72% % Black 11% 15% 11% Hispanic 11% 17% 11% O h Other 6% 6% 6% 6% 6% 6%
M lti Multivariate Reweighting i t R i hti • 1989 average debt: $806 1989 average debt: $806 • 2010 average debt: $6,502 ($5,696 increase) • 2010 reweighted: $4,932 – Changes in educational attainment and demographics explain 28 percent of increase
Distribution of Education Debt Reweighting Distribution of Education Debt, Reweighting
T iti Tuition Adjustment: Ideal Adj t t Id l • Step 1: Measure how much each individual paid Step : easu e o uc eac d dua pa d for their education • Step 2: Measure how much they would have paid p y p 21 years prior • Step 3: Calculate the causal effect of price on p p debt • Step 4: Calculate how much less debt they would have taken out had they faced the prices from 21 years prior (Step 3 x [Step 1 – Step2])
T iti Tuition Adjustment: Actual Adj t t A t l • Don’t know how much respondents paid for Don t know how much respondents paid for education • Don’t know causal effect of price on debt • Don’t kno ca sal effect of price on debt • Instead: deflate 2010 debt to simulated 1989 level using published tuition and fees by year • Assumption (wrong): debt increase (due to p ( g) ( tuition) is same as percentage increase in tuition
T iti Tuition Adjustment: Actual Adj t t A t l • Counterfactual debt in 2010 = (Actual Debt in Counterfactual debt in 2010 (Actual Debt in 2010) x (average tuition 21 years prior to when respondent was age 20)/(average tuition when respondent was age 20) • Tuition is enrollment ‐ weighted average of g g published tuition fees at two ‐ year, public four ‐ year, and private four ‐ year institutions – Overstates importance of published tuition since increases in net price were smaller
Trends in Published Tuition and Fees 1971-2012 Trends in Published Tuition and Fees, 1971-2012
Table 4. Decomposition of Changes in Mean Debt, 1989-2010 Change from Share of Change Mean Debt 1989 Explained 1989 Debt $806 2010 D bt 2010 Debt No Adjustment $6,502 $5,696 0% Applying 1989 characteristics $4,932 $4,126 28% Applying 1989 tuition Applying 1989 tuition $3 194 $3,194 $2 388 $2,388 58% 58% Applying 1989 characteristics and tuition $2,402 $1,596 72%
C Conclusions l i • Tuition increases important but likely Tuition increases important, but likely overstated due to data limitations • Changes in attainment and demographics • Changes in attainment and demographics explain significant share of debt increase • Sizable share of increase unexplained ‐ > behavioral change, perhaps shifts in attitudes towards debt?
N Next Steps t St • Improve tuition adjustment if possible Improve tuition adjustment if possible • Repeat analysis using debt ‐ to ‐ income ratios and other meas res of financial distress (e g and other measures of financial distress (e.g., bankruptcy) • Do trends in debt spell trouble for the broader student loan market?
I S Is a Student Loan Crisis on the Horizon? d L C i i h H i ? Understanding Changes in the Distribution of Student Loan Debt over Time f St d t L D bt Ti Beth Akers, Matthew Chingos, and Alice Henriques Brown Center on Education Policy Brookings Institution g Upjohn Institute Student Loans Conference University of Michigan October 26, 2013
Distribution of Education Debt 1989/ 1992 and 2010 Distribution of Education Debt, 1989/ 1992 and 2010 .00015 0001 .0 05 .0000 0 0 20000 40000 60000 80000 100000 Total Education Debt 1989/1992 2010
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