I S Is a Student Loan Crisis on the Horizon? d L C i i h H i - - PowerPoint PPT Presentation

I S d L C i i h H i ? Is a Student Loan Crisis on the Horizon?

Understanding Changes in the Distribution f St d t L D bt Ti

• f Student Loan Debt over Time

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 t D bt Big Bad Student Debt

• $1 trillion – oh no!

$1 trillion oh no!

• Outliers make good stories
• Typical debt burdens less sensational, but lots
• f evidence that they are growing
• Could dynamics of increasing debt and

stagnant incomes create a crisis in the market g for student loans?

R h Q ti Research Questions

• How has the incidence and distribution of

How has the incidence and distribution of student loan debt changed over time?

• Ho

has the financial ell being of st dent

• How has the financial well being of student

borrowers changed over time?

• Which student borrowers face the greatest

financial hardship as a result of student debt?

• Today: Question #1

D t D bt Data on Debt

• 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 f C Fi Survey of Consumer Finances

• 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 f C Fi Survey of Consumer Finances

• We examine total outstanding education debt

We examine total outstanding education debt

• f 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 t I T d O Ti Part I: Trends Over Time

• Big increases (tripling) in incidence and

Big increases (tripling) in incidence and borrowing

• People are more likel to borro

and the ’re

• People are more likely to borrow and they’re

borrowing more

Table 1. Incidence and Amount of Debt Over Time, Age 20-40 I id Y C ll i M D bt Those with Debt Mean Median 1989 14% $806 $5,810 $3,517 971 1992 20% $1 498 $7 623 $3 730 1 323 Incidence Year Cell size Mean Debt 1992 20% $1,498 $7,623 $3,730 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 28% $4 583 $16 322 $9 728 1 144 2007 28% $4,583 $16,322 $9,728 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 .8 ative Percent .7 Cumula .6 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 t II D iti Part II: Decomposition

• Debt levels and trends vary by educational

Debt levels and trends vary by educational attainment

• We might
• rr less abo t increases in debt
• We might worry less about 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 HS or less Some Coll BA Graduate 1989 50% 26% 17% 6% 52% $806 Year Maximum Education of Household Female Debt g g 1989 50% 26% 17% 6% 52% $806 1992 45% 27% 21% 7% 52% $1,502 1995 43% 30% 20% 7% 53% $1,475 1998 44% 29% 19% 8% 53% $2 539 1998 44% 29% 19% 8% 53% $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 l R i hti Simple Reweighting

• 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)

M lti i t R i hti Multivariate Reweighting

1989 2010 2010 i h d Table 3. Summary Statistics, Household Level, Average Age 20-40 reweighted Maximum Education HS or less 41% 31% 42% S o ess % 3 % % Some Coll 29% 32% 29% BA 20% 24% 20% G d 9% 13% 9% Graduate 9% 13% 9% Race/Ethnicity of Household Head White 72% 62% 72% % % % Black 11% 15% 11% Hispanic 11% 17% 11% O h 6% 6% 6% Other 6% 6% 6%

M lti i t R i hti Multivariate Reweighting

• 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 Adj t t Id l Tuition Adjustment: Ideal

• 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 Adj t t A t l Tuition Adjustment: Actual

• Don’t know how much respondents paid for

Don t know how much respondents paid for education

• Don’t kno

ca sal effect of price on debt

• Don’t know causal 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 Adj t t A t l Tuition Adjustment: Actual

• 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 Mean Debt Change from 1989 Share of Change 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 $3 194 $2 388 58% Applying 1989 tuition $3,194 $2,388 58% Applying 1989 characteristics and tuition $2,402 $1,596 72%

C l i Conclusions

• Tuition increases important but likely

Tuition increases important, but likely

• verstated 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 t St Next Steps

• 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 d L C i i h H i ? Is a Student Loan Crisis on the Horizon?

Understanding Changes in the Distribution f St d t L D bt Ti

• f Student Loan Debt over Time

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 05 .0 .0000 20000 40000 60000 80000 100000 Total Education Debt 1989/1992 2010

Table 2a. Summary Statistics, Household Level, Average Age 20-40 Race/Ethnicity of Household Head Maximum Education of Household White Black Hispanic Other HS or less Some Coll BA Graduate 1989 72% 11% 11% 6% 62% 41% 29% 20% 9% 1992 71% 14% 10% 5% 61% 37% 29% 25% 9% 1995 73% 14% 9% 4% 59% 36% 31% 23% 10% Race/Ethnicity of Household Head Year Couple Maximum Education of Household 1995 73% 14% 9% 4% 59% 36% 31% 23% 10% 1998 71% 14% 11% 4% 62% 36% 32% 21% 11% 2001 68% 16% 12% 4% 60% 38% 28% 23% 11% 2004 67% 15% 14% 4% 58% 34% 31% 23% 12% 2007 63% 16% 15% 6% 62% 33% 33% 22% 12% 2010 62% 15% 17% 6% 58% 31% 32% 24% 13%