Student Loan Debt a Rapidly Growing Burden for Affluent Grads

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'Group of college students in the university amphitheatre, they are sitting and doing an exam.'
More than two out of three college graduates now leave school with student loan debt. And the debt they carry out of school these days -- a median of nearly $27,000 as of 2011 -- is "more than twice that of college graduates 20 years ago."

These are two conclusions cited in a recent Pew Research Center analysis of government data on student loan debt. But they're not the most startling conclusions. According to Pew, the biggest increase in student borrowing over the last 20 years has been among the wealthy.

Pity the Poor Kids

As you'd expect, Pew data shows that student loan debt in America is most often concentrated among students of limited financial means. According to Pew, the majority -- 56 percent -- of student loan debt today is borne by students from the lower and lower-middle income classes.

Indeed, 77 percent of low-income students, hailing from families making less than $44,432 per year, now leave college with at least some student loan debt. Seventy percent of lower-middle-class students (from families earning $44,432 to $83,406) are in similar straits. And even among upper-middle-class students (from families earning $83,407 to $125,772), 62 percent come out of college burdened by debt.

Pity the Rich Kids, Too

As for students from what Pew terms the high-income stratum -- families earning $125,773 and up -- 50 percent of such "rich kids" now carry student loan debt into their post-baccalaureate lives. That's a much smaller proportion of kids carrying debt than is found among students less-well-off. But it's still twice the percentage of such kids carrying student loans as we saw back in 1992.

That's the biggest jump in the proportion of students carrying loan debt found among any of the four income strata surveyed by Pew. Indeed, the prevalence of student loan debt among high-income students has grown more than twice as fast as such loans have grown among low-income students. And student loan debt among upper-middle-class students is growing nearly as fast as among the rich.

But why?

The rising cost of college (and even of college textbooks!) surely explains part of the problem. Tuition costs have nearly sextupled over the past three decades. Textbook prices are up even more -- an astounding 812 percent increase in 30 years. And with the majority of parents leaving it to their kids to buy their own textbooks -- which can cost as much as $1,200 a year for a full course load -- this alone could push some kids to take on some debt.

But Pew cites several other factors as potentially explaining the increased incidence of kids from higher-income families emerging from college laden with debt. For example:
  • "The Great Recession destroyed a large amount of household wealth. From 2007 to 2010, the wealth of the typical American household fell 39 percent. ... With reduced assets to finance college, wealthier families may be resorting to borrowing."
  • "In the early 1990s the [federal government's] unsubsidized Stafford loan program was introduced. Prior to this, Stafford loans were restricted to undergraduates with financial need. With the introduction of unsubsidized Stafford loans, students could access federal loan programs regardless of need." It's only logical that making low-interest (Stafford loans currently charge 4.66 percent) loans available to students regardless of need would result in a disproportionate increase in use of this funding avenue by students from higher-income families.
  • "Availability of other sources of borrowing has been curtailed in the wake of the financial crisis. For example, it is more difficult for a family to borrow the equity in its home in order to finance college expenses." Higher-income families who, prior to the crisis, might have tapped home equity to finance their kids' education may well be turning to actual student loans to pay for their students' educations.
Individually or collectively, and in conjunction with the ever-rising cost of a college education, these factors could be contributing to high-income students now joining the rest of us, slogging through life under a mess of student loan debt.

Finally, Some Good News for the Rich

The difference? Despite borrowing more often, high-income students still leave college with some of the lowest levels of debt, on average, of any income class. According to Pew, your average student from a high-income family owes "only" $23,256 in student loans at graduation. That's statistically on par with students from low-income families ($23,081) -- and about $2,000 better off than the $25,000-and-change debt loads of grads from the middle class.

Statistically and financially speaking, Motley Fool contributor Rich Smith figures he's probably part of the upper middle class today. But by the time his third and final kid has gone through school, he's expecting to be somewhere toward the low end of the lower middle. He has no position in any stocks tied to the student loan industry. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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