Fe D Student Loan S – Federal Direct Loans

Student debt is a big issue in the 2020 presidential campaign for an obvious reason: There’s a lot of it—about $1.5 trillion, up from $250 billion in 2004. Students loans are now the second largest slice of household debt after mortgages, bigger than credit card debt. About 42 million Americans (about one in every eight) have student loans, so this is a potent issue among voters, particularly younger ones.

About 75% of student loan borrowers took loans to go to two- or four-year colleges. Those borrowers account for about half of all outstanding student loan debt.

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Despite horror stories about college grads with six-figure debt loads, only 6% of borrowers owe more than $100,000.
Over the course of a full-time career, the typical U.S. worker with a bachelor’s degree earns nearly $1 million more than a similar worker with just a high school diploma.

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Q. Is college worth the money even if one has to borrow for it? Or is borrowing for college a mistake?

A. It depends. On average, an associate degree or a bachelor’s degree pays off handsomely in the job market; borrowing to earn a degree can make economic sense. Over the course of a career, the typical worker with a bachelor’s degree earns nearly $1 million more than an otherwise similar worker with just a high school diploma if both work fulltime, year-round from age 25. A similar worker with an associate degree earns $360,000 more than a high school grad. And individuals with college degrees experience lower unemployment rates and increased odds of moving up the economic ladder. The payoff is not so great for students who borrow and don’t get a degree or those who pay a lot for a certificate or degree that employers don’t value, a problem that has been particularly acute among for-profit schools. Indeed, the variation in outcomes across colleges and across individual academic programs within a college can be enormous—so students should choose carefully.

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A. About 75% of student loan borrowers took loans to go to two- or four-year colleges; they account for about half of all student loan debt outstanding. The remaining 25% of borrowers went to graduate school; they account for the other half of the debt outstanding.

Most undergrads finish college with little or modest debt: About 30% of undergrads graduate with no debt and about 25% with less than $20,000. Despite horror stories about college grads with six-figure debt loads, only 6% of borrowers owe more than $100,000—and they owe about one-third of all the student debt. The government limits federal borrowing by undergrads to $31,000 (for dependent students) and $57,500 (for those no longer dependent on their parents—typically those over age 24). Those who owe more than that almost always have borrowed for graduate school.

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Where onegoes to school makes a big difference. Among public four-year schools, 12% ofbachelor’s degree graduates owe more than $40,000. Among private non-profitfour-year schools, it’s 20%. But among those who went to for-profit schools,nearly half have loans exceeding $40,000.

Among two-year schools, about two-thirds of community college students (and 59% of those who earn associate degrees) graduate without any debt. Among for-profit schools, only 17% graduate without debt (and 12% of those who earn an associate degree).

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Five facts about student loans

Americans owe about $1.5 trillion on their student loans–more than they owe on their credit cards.

Student loans: A look at the evidence

On October 7, the Hutchins Center on Fiscal & Monetary Policy at wnyrails.orginvited half a dozen economists to discuss some of the big questions and controversies surrounding student loan debt.
Why is college affordability getting so much attention? The short answer is that the price of college is rising, which affects everyone who is even thinking of college.
A growing share of students and parents are taking out increasingly large loans to earn higher education degrees that do not pay off the down the road. With student debt now reaching $1.4 trillion, many are rightly worried about what will happen if it cannot be repaid.

Adam Looney

Nonresident Senior Fellow – Economic Studies

Executive Director, Marriner S. Eccles Institute, University of Utah

David Wessel

Director – The Hutchins Center on Fiscal and Monetary Policy

Senior Fellow – Economic Studies

Kadija Yilla

Former Senior Research Assistant – Hutchins Center on Fiscal & Monetary Policy, The wnyrails.org Institution

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