Degrees of Debt – A New Report from the Department of Education
November 12, 2013

The Department of Education recently released a revealing new report comparing student debt one year after graduation for three graduation years – 1993, 2000 and 2008. The DOE compiled statistics on the debt load, starting salary, percentage of those in repayment, living at home after graduation and other interesting comparative information on outcomes after graduation. Here is a look at the findings and what they mean for you…

Study Questions

The DOE study asked three main categories of questions:

#1 How did percent of graduates who borrowed change across these three time periods? How much did the dollar amount of debt change? How did cost of school and student resources impact amount borrowed?

#2 What percent of students were in repayment one year post-graduation? How did debt burdens differ across the three time periods?

#3 What were the differences in debt burden for those who moved back home after graduation? What was the debt burden difference among those who opted for graduate school?

You can see from the graph above that the biggest leap in debt was between the first two periods – 1993 and 2000. What’s also interesting is that the greatest increase in borrowing was among students at public four year universities. The leap is no surprise since college costs increased, on average, roughly 30% between the first two periods and less drastically between the latter two.

Looking at the graph above, you’ll note something truly fascinating. When you examine the income demographics of borrowers, note the huge leap in borrowers that came from more affluent families at both public and private universities. Does this indicate a lack of preparation on the part of parents sending children to college in these two cohorts? Or is it simply a function of the increased costs we discuss above?

In the graph above, you see that Pell Grant recipients borrowed more heavily than Pell. This makes sense as Pell eligible families are lower income and likely would have to more heavily supplement with debt to cover costs of college. What’s more interesting is the left half of this chart showing federal loans compared to total debt. Note the drop in federal loans among the most recent group. This indicates a spike in private student loan borrowing which is a disturbing trend since these loans are more costly and offer less flexibility in repayment options.

This next chart shows what we all know – repayment is down. This is a symptom of the troubling finances of many recent graduates. These statistics indicate that one year post-graduation, fewer grads than ever are in repayment and the likely explanation, based on research and reports, is that this is based simply on inability to repay. Jobs are harder to come by, salaries are lower and higher loan burdens make coping with debt more of a challenge!

Not surprisingly, the debt to income ratio has continued to increase across the three time periods analyzed. This is a function of two different factors. First, college costs have increased causing students to borrow more. Second, starting salaries have decreased when compared in real dollars on an apples to apples basis. More debt on less income is no good for anyone.

The analysis on what percent of graduates that moved back home is particularly interesting and reveals a trend that extends beyond the student loan crisis. The increase in those that moved back home between 2000 and 2008 (when the recession was in full force) rose dramatically. But what’s fascinating is the consistency of the migration back home to the nest. Even those who borrowed little to none went back home to Mom and Dad after graduating. This seems to be more a function of the troubled economy than the prevalence of debt, although owing a stack of student loans doesn’t help!

No matter if you are back home with your folks or out there braving it on your own, is here for you. Sign up for our free student loan management tool to track and make the most of your debt. And be sure to read our blog for great tips and strategies on repayment!