Study: Students from middle-income families incur higher student loan debt

One of the working research papers being presented at the 107th Annual Meeting of the American Sociological Association in Denver this weekend deals with the disproportionate share of student debt that falls on students from families earning  between $40,000 and $59,000.

Here is the official release on the paper by Jason N. Houle of the University of Wisconsin-Madison:

Young adults from middle income families are more likely to rack up student loan debt — and in greater amounts — than students from both lower and higher income backgrounds, finds new research to be presented at the 107th Annual Meeting of the American Sociological Association.

“Many middle income families make too much money for their children to qualify for student aid packages,” said study author Jason N. Houle, a Robert Wood Johnson Health and Society Scholar at the University of Wisconsin-Madison. “While at the same time, they may not have the financial means to cover the high costs of college.”

Houle refers to the greater propensity of students from middle income backgrounds to incur student loan debt as the “middle income squeeze.” The families of these young adults make too much money for their children to qualify for adequate financial aid benefits, but not enough to afford the rising costs of tuition, room and board, and additional university fees.

According to the study, nearly 41 percent of all students left school with some student loan debt, and the average debt among those students was more than $22,000. “Young adults from middle income families are at the highest risk for student loan debt,” Houle said. “As tuition costs continue to rise and outpace inflation, students increasingly use loans as the primary means of financial aid.”

The study relies on a subsample of 4,414 participants in the 1997 National Longitudinal Study of Youth, which contains data on a nationally representative sample of young men and women from 1997, when they were ages 12-16, through 2009, when they were 24-28.

Among those who incurred student loan debt, Houle found that on average young adults from middle income backgrounds, whose families earned between $40,000 and $59,000 annually, left school with over $6,000 more in student loan debt than their low income peers whose families made less than $40,000 per year.

Similarly, students from somewhat more affluent middle income backgrounds, whose families made between $60,000 and $99,000 annually, racked up nearly $4,000 more in student loan debt than young adults whose families earned less than $40,000 per year.

“There’s a safety net in place for young adults from low income backgrounds,” Houle said. “Financial aid distribution and postsecondary education financing seemingly play an important role in creating this nonlinear relationship between income and student debt.”

Over 90 percent of all Pell Grant recipients come from families with annual incomes of less than $40,000.

“Young adults whose families make just over $40,000 are less likely to qualify for such student aid packages, and tend to suffer a disproportional burden of student loan debt,” Houle said.

When compared to their peers from higher income families, young adults from middle income backgrounds also fared worse when it came to student loan debt. Most notably, on average among those who incurred student loan debt, students whose families earned $40,000 to $59,000 annually racked up over $12,000 more in student loan debt than their peers whose families earned between $100,000 and $149,000 per year, and over $17,000 more in student loan debt than young adults whose families made more than $150,000 annually.

Additionally, students whose families earned between $60,000 and $99,000 incurred, on average, $10,000 more in debt than young adults whose families made between $100,000 and $149,000 per year, and $15,000 more than young adults whose families earned over $150,000 annually.

According to Houle, young adults from upper income families are more often protected from student loan debt because their high-earning parents have more financial resources to pay for their children’s college education, and are more likely to have saved for college.

Young adults from middle income backgrounds are not the only subgroup of students at increased risk for incurring student loan debt. For example, Houle found that young adults whose parents had less than a college degree had a higher risk for student loan debt than young adults whose parents had a college degree or more. African American students were also significantly more likely than their white peers to rack up student loan debt. In addition, he found that young adults with single parents or step families were more likely than students whose biological parents were together, to incur student loan debt.

As college graduates struggle to find high-wage jobs in today’s economy, inflated student loan debt forces young adults to begin their careers at an increased risk of default and penalties for missed payments.

Bankruptcy is not an option for students struggling to pay off their student loans, which, Houle said, makes student loan debt a very unique and dangerous liability.

“We value the American Dream and believe that achieving a college degree is all you need to overcome the disadvantages of family backgrounds,” Houle said. “My study begins to challenge this idea. The fact that some young adults are starting their careers on an unequal footing just by virtue of how much money they owe, may ultimately affect their capacity to save money and their ability to take a low or un-paid but career-advancing opportunity.”

–From Maureen Downey, for the AJC Get Schooled blog

35 comments Add your comment

WolfenStorm

August 19th, 2012
6:07 am

Somebody actually did a research paper on this? SMH at what common sense tells me…the poor don’t have to pay, the rich can afford to pay, and the middle class winds up having to borrow. So what else is new?

Tony

August 19th, 2012
7:44 am

And we should be paying the way for our kids to go to college. Going into debt is a family choice and is linked to the priorities we set for ourselves. I’m not asking for handouts for my kids to go to college.

redweather

August 19th, 2012
8:30 am

Much easier said than done, Tony.

Pride and Joy

August 19th, 2012
8:46 am

A family of four earning 40 to 59K is not middle class. They are lower-middle class. There isn’t any way a famly of four can meet the families immediate needs and save for retirement and college on 40 to 59K or even 100K.
What needs to happen is college expenses need to decrease for State colleges and universities so that real Americans (not illegal criminals) can get the education they need to keep our society and democracy going.
It’s we the middle class who pay for the poor to go to college and we the middle class who make the money for the rich. We deserve an affordable education and our nation needs us to have an affordable education..

Mom and teacher

August 19th, 2012
8:51 am

We have been saving for each of our children to go to college since they were born. My 14 year old has $29,000 in his college account. This will pay for one year at Georgia Tech. Could he go to a cheaper school? Yes. Should he have to? No! He attends a math/science magnet school and wants to be an engineer when he grows up. Georgia Teach is his only true viable option in Georgia.

We have been diligent in saving for all three of our children, but there is no way we can cover all the costs as they continue to sky-rocket. If we cannot afford it with such extensive planning, what else can be done?

Tinkerella

August 19th, 2012
8:53 am

This is nothing new but it has always been a hmmmm moment for me. When I graduated high school, there were many students with much lower grade point averages and test scores who got full ride scholarships while I couldn’t even get a penny. My parents barely made a couple of dollars over the qualifying limit which disqualified me from receiving anything other than a loan. Today, my kid is in a similar boat…..he is not sought out for his diversity, good grades (but not great) and his parents didn’t save enough money. Well, it looks like its on him. I am happy to help but most folks pay more for a new car than their education.costs. While I think they are rising too fast for all the wrong reasons, it is still a decent deal if you choose the right path. Is it fair? Probably not but so it goes for the middle class…..we have to pay for everything.

Follow the Course

August 19th, 2012
8:59 am

True … In 25 years this will affect ALL post secondary schools (if not before)due to the continued debt payments and the experience that college (4-year)was not cost effective. I know and my wife and I are now wondering if we did the right thing. (two 20 somethings, One just graduated and one a Junior).

When they have 18 year old kids they will not say that a 4-year degree was worth the cost

guest

August 19th, 2012
9:00 am

Follow the course,

Depends on what your major is.

Truth in Moderation

August 19th, 2012
9:08 am

@Tony
As a public school principal, you are on the public dole….and way overpaid at that.
Plus, individuals in your position know how to work the system and get choice summer public school jobs for your kids. You also have an inside track on scholarships offered and getting the “right” classes to position your kids for the scholarships. I know. I have relatives who are in your position.

Ole Guy

August 19th, 2012
9:10 am

Red, if all we attempted was the easy stuff, it would sure as hell be a pretty drab life…of course Tony’s remarks are, as you point out, much easier said than done…would you expect otherwise? There has been so much pissin’ an’moanin’, over the years (going back to the 60’s, and, I am quite sure, before that) on the high cost of education…so what else is new? When was the last time you heard complaints over the cost of gas, cars, houses, groceries, and the myriad items we have come to view as “necessities of life”…all the damn time, right? Yet we demand these comodities, the market adjusts accordingly, and we pony up whatever it costs. My gen got by, my pop’s gen did likewise, despite the extremely difficult times of the 30’s (which, by contrast, paints the current “difficulties” as a walk in the park), and this gen, parents included, can do likewise…IF they want.

I get pretty gd pissed when I read of the “difficulties” faced by this gen, as though they, and they alone, are experiencing, for the very first time in history of civilization, real challenges…WHO’NHELL DO THESE KIDS (quite possibly you) think they are.

As a sidebar, I heard some kids remarking, the other day, over that “high cost”; it was pretty much within the same ballpark as my Masters tuition back in the mid-80’s.

The best thing (quite possibly you, and…) this gen can do to deal with the “high cost” of education is…DEAL WITH IT…STOP WHINING AND DEAL WITH IT.

Another view

August 19th, 2012
9:18 am

Let us be frank. The middle class (what is left of it) pays for most of the taxes that support higher education and then pay more in fees and tuition to pay for it once they are they, so they are doubly soaked. Higher taxes on corporations and the wealthy and increased state funding for colleges and universities, lowering the pays scales and redundant jobs of administrators, eliminating luxury resort dorms and gyms, and restricting enrollment to those that prove they are prepared to enter higher education will go a long way to restoring the balance.

Another view

August 19th, 2012
9:18 am

[sic] they are there.

Former Teacher

August 19th, 2012
9:24 am

Colleges compete for students by building awesome student sports complexes on manicured campuses. We allow students to go to colllege to have that campus experience – living in nice dorms, meal plans, Greek society, football, and many other things that have nothing to do with education. If we could just pay for the education component (and send home unprepared students instead of offering expensive remedial classes) college might be much more affordable for everyone.

I love teaching. I hate what it is becoming...

August 19th, 2012
9:24 am

@Truth in Moderation “As a public school principal, you are on the public dole….and way overpaid at that.

Being “on the dole” refers to payments made to individuals who are UNEMPLOYED. Please do not misuse it to descibe people who WORK for a living.

KIM

August 19th, 2012
9:26 am

Hold on a minute here. Ga has the HOPE. When someone says $29,000 will pay for a year at GT I am wondering if his offspring is better at math than he is. GT won’t even cost that much for out of state students. AND additionally, if a family is smart it will look at in state schools that ARE affordable. Save money for grad school or look for grants…which are plentiful. Now, I totally agree that the middle class pays more porportionately than either of the finanacial ends of the spectrum. So be smart. Start saving early when children are infants and take advantage of the HOPE here in GA. Problem is this: kids can make the cut for HOPE, but not if the family does not value it until the kids are in HS. The appreciation of what is available has to be demonstrated in fam values from day one.

Truth in Moderation

August 19th, 2012
9:30 am

Home schooling is the best value. One can get a quality online SACS accredited high school education for $750/year, including books, quizzes and tests. Of course, to get the full benefit, the parent must do their job to properly administer the curriculum. Here is the hidden benefit, the PARENT gets an education as well! As you home school your child through the years, you are learning along with them. All of my home school friends say that they have learned more teaching their kids than they ever did in their own education. This year I am learning Spanish right along with my kids. My 11 year old is able to do well in a high school level online Spanish 1 course. I know many home schoolers who have been able to get full scholarships to private schools, even if they are not accredited. Also home schooling frees up time for the high schooler to have a part time job and get a head start on gaining work experience and saving money for college. Very few home schoolers carry heavy debt loads for their child’s education. Most, because of their religious beliefs, shun borrowing for anything.

Dr. Monica Henson

August 19th, 2012
9:56 am

My son’s father and I are paying off his student loans that had to be taken out to cover what we couldn’t pay up front while he was in college. We have told him that if he chooses to go on to graduate school one day, those will be his costs to pay. Our covering the student loan payments is enabling him to use the income from his second job to save up for his own place to live. I gave him my paid-off automobile so that he doesn’t have a car payment. Even with our help and his university degree, he is still having to work a second job to afford get started on adulthood. He has a basic talk and text phone (not an iPhone with all the bells and whistles) and no credit cards, so he’s definitely learned common sense and frugality. I don’t think that working two jobs when you’re young is a bad thing, but he’d be in pretty tough financial straits if his dad and I weren’t able to help him by paying the student loans.

Lee

August 19th, 2012
10:09 am

Yep, the middle class has been taking it on the chin for quite some time now. What else is new?

The UGA out of state tuition, which should be an accurate reflection of the unsubsidized cost, increased 136% in the ten year period 2001-11 — more than FIVE TIMES the rate of inflation.

My daughter just bought books for Fall semester, one of which cost over $300. Her various “fees” cost almost as much as the tuition.

Apparently, all those 28 year old accounting and finance Phd’s the colleges hire can’t seem to find a way to control costs. Too busy writing the next revision to their textbook, I suppose….

ScienceTeacher671

August 19th, 2012
10:18 am

It is harder for the middle class to afford college, but I don’t believe in taking out loans for college. Scholarships, including HOPE, grants, work-study, yes. Taking a reduced course load so that you can afford to work during the school term, yes.

Too many students are using the loan money for “extras” during school rather than just using them for the essentials, and too many students are using them to go to expensive private colleges instead of local state universities — do well enough at the local college, and perhaps the more expensive one will offer you financial aid.

When you graduate college with the equivalent of a house payment in college loan debt to pay off each month, where’s the benefit?

Solutions

August 19th, 2012
10:18 am

When college financial aid is offered on a need basis rather than a merit basis, you get abominations like this, the best and brightest being saddled with massive student loan debt, while the low IQ types get a free ride, after which they accomplish nothing. The Hope scholarship was originally a merit based system, it served the middle class well. But it has been perverted into a welfare system for colleges and universities, which have run up their tuition and fees to insane levels, to support expansion of non educational facilities, like fitness centers and climbing walls and luxury apartments for pampered students. I believe I read that one third of colleges and universities now are so far in debt that there is a real risk of financial failure of the entire institution.

ScienceTeacher671

August 19th, 2012
10:19 am

Lee, for college textbooks, have you looked at half.com, the used book sections of amazon and barnes & nobles, abebooks, and just borrowing from other students? The college bookstore is by far the most expensive place to get books.

Solutions

August 19th, 2012
10:20 am

Remember, Georgia Public Broadcasting looted the Hope Scholarship fund to build their bloated palace, aka HQ complex. They are still stealing money from Hope, imho!

Parent Teacher

August 19th, 2012
12:01 pm

Lee stated that out of state tuition at UGA has increased by 136%. If you look at the numbers for in state tuition you will most likely see similar numbers. The question becomes why has tuition increased? It is not because schools are wasteful. Since the advent of the HOPE scholorship, Universities have had tremendous growth. This requires huge amounts of money for capital improvements that eat up lots of the income for schools. The real reason is the legislature has continued to cut funding for all levels of education. The university system has seen billions in cuts as well as an explosion in remedial courses that drain resources. We have been in a transition period for more than 10 years transfering the expense from state assisted to individual payer. This is a trend that we have seen throughout our society but the state continues to collect the same tax rate without the services.

ErikKengaard

August 19th, 2012
12:43 pm

The issues of college cost and college admission are wicked problems, and we don’t seem to have the will to really delve into them and come up with worthwhile resolutions. Australia, for one example, provides a benchmark we should consider. Look up “tertiary tuition fees in Australia” on wiki. Australia’s model for covering costs does not provide the opportunity for private gain and political chicanery that the US model does. Australia also does not seem to have the contention for admission based on social factors that US does. For an excellent review of student loans in the US, see Maureen Tkacik’s August 15th article in Reuters.

Tony

August 19th, 2012
3:21 pm

Yes, I am a public school principal and work hard everyday to earn the pay that I receive. Contrary to what T.I.M. stated, I do not have an inside track for my own kids to receive scholarships or summer jobs. We do try to live within our means and we prioritize our budget. I do not believe that everyone should be entitled to a college education.

Current political trends in our nation with regard to the economy go back for several decades. The long-term effects of these bad policies are playing out right now. Our current state leaders are towing the party line when it comes to our state’s economic policies, so it is not surprising that middle class continues to take hit after hit.

Found this article today. http://flaglerlive.com/8577/david-stockman-reagan-nixon-bush-trickledown/

And I have to say that it certainly sheds some light on why we are in the mess we are in. It turns out that our current president has much less to do with it than most of us think.

As for college tuition, it may be tough to pay for the expenses to send our kids to college and there are probably some policy issues that are adverse for my situation. However, it is still my (and my kids) responsibility to pay for their college education.

Mom and teacher

August 19th, 2012
8:22 pm

@ KIM Sorry, my bad, it is $22,254 per year. This is straight from the GA Tech website. I know there is HOPE now, but who really believes it will still be around in 4 years?

Lee

August 19th, 2012
11:44 pm

@Sci Teacher671, we looked on Amazon and a couple of other sites. First I have heard of half.com – have to check it out. Problem is this is the first time using this textbook so there are no used books locally. {{{sigh}}}
———————–

@Parent Teacher, I used the out-of-state tuition numbers because one of the excuses they give for in-state tuition increases is the state is cutting funding. So, I would surmise the out-of-state tuition should give a more accurate reflection of the actual increases.

Conjecture on my part – no data to back it up…
—————————

@Mom & Teach, the numbers you are quoting, does that include room & board, meal plans, etc? Here’s what I found…

http://www.bursar.gatech.edu/student/tuition/Fall_2012/Fall12-all_fees.pdf

Lee

August 19th, 2012
11:48 pm

@Mom, found the site where you were quoting – includes an estimate of everything.

http://www.finaid.gatech.edu/costs/budgets/index1213.php

Mom and teacher

August 20th, 2012
5:10 pm

Yes, this is the price for freshmen. Thankfully it will go down after that. Freshmen are required to live on campus, thus increasing the bill by quite a bit.

Mark Kantrowitz

August 20th, 2012
6:54 pm

These results are not supported by more recent, larger and more carefully validated studies, such as the National Postsecondary Student Aid Study (NPSAS). NPSAS data shows, for example, that the percentage borrowing decreases significantly with increasing income and that the average debt at graduation increases slightly.

For example, 64.4% of undergraduates with family AGI under $40,000 graduated with debt in 2007-08, an average of $18,144, compared with 39.7% of those with family AGI over $150,000 graduated with $20,239 in debt. For undergraduate students with family AGI of $60,000 to $100,000, 54.0% graduated with an average of $19,275 in student loan debt.

Among Bachelor’s degree recipients, 73.3% of those with family AGI under $40,000 graduated with an average of $23,839 in student loan debt, compared with 42.5% of those with AGI of $150,000 or more with an average of $21,712 in student loan debt. 62.6% of Bachelor’s degree recipients with AGI of $60,000 to $100,000 graduated with an average of $22,907 in student loan debt.

Prof

August 20th, 2012
7:54 pm

@ Lee. I’ve heard students mention that now they can rent the textbooks…It might be advertised in the school’s student newspaper for your daughter to use next term.

Prof

August 20th, 2012
7:58 pm

@ Lee. P.S. I just Googled “renting college textbooks,” and there seems to be an entire industry!

UGA Mom

August 20th, 2012
10:11 pm

@Lee – my daughter rented all but one of her books this semester and only spent $150. As Prof says there is a whole industry there. We personally used Bookrenters.com and TextbooksRus.com. We also rented from the campus bookstore.

Emily Morgan

August 29th, 2012
3:16 am

This article makes some interesting points that most people don’t think of – this sector of society (with annual earnings between $95k and 200k) are struggling to pay off their student loans. Their income disqualifies them from deducting student loan interest on their income taxes. On paper they look like they are financially safe but they can’t purchase a house, save for retirement, or have children. They have to defend themselves against the majority of society who constantly say “too bad, this is what you get if you want to go to a private university; you’re just looking for the easy way out, etc.” When the loans are paid off and these people are in financial control of the country, do you think they will forget that no one offered them any type of help? That they were referred to as the lazy, financially stupid generation?

Chrissy

August 31st, 2012
2:46 pm

I’ve finished college nearly six years ago and finished paying off my last student loan last year – I was luckier than most since most of college was paid for from state run programs so my loans were fairly minimal at that time. Flash forward now to grad school and everything has really changed. A lot of my friends have recommended going the non-government route and trying to find alternative ways to find loans. I’ve found an interesting one so far called Weemba that actually allows you connect via Facebook to post a loan on their site as a profile and then lenders contact you based on your need — I made sure to check that they are not peer to peer! Has anyone had any experience with Weemba or another type of site? I’m open to suggestions!