Cosign of the Times: The Rich Are Borrowing to Pay for College Too
Government grants and student loans notwithstanding, paying for college isn’t easy if you’re poor or working-class. When the affluent and the rich struggle with the same issues, however, the problems—spiraling college tuition coupled with the impact of the Great Recession—become a lot more obvious.
A new Pew Research Center study shows that from 2010 to 2012, the percentage of middle- and upper-middle-income students who borrowed money for college doubled, and they’re borrowing twice as much money as their peers did a generation ago.
At the same time, while poor and middle-class students are more likely to get a five-figure student-loan bill along with their diplomas, the affluent are not far behind. The Pew study found that upper-middle and upper-income students are the fastest-growing category of college-loan debtors in the nation.
“What has changed over the course of roughly two decades...is the pervasiveness of student borrowing across income groups. In the early ’90s, only among graduates from low-income families did a majority of graduates finish college with student debt,” according to the report. “Now, solid majorities of graduates from middle-income families (both lower-middle and upper-middle) finish with debt, and half of students from the most affluent quartile of families do the same.”
Megan McClean, director of policy and federal relations for the National Association of Student Aid Financial Administrators, says the spike in the percentage of affluent families—typically defined as having a combined household income of $200,000 or higher—borrowing to pay for college is a bit like the proverbial canary in the coal mine, hinting at a much broader issue.
As college costs have risen over time, McClean says, state and federal tuition assistance—Pell Grants, for example—have been cut or have fallen away completely. At the same time, she says, “we have to remember we’re coming off the heels of an economic downturn” that had damaged family college investment plans as well as household income, leading people to borrow more for higher education.
“The bottom line is more and more people are borrowing in all income brackets,” McClean states.
Rick Fry, a senior researcher at Pew and author of the report, told U.S. News & World Report that the Great Recession drained 39 percent of the wealth from a typical American household. The meltdown coupled with the housing market crash made it much harder than before to use a home equity line of credit for tuition. Moreover, he said, policy changes opened up the pool of federal loan programs to more potential borrowers.
The Pew report, released earlier this month, showed that in 2012, a record 69 percent of all American college students borrowed money to finance their educations, “and the typical amount they borrowed was more than twice that of college graduates 20 years ago.” The average student loan, according to the report, “increased from $12,434 for the class of 1992-93 to $26,885 for the class of 2011-12.”
Two other interesting data points emerged over the same time period, according to the report. The percentage of borrowers whose parents hold college degrees—and presumably earn a greater household income because of it—increased significantly, and women are more likely to graduate from college with student loan debt.
McClean notes that a generation ago “we had a much bigger federal investment” in higher education. A federal Pell grant once covered 70 percent of a student’s tuition, she says, “but now it barely covers 30 percent.” State and private-college aid is also much smaller than before, and state higher-education payroll savings plans, which took a hit during the recession, “are just now starting to snap out of it.”
Nevertheless, says McClean, not all debt is negative. Some parents may want students to assume responsibility for their college tuition “to have a little skin in the game.” Being able to handle a student loan also can be a good sign for future employers and creditors, she explains.
“We don’t like to see situations where students graduate with a lot of debt,” McClean says, noting the typical amount is $30,000. “But we don’t necessarily think that a reasonable amount of student loan debt is a bad thing.”