What The Fed Won't Tell You About Student Debt

Tyler Durden's picture

Two weeks ago, the San Fran Fed released "research" on the topic of whether "it is still worth going to college." What it "found" was that "Earning a four-year college degree remains a worthwhile investment for the average student.... The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age... We show that the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years. Once the investment is paid for, it continues to pay dividends through the rest of the worker’s life, leaving college graduates with substantially higher lifetime earnings than their peers with a high school degree."

What was left unsaid, of course, is that the SF Fed merely was tasked with goalseeking a study that seeks to perpetuate America's most exponential chart. The one showing federal student loans, which as we showed recently just hit an aggregate total of over $1.1 trillion, increasing 12%, or $125 billion, from this time last year.

As we have shown in the past (here and here), since US consumers have largely given up on the two conventional forms of leverage - credit cards and mortgages - no (taxpayer-funded) expense will be spared to promote the myth that (federal-debt funded) higher education is the way to go.

Alas, the San Fran Fed ignored something important. This is how we concluded our article: "Perhaps for the San Fran Fed to be taken seriously one of these years, it will actually do an analysis that covers all sides of a given problem, instead of just the one it was goalseeked to "conclude" before any "research" was even attempted."

Namely the impact of debt.

And since the Fed can't be bothered with an objective analysis covering both sides the most important debt issue for America, we go to Pew which recently concluded an analysis on the impact of student debt and found that "Student debt burdens are weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation."

At the big picture level, there is nothing surprising here, but the extent to which student debt burdens cripple wealth formation and accumulation was indeed stunning and explains why the Fed had to explicitly omit the impact of debt on one's long-term well-being, because the result is nothing short of shocking.

From Pew:

About four-in-ten U.S. households (37%) headed by an adult younger than 40 currently have some student debt—the highest share on record, with the median outstanding student debt load standing at about $13,ooo.

An analysis of the most recent Survey of Consumer Finances finds that households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700). And the wealth gap is also large for households headed by young adults without a bachelor’s degree: Those with no student debt have accumulated roughly nine times as much wealth as debtor households ($10,900 vs. $1,200). This is true despite the fact that debtors and non-debtors have nearly identical household incomes in each group.


Another not surprising tangent: those who borrow to pay for college, are most likely to borrow for everything else too.

Among the young and college educated, the typical total indebtedness (including mortgage debt, vehicle debt and credit cards, as well as student debt) of student debtor households ($137,010) is almost twice the overall debt load of similar households with no student debt ($73,250). Among less-educated households, the total debt load of student debtors ($28,300) is more than ten times that of similar households not owing student debt ($2,500).

Either that, or households which do not have to borrow to pay for college, most likely don't have to pay for other expenses. In other words, Pew uncovered the profound tautology that if you are rich, you remain rich, which all those others in the lower and middle classes who aspire to reach the upper class thanks to easy and cheap debt, only bury themselves even more in their aspirational approach to purchase class status with debt.

As American Interest observes about the Pew research, "the report revealed an alarming trend: While the total debt burden of households without student debt has declined since 2007, the total debt burden of households with student debt has increased. This holds true for all student debtors, whether they completed college or not.

There’s no way to figure out what is behind this huge disparity in wealth accumulation. As the study notes, it’s understandable that young people who went into debt to pay for college also lacked the money to pay for cars and other expenses, and thus borrowed more. The data may also reveal a widening gap between two types of people who go to college: those wealthy enough to afford most if not all of tuition, and those who have to borrow (and keep borrowing) to keep up with the spiraling costs.


Student debt is obviously an enormous burden on a household, and one that seems to set off a domino effect of borrowing. If we want to make sure that college students aren’t feeling the pain of student loans well into middle age (as a recent Gallop poll says they do), we’d better try to make college more affordable. After looking at these figures, can you doubt the severity of the problem?

By now we doubt anyone doubts the severity of the problem. What may be confusing, however, is the problem itself which after Pew's far better research can be concluded as follows:

  • The San Francisco Fed is absolutely right in that college education is extremely valuable if one is rich enough to be able to afford it without resorting to debt. For those who need student loans to pay for college, the debt cost most likely vastly outweights the benefits from increasingly diminishing cash flows for college graduates, and it is certainly unclear if as the San Fran Fed concludes, the costs are more than paid off within 20 years. This is a profound falacy since there has been no cohort whose college debt IRR can be tested in a 20 year window, since the exponential rise in student debt only took over after the Lehman collapse (for one of the main reasons why college became so expensive following Lehman, read here).
  • The San Francisco Fed is absolutely wrong in not distinguishing how one funds their college education. Because the bottom line is that college educated households which took on student debt have a net worth of $8,700, which is less than the $10,900 net worth of not college educated households who don't have student debt!

In any case, the conclusion is clear: if one is rich enough to be able to afford college tuition, room and board without requiring debt, college is a no brainer. For everyone else the payoff of a college education, especially in an economy where college grads are certainly not assured quality paying jobs, is far less clear and in fact as Pew finds, one is better off not borrowing to go to college.

Of course, the direct implication here is also very clear, if very sad: the rich who can afford college, will end up becoming even richer thanks to the better-paying jobs their degree affords them, while everyone else will either drown under the weight of student loans, or simply be relegated to far less-paying jobs during their career. And while the Fed can be confused about this conclusion, not even the Fed is confused that it itself is the reason for this record and increasing disparity between rich and poor.

So the next time you curse someone for making college so expensive you need hundreds of thousands in debt to pay for it, or are cursing the fate that made you into a 40+ year old debt slave, aim those curses where they belong: Alan Greenspan, Ben Bernanke and now, obviously, Janet Yellen. Because for all the "confusion" about America's record wealth divide that French socialists have to reprise the role of Karl Marx in the process selling blockbuster books to a new generation of pre-communists, the fundamental reason for the greatest class divide in history is a very simple three letter word: the Fed.

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Elliptico's picture

No bailout for you, suckas!  An no refinancing either.   We need your blood, dammit!

tonyw's picture

it might be interesting to know the figures for how many students fail to get a degree but have incurred taken some loans.

Here they have debt, have missed some time earning & also will not have the higher paid job, a triple whammy.


J S Bach's picture

30 years ago, a friend of mine bought golf clubs with his student loan.

At least he got something for his debt.

DoChenRollingBearing's picture



Oh, great...  More lies.  They don't give up.  A take on some of those bringing America (and the world) down):

"Lies, Malinvestments and Parasitical Jobs"


Bunch of turkeys, yes, those too, but two good ones here anyway...

SafelyGraze's picture

the goal is to create a generation that can't afford a home or marriage or anything

that way they just work

no kids

no savings

they just work and pay taxes and pay off debt

then they die



Vampyroteuthis infernalis's picture

This generation can keep working as tax donkeys so the Boomers can keep living their lives in excess. Heee-hawwww!

wee-weed up's picture



Not to worry about student loan debt...

As it will eventually be our US tax payers debt.

Obozo will forgive all student loans before leaving office...

in order to entice the impressionable young-uns...

To vote Democrat for Hitlery in 2016.

A better BRIBE could never be devised.

Dungeness's picture

I remember those days also.

In the 70s I had a friend that took out a student loan to purchase a skiing boat. The interest was only 2% or 3% and payments were very low and didn't begin for about a year after graduation.

Back then, almost eveyone paid cash for college. My tuition was about $250 a semester and about $100 for books.

Geesh, I sound like my mom telling me that a loaf of bread used to cost only a nickle.

Greenskeeper_Carl's picture

the answer to that: a lot. Even 10 years ago when I was in college, they were doing it. They would soak up those loans, live there and party, not really go to school, until their lack of enough credits(sign up for the min ammount of credit hours they needed to get the max loan available, then not go to class, and drop them at the last minute so they didnt fail them all) until their lack of credits or bad grades disqualified them, whereupon they drop out. SO they got nothing out of it at all but a bunch of debt. If people were already doing that in 2004, I can only imagine how bad it is now

Never One Roach's picture

Lets Bail 'm out.  Cut the kids some slack.  They're tired out after 6-8 years of parteeing, sex, drugs and long long nights smoking the Mary Jane....they deserve a break. Majoring in Italian Renaissance Art History ain't EZ.

What do ya say? Lets forgive them their $142,00 student loan.

Come on....

ebworthen's picture

The truly sad realization is that after GM, AIG, Bear Stearns, Citi, other bailouts, and five years of QE - they probably deserve it.

RafterManFMJ's picture

'Can' recoup the cost by 40! I'm FUCKIN' SOLD! I'll take two! LOL

kchrisc's picture

Lies and bullshit. Par for the course.

Bangin7GramRocks's picture

Further bifurcation of America. Rich kids get to go to school, not worry about money or debt after school. They get internships through colleagues or friends of the parents. These internships can be unpaid because mom and dad pay for everything. They get a nice job after school and then some are gifted the down payment on a new home when they get married.
But hey, we are all equal in America and everyone has a chance at the "American Dream ". It's just some of us are way more equal than others.

Son of Loki's picture

Don't waste your time going to skool. Look for a house, NOW! "There's never been a better time then now to buy a box."

It must be true, I hear it on the radio 346 times every Saturday morning from that real estate guy. If you waste time [4-10 years] getting a degree, you will be "locked out the market by the soaring prices...since house prices NEVER EVER drop."

It's better to work your ass off NOW and pay house taxes, maintenace, HOAs, utilities, and on and on, rather then going to skool.

Must be true...it's on the radio ... right between the lawyers' mesothelioma commercials, Jack "The Hammer" plaintiff lawyer and the new Scooter commercials.

They say, "Time is running out."

dearth vader's picture

Yeah, some even get a high-paying job in Ukraine...

Stuck on Zero's picture

They should also weight the results by IQ.  For similar IQs how does a college education pan out.


shouldvekilledthem's picture
Preparing the new gen slaves. The successors of these will be allocated to a debt at the time of conception. fun times
dizzyfingers's picture

If students live at home, borrow only enough to take classes, they can get their degree and get on with earning money to pay their loans with some to spare for living expenses. But if they use their loans for housing, food, and everything else, they run up unpayable debts.

Is no one teaching kids to examine their assumptions..."I'll get a great job with high pay", or whatever other misconceptions they have, so that they might learn to avoid pitfalls. No? Then sorry, they have a problem and no one else is responsible.

BiteMeBO's picture

Life is unfair when sober.

dizzyfingers's picture

"The successors of these will be allocated to a debt at the time of conception."

You think there's going to be a "next generation?"

fauxhammer's picture

Ha ha...colige is stirkly 4 loosers

RafterManFMJ's picture

Only a imbesile goes to collage

fauxhammer's picture

I always knowed it and now i feel totaly vindacrated 

tickhound's picture

Analogous to the ancient practice of attending monastery to learn to read... Brick and mortar institutional 'learning' is obsolete. Information gathering is nearly 'free' and available... All over the world.

Either an individual can comprehend and perform a particular task or not.

The learn-ed 'monk' university degree remains for two reasons.... LOANS and Faculty EMPLOYMENT.

Humanity needs to ditch the caveman practice and EVOLVE.

The system is no longer practical other than for being ancillary to inflationary monetary policies and outdated "growth" models.

machineh's picture

'households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation'

Kinda makes a mockery of them book covers we had in grade skool, showing high school dropouts with lifetime earnings of under $100K, while advanced-degree toffs pulled in $400K or more.

These days, that dumbass dropout is making $150/hour fixing the plumbing of the indebted college grad living in mom's basement.

'I shoulda learned to play the guitar; shoulda learned to play them drums ...'

hairball48's picture

Look at that mama,she got it stickin' in the camera...

Great song and group. Dire Straits & Marc Knopfler is one of my all time faves

q99x2's picture

In any case, the conclusion is clear: if one is rich enough [or smart enough] to be able to afford college tuition, room and board without requiring debt, college is a no brainer.

Ya gotsta be haven at 4.0, an yo ebti and livin in that UC

shackin the white bitch homeys. Dats what ya know

Up my FAFSA Yellen mothafucka.

corporatewhore's picture

this will all get solved in order to get the economy moving.  mortgages won't include student debts in calculating qualifying ratios.

the monthly amount will become so affordable that it will make you a double dolt if you don't make the measly amount they'll offer.

last, and absolutely last, they will remove the bankruptcy privilege which currently exists.

All are needed to get the economy moving, especially ours which has debt, real estate and oil necessary for sustainment.

Son of Loki's picture

I'm afraid you're right. I can smell a Fat bailout coming by the way the NAR and Mortgage Bankers Assoc is screaming.

Tom Brady's picture

In addition and quite ironically, due to constant evolvement of the internet learning new skills has never been easier or cheaper - unless of course you do it in a college setting.  Learning of course is quite different than going to school where you are told what to think and how to think. Its going to take the parents saddled with debt to teach their kids there are other more efficient and cost effective ways to learn new skills that people will pay for.  I dont think anyone looking for a java programmer is going to care whether or not you took sociology or anthrapology 5 years ago during your 4 year party.

starman's picture

Sorry what? Students and wealth? 

ShrNfr's picture

Costs of any object always expand to consume all money that may be made available to pay those costs. It has been always thus. This is true for anything, cars, houses, tuition, or the Federal government.

I Write Code's picture

Maybe the ones who made money paid off their debt?

And yes, a few rich kids who had parents pay tuition and who got rich jobs immediately, would also not conflict with the data.

I can't really see any other likely patterns here.

In a healthy economy a $13,000 loan paid back over several years from a $100,000 income, and at low interest rates, would not seem a problem as such.  Of course against a PhD barrista's $20,000 income it might become an issue.

Jack Burton's picture

Student loans have given Higher Education a ticket to soak the students for every dime they can borrow. Look how many universities and colleges America has, look at some typical course catalogs, look at the array of degrees they offer!

We all know professional schools are necessary, and that has not changed. It used to be University is how you entered a real profession. Over the years things like nursing schools were absirbed into universtites and other trades were added. Like law enforcement, BA and BS. I went to a friends graduation and they accepted their deplomas by degree field. I swear to god, I watched 500 students accept Law Enforcement degrees, 1,000 accept social science degree, then all the arts and music degrees. Plus a good number of education degrees. Looking at the future teachers of America walking up to get their teaching diplomas was a frightening sight. I just looked at this collection and imagined them shaping young monds for the next 40 years! Ouch!

Snoopy the Economist's picture

First, the average student should not go to college. College should only be there for those that excel. College makes great sense for above average students. It's the average and below average student that gets destroyed.

College made great sense for both myself and my son (recently raduated 2 yrs ago with BSCE and now makes > $115k/yr). Payback time was very quick and increased life earnings greatly.

I do recognize that college prices are a problem - that's' where much of the inflation has been seen. Gubmint should not subsidize this industry but that can be said about many industries.

Go ahead an down arrow me - I only speak the truth.

OC Sure's picture



+1 for raising an intelligent kid in an increasingly unintelligent pop culture. Good job.



TrustWho's picture

Debt slaves need to revolt. 

GooseShtepping Moron's picture

Same as it ever was. The caste system is an absolute fact of human nature that neither student loans nor free markets nor "American exceptionalism" can change. It would be better for us to recognize this fact and learn how to manage it than to pretend it doesn't exist.

There always was and always will be a small amount of social mobility, too. Class structures are not so firm that there can never be an exception, but obviously not everybody can be the exception.

America is no longer a frontier country. If you don't like your current circumstances, you can't just move a little further out west and stake yourself out a farm as big as your heart desires. The country is now full, and a full country requires a class system--there is no way to avoid it. It requires also a clear, unitary, absolute, and symbolic source of authority (i.e. a monarch) and a social imputation which, if not ideal, is at least tolerable for everyone.

This all means that America is going to have to become a very different kind of place. Principally, it means we are going to have to learn how to do politics, something we've never really had to worry about as long as the frontier was still an option. We need to forge an identity as a people, a people connected to a geography and an historically motivating ideal. We need nationalism and closed borders and morality in the public sphere. We need eudaimonia and virtue-ethics and to learn to esteem what is truly grand. And I might as well say it--we need Christianity. Genuine sacramentally-based Christianity united to soverign pontiff, not that mixture of pop psychology and socialism with a few dressings of Biblical text that modern religion has become. Finally, we need men who can embody all this and carry it out.

The more messages like the Pew results in the OP are sent and received, the more it is borne in upon people that there is no free lunch and the political situation cannot be avoided, the closer we will be to finally addressing the underlying problems.

Bangin7GramRocks's picture

Only junkies and rock bottom types "need" christainity. It's just a hobby for everyone else who takes it up.

scaleindependent's picture


You will get your wish. Your proposition will seem like the only choice left but it will create another inquisition.

When you mix church and state, the church becomes godless.

BTW, has not all the Borgias and church guided persecutions shown us that a sovereign pontiff is a really bad idea.

sangell's picture

Throwing all 'college degrees' into the same box isn't a very useful comparison. It is also the case that just because graduates in from the 1970-80 period earned more than non graduates that his will obtain for those who graduate today especially if they graduate from a diploma mill with a degree in psychology or journalism! My guess is a guy with  two year technical degree in HVAC will earn more than a liberal arts graduate from a non elite school. That a high school graduate may also have four or five more full time working years over a college graduate also ameliorates somewhat the gap in pay and if they get a job that is layoff resistant say at a utility or some government agency they will earn more.

trillion_dollar_deficit's picture

Perpetual recession in one chart.

Choose Sanity's picture

Yes student debt is out of control but more importantly, the graduates of our system are, in general, far behind their hungry for a real education competitors globally. Take a look at what's really important in most of our schools and then realize that until our warm and fuzzy approach to school from K to college is replaced with a real curriculum and students striving for a first class education, huge numbers of America's children are going nowhere. Are we but a burned out star?

Aussiekiwi's picture

The Internet has changed everything, you can learn everything you want over the web for a fraction of the cost, this will only expand in the future, student debt is just another scam to get the future earnings wealth of young people transferred from the future to now.

finametrics's picture

this is so stupid. yes debt loads are high, but who cares. I'm paying my loans off with 10% of my discretionary income, and after 20 years its forgiven. hahahaha, guess who picks up the tab. 

tony bonn's picture

this article is more evidence that the usa is a kleptocracy - by design - whose leaders seek to enslave the nation through debt serfdom. the rockefeller ziocon nazis have turned education and health care into a racket in order to justify more government to "solve" the problem. the result, having sold the plebes a lie, is costs accelerating far faster than other inflationary increases.

the present college education system is a fraud and racket. it is hoplessly outdated. the nearly free university has arrived and should be the norm. it is way past time to dismantle the vast, costly plant of universities and their lavish indulgence of faculty and administrators.

it is like ancient times when the priests of pagan religions controlled society. the people must revolt.

NickVegas's picture

Somehow, when the central banks print money and then loan it at usury, the asset price of the bubble keeps going up and up to match the money flowing in. How much does college cost? I'm really glad you asked, how much money can you get? Ok, it costs that much. Those dumb party kids, they deserve what they get, debt serfdom from bad choices. The narrative continues.