As recently reported by the Project On Student Debt, 7 in 10 seniors who graduated from public and nonprofit colleges in 2013 had student loans, with an average debt load of $28,400 per borrower. This represents a two percent increase from the average debt of 2012 public and nonprofit graduates. It is also a new record high.
Those curious about the geographic breakdown of the student debt burden by state, can do so at the following interactive map:
It goes without saying that while student debt is bad, record student debt - which at the Federal level amounts to over $1.2 trillion and rising exponentially - is worse.
In fact, as shown previously, the unprecedented debt burden on the Millennial generation has been used to explain why the largest generational cohort in US history is unable to carry the weight of the economy on its shoulders, why the Millennials are perhaps the most financially disenfranchised generation, and why the labor force participation rate has collapsed in the past five years, as older workers rush back into the work force (thanks to ZIRP crushing the value of their savings) while young Americans chose to remain in university (where they can take remedial high school classes among other things) and out of the labor force in hopes of holding out a better job market (for the 6th year in a row).
However, since all college educations are most certainly not created equal, one outstanding item has been the debt breakdown by field of study, or major.
This is where the latest project and research paper from the Hamilton Project, which comes in handy. It examined earnings for approximately 80 different majors and as the NYT summarizes, allows people to look up typical debt burdens by major, over the first decade after college – which is when people tend to repay their loans.
The project authors note that for the graduate with typical debt level and earnings, payments under the standard 10-year repayment plan take up 14.1% of earnings in the first year, but gradually fall to only 6.5% of earnings in the tenth and final year. This repayment strategy, however, can place a particularly heavy burden on graduates from majors whose earnings start low before rising later in the career. For these students, college may not provide the cash flow needed to easily pay off loans in years immediately following graduation.
The study's four conclusions:
- Debt burdens vary a lot across majors. In the sixth year of repayment, typical drama, music, religion and anthropology majors are still devoting more than 10 percent of their earnings to loan repayment. Other majors with fairly high early repayment burdens include philosophy, psychology and education. By contrast, engineering, computer science, economics and nursing majors are paying 6 percent or less of earnings in their sixth year.
- In the first five years after earning a bachelor’s degree, the typical student receives a 65 percent raise. (This rise for an individual person, as she ages and becomes more experienced, is occurring even as pay growth across the economy is weak. Today’s 30-year-old is making more than he did at 25, but not much more than a 30-year-old was five years ago.) Unfortunately in recent years, wage increases have become deminimis, suggesting that this may no longer be uniformly true.
- Many of the majors that pay the least directly out of college also have the biggest raises in the first few years. Graduates who major in therapy professions, nutrition or fine arts, for instance, all make less than $20,000 coming out of college, but all see their pay more than double in the first five years. A typical nurse, by contrast, makes almost $45,000 in the first year but receives about a 20 percent raise over the next five years.
- The growth of earnings for most college graduates means that some of the discussion about student debt has the wrong focus. The overall amount of debt isn’t a problem for most graduates: The typical debt, for someone who has debt, is about $26,500, a manageable sum in most college-graduate careers. The problem for many, instead, is when they must repay their loans: early in their careers, when they’re making the least. In some majors, including health education and drama, the typical graduate with debt must devote an imposing 25 percent of her earnings in the first year out of college to loan repayment. “Repayment issues for the bulk of students,” Mr. Hershbein says, “are a matter of timing, not the amount of student debt.”
And since more and more students seek the safety of college to avoid the "hardship" of a job that pays less than your average Millennial expected, or though they were worth, and thus are forced to dilute their field of study and pick increasingly less monetizable majors, it becomes a Catch 22 whereby students increasingly find it impossible to overcome a staggering debt burden early on in their career, which in turn hinders normal career formation, and skews the economy adversely leading to such unintended consequences as the Fed looking at a sub-6% unemployment rate, while the slack-filled economy has rarely if ever been weaker and real wages are at same level as during the Lehman collapse.
Below is the student loan repayment calculator that shows the share of earnings necessary to service traditional loan repayment for 80 majors. Readers can choose or search from each of these majors, as well as change the size and features of the student loan using the selection boxes above. By default, loan features reflect the experience of a typical graduate borrower, and earnings include part-time workers and those who experience unemployment throughout the year (but exclude those with graduate degrees, as these individuals often accumulate additional debt).
Feel free to play around with the interest rate selector: it shows yet another reason why the regime simply can not afford to send interest rates levitating higher despite the optical effect it would have on expectations for an "economic recovery."
In retrospect it is clear why 24% of Millennials (and rising) "Expect" student loan forgiveness, and why increasingly more private (and soon public) lenders are starting to grant it.