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Gail MarksJarvis: Don't cry for 2015 college grads - they'll handle student debt just fine

McClatchy-Tribune Information Services

May 25, 2015


Donít cry for this yearís college graduates.

Or, letís change that: You might shed a tear for those who are struggling to get good-paying jobs in a still difficult jobs market. But if you think most of the graduating class of 2015 will be suffocating with overwhelming student loans, thatís going a bit too far.

While the nationís total amount of outstanding student debt is at a mind-boggling $1.2 trillion, most students who graduate with bachelorís degrees donít fit the stereotype of being burdened by deeply destructive debt.

Rather, a study by the Urban Institute shows that few have the $50,000 in debt highlighted in some news headlines. Most have debt levels they should be able to handle if they get the typical starting pay for new college grads. Last yearís salaries averaged $36,237 for four-year liberal arts degrees and those in business, engineering and science fields earned more, according to the National Association of College Employers.

That average pay would allow a student to handle about $21,000 in college loans under a rule of thumb that recommends keeping payments no higher than 8 percent of a personís gross earnings. Try this calculator to access a particular studentís ability to pay: mappingyourfuture.org/paying/debtwizard/. For students without jobs or incomes too low to handle their debts, the federal government temporarily reduces payments for Stafford and Perkins loans under the income-based repayment plan. See the effect of reductions at studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action.

In the latest Department of Education data analyzed by Urban Institute, researchers found 54 percent of those who graduated with bachelorís degrees in 2012 borrowed no more than $20,000. Another 17 percent borrowed between $20,000 and $29,999, and an additional 12 percent borrowed $30,000 to $39,999. Only 10 percent took on the extraordinary debt of $50,000 that sometimes shows up in stories of woe.

It appears that the widespread attention on the dangers of overborrowing may be making people more careful about loans. News reports have told of new graduates delaying marriage, children and home purchases because of their financial burdens.

Analysts Sandy Baum and Martha Johnson noted in their Urban Institute study that after a surge in 2009 and 2010, student loan borrowing has declined during the past three years. At the peak just after the recession, annual borrowing by full-time undergraduates was $6,122. But during the 2013-14 academic year, borrowing fell to $5,490. About a third of undergraduate students finish college with no debt.

The massive borrowing at the $50,000 level occurs primarily among students seeking graduate degrees. That includes students who might be able to handle higher debts in fields such as business, law and medicine.

Still, students seeking graduate degrees do have higher burdens than they did a decade ago. About 37 percent of students going to graduate school finished with debt of at least $50,000. The report noted that the percent was double 2004ís. About 14 percent accumulated as much as $100,000, mostly students seeking doctoral degrees.

At the undergraduate level, those most likely to end up with large debts included students who are married or with children, who live independently of their parents. Students who go to for-profit colleges and those who stay in school for a longer time also had higher debts than usual.

Low-income families are not more likely than others to borrow large amounts. Baum said thatís at least partly because lower-income students attend school for fewer years than other students.

Half of the students who earn two-year associate degrees finish without loans, and debt in excess of $30,000 is rare.

For-profit institutions have been controversial because they charge more than public institutions and can leave students with poor professional outcomes. The students attending them tend to be older and lower income. The study noted that 26 percent of students from for-profit institutions borrowed $50,000 or more for undergraduate study.

Among the full array of students graduating during the past three years, the report found "the downward trend in annual borrowing notable." While the period could be an aberration, the report said, "it is also possible that education debt will stabilize or even decline."