Many students accumulate a crippling amount of student debt in college. This typically effects their net worth in the long run. Heads of household who are college educated and under the age of 40 with higher education debt have a median net worth of only $8,700. Meanwhile, the students of the same demographic without college debt have a median net worth of $64,700, reports The Pew Research Center study, “Young Adults, Student Debt and Economic Well-Being.”
Of American households headed by an adult under 40, almost 4 in 10 have student debt. Oddly enough, people without a college degree and without student debt have a net worth of $10,900, which is higher than that of college degree recipients with student debt, writes Ashlee Kieler for the Consumerist. Young adults without college debt usually have a net worth seven times greater than those with student loans.
Even though student loan debt does take a big part in the low median wealth of college graduates with mandated student loan repayment, Pew discovered that they were also more apt to incur other debts that added to the wealth gap.
The big gap in net worth demonstrates that those students with college debt are around 10 years behind in accruing their wealth, reports Tyler Kingkade for The Huffington Post. They are not accruing wealth in the forms of stock investments, major purchases like a house or car, and savings as their student debt-free fellow classmates and it will take them more time to get to their classmates’ level, says Richard Fry, Pew Research Center’s chief economist and a lead author on the report. “They’re in a significant hole,” he says.
Pew’s study also discovered that households with college debt have around twice as much debt overall as those without student loans. Student loan borrowers have an estimated $137,010 in debt, says Kingkade. This is in comparison to student debt-free households’ $73,250 in debt. According to the Pew study, $13,000 is the average amount of outstanding student debt that college graduates carry.
However, that makes up only a small portion of overall debt carried, which includes credit card debt, car loans, and other miscellaneous debts. Also, 41% of degree holders with college debt claim that their total overall debt is more than the value of their net worth. This is in contrast to only 5% of college educated people without student loans.
The gap in the average debt-to-income ratio between young degree holders with student debt and those without it continues to grow. The rate of this growth has increased noticeably past 2000, Ellen Meyers for The Christian Science Monitor writes.
Such debt loads can have major economic implications, Mr. Fry notes. “As a result of these high debt levels among young student debtors, it’s crippling them to postpone purchases, particularly [of homes]…It’s possible that student debt and other debt are holding them back.”
Fry states that the report is not implying that people should not go to college. Instead, it presents that this college-educated demographic still has a larger wage than their counterparts without a degree.
“Over time, student debtors eventually will begin to accumulate wealth,” he says. “They’re simply behind.”