Although graduates owe a colossal and increasing amount of money on their student loans, that debt is no more of a burden for them than it was 20 years ago, according to a new report from the Brookings Institution. The authors of the report find that rising incomes, lower interest rates, and longer loan terms have largely compensated borrowers for their higher debt burdens.


More and more students have been graduating with loans, especially since the financial crisis, as the chart above shows. Total outstanding student debt, which is around $1.2 trillion, is second only to home mortgages as the largest form of personal debt. Relatively high default rates among graduates and a recent decline in homeownership among graduates has led some observers to worry that student debt may be hampering the economy as a whole.

Yet according to the Brookings report, the median borrower's monthly student loan payment has held steady between 3 percent 4 percent of her monthly income since 1992, as shown in the next chart. Repaying student debt takes only about two and a half years longer now than it did then, on average. What's more, the share of borrowers with very high monthly payments relative to their income appears to be falling. The authors of the paper, Beth Akers and Matthew Chingos, were not expecting these results, given the  increase in debt. "The findings in this paper really surprised us," Chingos said.

The median borrower's monthly payment on a student loan is the same fraction of her monthly income now as it was in 1992. The mean ratio is falling, suggesting those with especially high debt or low incomes are also in a better position. Source: Brookings Institution.

Their conclusion contrasts with typical portrayals in the media of recent graduates getting by on part-time work and living with their parents in order to make their monthly student loan payments. The Brookings paper has already received some scathing criticism.

Indeed, the unemployment rate among adults between 20 and 24 years of age was 11.1 percent last month, nearly twice the average for all workers, according to the Bureau of Labor Statistics. While incomes have increased for graduates over the long term, they have stagnated since the financial crisis. Chingos is especially worried about those with student debt and no bachelor's degree, many of whom dropped out of school. Some 7 million borrowers are in default on a student loan, around 18 percent of borrowers, according to the Consumer Financial Protection Bureau.

"As debt has gone up, incomes for college graduates have remained flat or gone down," Rohit Chopra, the bureau's student loan ombudsman, told The Washington Post earlier this month. "The combination of higher [debt-to-income levels] and damaged credit is a recipe for a challenging path forward for young people who are looking to borrow or invest."

Akers and Chingos's evidence suggests that many of those young people will be just fine in a few years, once they get a real job -- particularly in comparison to their peers who did not go to college. The authors also note that people with advanced degrees, who are much more likely to achieve financial security, take out a large proportion of debt (around 40 percent, by one estimate).

To be sure, even if most borrowers eventually do figure their lives out, the huge amounts they owe are bound to influence their decisions on spending, with ramifications for the economy as a whole. Researchers at the Federal Reserve Bank of New York wrote earlier this year that student debt could be keeping young borrowers out of the automobile and housing markets, leading to reduced consumer spending in general.

Others, however, argue that going to college or graduate school is still a wise investment for most students, and that by broadening access to education, student loans improve the productivity of the workforce.

"If you didn't go to college and you didn't acquire that debt, you’d also have lower earnings," said Sandy Baum, an economist at the Urban Institute. "To not go to college because you might acquire $30,000 or $40,000 in debt is a very shortsighted decision."

Of course, whether college is worth it or whether tuition is unnecessarily high are important, long-running debates. Until they are resolved, anyone without a large savings account who wants to go to college has little choice but to take out a loan. The good news for those people from Brookings is that they can do so without destroying their financial future.