Understanding Changes in the Distribution

Transcription

1 Is a Student Loan Cii Crisis on the Horizon? Understanding Changes in the Distribution of Student t Loan Debt over Time Beth Akers, Matthew Chingos, and Alice Henriques Brown Center on Education Policy Brookings Institution Upjohn Institute Student Loans Conference University of Michigan October 26, 2013

2 Big Bad Student t Debt $1 trillion oh no! Outliers make good stories Typical debt burdens less sensational, but lots of evidence that they are growing Could dynamics of increasing debt and stagnant incomes create a crisis in the market for student loans?

3 Research Questions How has the incidence and distribution of student loan debt changed over time? How has the financial well being of student borrowers changed over time? Which student borrowers face the greatest financial hardship as a result of student debt? Today: Question #1

4 Data on Debt IPEDS: based on survey of institutions, only capture federal loans NCES (e.g., B&B, BPS): detailed, but selected cohorts and limited period of observations College Board: self reported Consumer Credit Panel: longitudinal, but no g, link to earnings

5 Survey of Consumer Finances Nationally representative cross section section of households administered every 3 years We use data from 1989 to 2010 Captures current loan balances and has multiple measures of earnings

6 Survey of Consumer Finances We examine total outstanding education debt of households with average age Reflects borrowing and repayment to date Debt calculated on per person basis in 2010 dollars Apply survey weights throughout

7 Part I: Trends Over Time Big increases (tripling) in incidence and borrowing People are more likely to borrow and they re borrowing more

8 Table 1. Incidence and Amount of Debt Over Time, Age Year Incidence Mean Debt Those with Debt Mean Median Clli Cell size % $806 $5,810 $3, % $1,498 $7,623 $3, , % $1,475 $7,521 $3,577 1, % $2,539 $12,826 $8,027 1, % $2,881 $12,939 $6,156 1, % $3,402 $14,204 $7,503 1, % $4,583 $16,322 $9, , % $6,502 $17,916 $8,500 1,865

9 Trends in Debt over Time, Households with Average Age, g g 20-40,

10 Cumulative Distribution of Education Debt, Households with Average Age 20-40, 1989/1992 and Cumula ative Percent tage Total Education Debt 1989/

11 Tracking Cohort Debt over Time, Age in 1989/1992 g, g 5 9 9/ 99 through Age in 2007/2010

12 Part II: Decomposition Debt levels and trends vary by educational attainment We might worry less about increases in debt that are driven by sound investments in education

13 Table 2b. Summary Statistics, Individual Level, Members of Households with Average Age Year Maximum Education of Household HS or less Some Coll BA Graduate Female Debt % 26% 17% 6% 52% $ % 27% 21% 7% 52% $1, % 30% 20% 7% 53% $1, % 29% 19% 8% 53% $2, % 26% 21% 8% 54% $2, % 30% 21% 9% 53% $3, % 31% 20% 9% 53% $4, % 31% 22% 9% 53% $6,502

14 Incidence of Debt by Educational Attainment,

15 Average Debt by Educational Attainment, Among g y, g Those with Debt,

16 Simple Reweighting Step 1: Calculate 2010 debt by educational attainment Step2: Calculateweighted average of Step 1 using 1989 educational attainment as weights 1989 average debt: $ average debt: $6,502 (increase of $5,696) 2010 reweighted: $5,343 (increase of $4,537) > explains 20 percent of increase

17 Reweighted (simple method, education only)

18 Multivariate i t Reweighting

19 Table 3. Summary Statistics, Household Level, Average Age reweighted ih Maximum Education HS Sor less 41% 31% 42% Some Coll 29% 32% 29% BA 20% 24% 20% Graduate 9% 13% 9% Race/Ethnicity of Household Head White 72% 62% 72% Black 11% 15% 11% Hispanic 11% 17% 11% Oh Other 6% 6% 6%

20 Multivariate i t Reweighting 1989 average debt: $ average debt: $6,502 ($5,696 increase) 2010 reweighted: $4,932 Changes in educational attainment and demographics explain 28 percent of increase

21 Distribution of Education Debt, Reweighting

22 Tuition Adjustment: t Ideal Step 1: Measure e how much each individual dua paid for their education Step 2: Measure how much they would have paid 21 years prior Step 3: Calculate the causal effect of price on debt Step 4: Calculate how much less debt they would have taken out had they faced the prices from 21 years prior (Step 3 x [Step 1 Step2])

23 Tuition Adjustment: t Actual Don t know how much respondents paid for education Don t know causal effect of price on debt Instead: deflate 2010 debt to simulated 1989 level using published tuition and fees by year Assumption (wrong): debt increase (due to p ( g) ( tuition) is same as percentage increase in tuition

24 Tuition Adjustment: t Actual Counterfactual debt in 2010 = (Actual Debt in 2010) x (average tuition 21 years prior to when respondent was age 20)/(average tuition when respondent was age 20) Tuition is enrollment weighted average of published tuition fees at two year, public fouryear, and private four year institutions Overstates importance of published tuition since increases in net price were smaller

25 Trends in Published Tuition and Fees,

26 Table 4. Decomposition of Changes in Mean Debt, Mean Debt Change from 1989 Share of Change Explained 1989 Debt $ Debt No Adjustment $6,502 $5,696 0% Applying 1989 characteristics $4,932 $4,126 28% Applying 1989 tuition $3,194 $2,388 58% Applying 1989 characteristics and tuition $2,402 $1,596 72%

27 Conclusions Tuition increases important, but likely overstated due to data limitations Changes in attainment and demographics explain significant share of debt increase Sizable share of increase unexplained > behavioral change, perhaps shifts in attitudes towards debt?

28 Next Steps Improve tuition adjustment if possible Repeat analysis using debt to income ratios and other measures of financial distress (e.g., bankruptcy) Do trends in debt spell trouble for the broader student loan market?

29 Is a Student Loan Cii Crisis on the Horizon? Understanding Changes in the Distribution of Student t Loan Debt over Time Beth Akers, Matthew Chingos, and Alice Henriques Brown Center on Education Policy Brookings Institution Upjohn Institute Student Loans Conference University of Michigan October 26, 2013

30 Distribution of Education Debt, 1989/1992 and Total Education Debt 1989/

31 Table 2a. Summary Statistics, Household Level, Average Age Year Race/Ethnicity of Household Head MaximumEducation of Household Couple White Black Hispanic Other HS or less Some Coll BA Graduate % 11% 11% 6% 62% 41% 29% 20% 9% % 14% 10% 5% 61% 37% 29% 25% 9% % 14% 9% 4% 59% 36% 31% 23% 10% % 14% 11% 4% 62% 36% 32% 21% 11% % 16% 12% 4% 60% 38% 28% 23% 11% % 15% 14% 4% 58% 34% 31% 23% 12% % 16% 15% 6% 62% 33% 33% 22% 12% % 15% 17% 6% 58% 31% 32% 24% 13%