New Demos Report Examines Lifetime Wealth Loss Of Student Debt

NEW YORK, NY— In response to President Obama’s assertion that a college education is America’s stepping stone to the middle-class, the national public policy organization Demos has released a new report that highlights the broader impact of student debt. Comparing a household with student loans against one without, the report reveals that student debt permanently impedes upward mobility for millions of Americans struggling to repay their loans.

READ: At What Cost? How Student Debt Reduces Lifetime Wealth

With two-thirds of college seniors graduating with an average of $26,600 in student loan debt, this brief finds dual-headed households, who borrow a total of $53,200 in educational debt, see a lifetime wealth loss of nearly $208,000. 

Solely focusing on student loan interest rates for current and future borrowers is the wrong policy debate.

Nearly 39 million Americans have funded their higher education with student loans, bringing the country’s current total to $1 trillion in student loan debt – quadruple the $240 billion that it was in 2003. If current borrowing patterns continue, student debt will hit $2 trillion by 2025.

“This model allows us to predict that the $1 trillion in outstanding debt will lead to a total lifetime wealth loss of $4 trillion for those households held hostage by their student debt,” said Robert Hiltonsmith, author of the report. “Two- thirds ($134,000) of this loss comes from lack of retirement savings, while the other one-third ($70,000) is due to a decrease in home equity.”

“Solely focusing on student loan interest rates for current and future borrowers is the wrong policy debate,” said Tamara Draut, Vice President of Policy and Research and the author of Strapped: Why America's 20- and 30-Somethings Can't Get Ahead. “For years, Demos has been working to sound the alarm about the true cost of the ‘debt-for-diploma’ system. The average tuition at public universities has more than doubled over the past two decades, while grant aid has been cut time and time again. The result is rising amounts of debt are now all but required for attaining a bachelor's degree – a burden no other generation has been expected to carry – and one that is keeping too many bright students from seizing the American dream.”

Key findings conclude the loss will be greater for students from low-income families, students of color and students attending for-profit colleges:

• In the class of 2008, 79.7% of African Americans left school with student debt that averaged $28,692 – higher than the national average – compared to 65.6% of whites that graduated with $24,842, a number below the average.
• In families with incomes less than $60,000, 75% of Bachelor’s degree recipients left with student loan debt compared to the 48% of degree holders from households with incomes of more than $100,000.
• The average debt for students attending public universities is $20,200, with those choosing private non-profit schools obtaining $27,650 in debt and private for-profit students amassing $33,050 in student loan debt.

This fall, Demos will launch a major national campaign, allying with youth groups, policy and advocacy organizations and labor unions. The campaign will advocate for debt relief for borrowers, address the causes of declining affordability and expose the role of Wall Street in the financialization and privatization of higher education.

At What Cost?: How Student Debt Reduces Lifetime Wealth  is part of Demos’ on-going work creating pathways to ensure a strong and diverse middle-class. Demos is a public policy organization working for an America where we all have an equal say in our democracy and an equal chance in our economy.

Testimonials from the Retirement and Lending Communities

“A secure retirement has long been premised on three solid legs of the stool - that is Social Security, employer-sponsored pensions and personal retirement savings,” said Max Richtman, President and CEO at National Committee to Preserve Social Security and Medicare. “The National Committee to Preserve Social Security and Medicare is committed to protecting and improving the Social Security leg, but the strength of the other two legs is absolutely critical.  This report shows that the ability of families to save for retirement is reduced by the burden of high student loan debt, leading to diminished lifetime savings and a lesser standard of living in retirement.” 

“This Demos research highlights the debilitating costs and consequences of heavy student loan debt,” said Debbie Goldstein, Executive Vice President at Center for Responsible Lending. “This rising burden on American young people impairs their ability to build wealth through savings, homeownership or other investments in their financial future. The problem is particularly serious for students of color and also for those who attend for-profit colleges, which leave students with much larger and more expensive debts and a higher risk of default.  Policymakers must be aware that student loan debt is not a problem confined to today’s young people, but it also will affect the overall economy."