Roundtable Discussion on the Implicationsof Student Loan Indebtedness

Information compiled for Federal Reserve Board, Division of Consumer and Community Affairs

Prepared by Carl Van Horn, Ph.D.vanhorn@rutgers.eduProfessor and Director

John J. Heldrich Center for Workforce Developmentwww.heldrich.rutgers.edu

Summary of Findings from:

Unfulfilled Expectations: Recent College Graduates Struggle in a Troubled Economy, by Carl E. Van Horn, Cliff Zukin, and Jessica Godofsky, Heldrich Center for Workforce Development, Rutgers University

A national random survey of 571 individuals who received a B.A. or B.S. degree from 2006 to 2010. Conducted in April/May 2011.

Available at: http://bit.ly/iijwR4

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KEY FINDINGS: UNFULFILLED EXPECTATIONS: RECENT COLLEGE GRADUATES STRUGGLE IN A

TROUBLED ECONOMY 1. PROFILE OF STUDENT DEBT

Nearly 6 in 10 borrowed for college.

Main source of funding is from non-family sources (37%).

Nearly 6 in 10 owed money at graduation.

$20,000 was the median amount owed.

Median public college debt was $18,680; median private college debt was $24,460.

Four in ten (42%) have other debts—mainly credit cards.

2. PROGRESS IN PAYING OFF DEBT 1 TO 5 YEARS AFTER GRADUATION

83% owe at least half of what they borrowed for college.

Nearly a third (30%) has not paid off any debt.

About half who graduated in 2009 and 2010 have yet to pay off any of their debt.

44% have paid off one-quarter of the debt.

Only 12% paid off all of their debt.

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KEY FINDINGS: UNFULFILLED EXPECTATIONS: RECENT COLLEGE GRADUATES STRUGGLE IN A

TROUBLED ECONOMY (continued) 3. COLLEGE STUDENTS’ CONTRIBUTIONS TOWARD THEIR COLLEGE EDUCATION

83% of graduates worked during the school year; 92% worked full or part time in the summer.

23% of college students worked full time during the school year; from 2006 to 2010, the percentage working full time increased from 16% to 27%.

44% contributed toward their college education through work or personal savings (51% of males and 39% of females)

4. PARENTS AND FAMILY ARE PROVIDING A LOT OF SUPPORT TO RECENT COLLEGE GRADUATES

58% of recent college graduates between the ages of 22 and 25 and 35% of those between the ages of 26 and 29 receive some form of financial assistance from parents or family members, including: housing (24%), including 22% living

with parents or relatives

paying bills (24%)

food (21%)

health care costs (15%)

college loans (11%)

car payments (9%)

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KEY FINDINGS: UNFULFILLED EXPECTATIONS: RECENT COLLEGE GRADUATES STRUGGLE IN A

TROUBLED ECONOMY (continued) 5. EARNINGS OF RECENT COLLEGE GRADUATES

Median salaries earned in the first job were $30,000.

Men earned a median of $33,150 and women earned $28,000.

Median starting salaries were $30,000 for 2006 and 2007 and $27,000 for those entering the workforce in 2009 and 2010.

Employed graduates who did an internship in college had a median income of $34,680—$6,680 more than those who did not do an internship ($28,000).

Students earning less than $20,000 per year were more likely to have borrowed money from non-family sources (42%) than those earning $50,000 or more (30%).

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KEY FINDINGS: UNFULFILLED EXPECTATIONS: RECENT COLLEGE GRADUATES STRUGGLE IN A

TROUBLED ECONOMY (continued) 6. EMPLOYMENT AND EDUCATION STATUS OF RECENT COLLEGE GRADUATES

While 80% of graduates have had at least one full-time job since graduation, at the time of the survey:

53% employed full time

7% employed part time, seeking full-time work

5% employed part time, but not looking for full-time work

3% self-employed

2% military service

7% unemployed and looking for work

2% unemployed and not looking for work

21% attending graduate/professional school, full or part time

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KEY FINDINGS: UNFULFILLED EXPECTATIONS: RECENT COLLEGE GRADUATES STRUGGLE IN A

TROUBLED ECONOMY (continued) 7. EXPECTATIONS ABOUT THE NEED FOR FURTHER EDUCATION

79% of graduate students in 2010-2011 took out federal loans, according to the College Board.

62% expect that they will need more formal education in order to be successful; 18% are not sure.

57% of whites and 77% of non-whites say they will need more education.

52% of 2006 graduates and 71% of 2010 graduates say they will need more education.

8. EXPECTATIONS ABOUT FINANCIAL SUCCESS AND THE ECONOMY

Less than half (48%) think they will have more financial success than their parents; 20% think they will have less success than their parents.

17% think their generation will have greater financial success than the one that came before them; 56% think their generation will have less success.

45% think that the U.S. economy is experiencing fundamental and lasting changes.

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IMPLICATIONS 1. Recent college graduates will continue to struggle to pay off their debt due to:

2. Reduced entering salaries for those graduating during the recession will present continuing difficulties for this group of borrowers and increase default rates.

3. Because graduates who earned lower salaries in their first jobs were more likely to have borrowed from sources other than their families, they will also struggle to pay off their debts.

4. Lower entering salaries for women college graduates will cause difficulties for the ability to pay off debts.

5. Debt burdens for college graduates will increase in the coming decade as even larger numbers of students already in debt go further into debt in order to finance graduate and professional education.

6. Because most students are already contributing substantially toward their education by working full time or part time during college, there is little they can do to reduce borrowing.

Ratio of median debt to median entering salaries

Relatively low levels of full-time employment

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CONCLUSION Strategies need to be developed to:

Respond to the special problems encountered by recession-era recent college graduates.

Anticipate additional borrowing by students seeking graduate and professional degrees in the coming decade.

Lower the cost of undergraduate education by reducing the amount of time spent in certificate or degree completion.