There is little doubt that outstanding student loan balances, about $1.2 trillion in the fourth quarter of 2015, amounts to a troubling debt bubble. The amount of outstanding student loans is only second to mortgage debt.
However, a study by the Federal Reserve Bank of Cleveland is trying to put a positive spin on student loan debt with a new study that focuses on monthly payments paid by Millennial college graduates.
In the second quarter of 2015, the average student loan payment for those in the 20- to 30-year-old range was $351, according to the Federal Reserve Bank of New York’s Consumer Credit Panel data. The Cleveland Fed points out that this amount is more than 50 percent higher than it was in 2005 ($227 when adjusted for inflation).
The Cleveland Fed’s Economist Joel Elvery: “But a small fraction of borrowers have very large student loan payments, pulling up that average. Fifty percent of the borrowers had payments of $203 or lower, and another 25 percent had payments between $203 and $400.”
This means that 75 percent of student loan borrowers in this age group did the right thing by going to college because they increased their monthly take home earnings by $401 or more.
In 2014, those in the labor force, aged 20 to 30, who had at least some college earned $2,353 per month on average. That’s $750 more than people the same age with just a high school degree.
“This is more than double the average monthly student loan payment, suggesting that the increase in earnings from going to college more than offsets the cost of student loan payments for most borrowers,” Elvery writes.
The Department of Education provides plans to borrowers with federal student loans that help make payments more affordable. These include programs that let borrowers set their monthly payment based on their income.