EDUVENTURES Chief Research Officer Richard Garrett raises an interesting question: when it comes to student loan debt we tend to think of the debt that millennials have at graduation, but what about their parents?
The inspiration for Garrett’s question comes from a recent Pew report entitled The Complex Story of American Debt, that “warned of an “intergenerational legacy of debt” that will put extra pressure on college affordability.” To determine if such a bubble is looming, Garrett starts by breaking down how school is paid for generally. Since federal and private loans cover about 52% of the cost of a 4-year school, students and parent are left with the expense of anywhere from 50 - 65% of the total net tuition due. Garrett identifies multiple sources that can contribute to filling this gap including work-study, private loans, and PLUS loans for parents. With students making less than $10,000 per year on average, parents are left to fill the financial gap. So, if the average student loan debt is roughly $30,000, what is the average debt burden for those parents who help pay for their child’s education?
Unfortunately there is very little data detailing the portion of the education bill paid by parents using credit cards, or home equity loans. To answer this question, Garrett turns to Sallie Mae’s How America Pays for College, a report based on a national yearly phone survey of 1,600 parents and students. Here we find some good news. “When it comes to paying for college, parent income and savings are much more important than parent borrowing, on average. Parents are crucial to making the college cost equation work but are primarily drawing on wealth, not debt.”
Still questions linger. The threat of a debt bubble still looms which, “may inhibit college access and increase the prevalence of borrowing,”
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