A friend's son has gotten into the grad school program of his choice. He's not only heading for Budapest to study international economics, he's been offered an 80 percent discount on tuition. He's asked his parents to pay for that remaining 20 percent. They've said no. "We can't afford it right now," says my friend, who told her son to borrow the money. "He doesn't want to," she adds. "He's really scared about going into debt."
He may have to borrow but who can blame him about wanting to avoid student loans. A recent Pew Research Center report finds student debt burdens "weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation."
Here are some stats that my friend might not want her son to dwell on: Four out of every ten U.S. households headed by an adult younger than 40 currently have some student debt—the highest share on record, with the median outstanding student debt load standing at about $13,000. The median loan is equal to about two years’ worth of household income.
Meanwhile, households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).
Then there's a new report from the Brookings Institution with some variations on the same theme: between 1989 and 2010, the share of households with student loans jumped from 9 to 19 percent, and inflation-adjusted median student debt rose by more than 50 percent. Put in another perspective, by the end of 2009, student debt eclipsed credit card debt as the second-largest type of debt owed by American households, after mortgages.
As to my friend and her son, she hasn't told him yet, but she and his father plan to help him out with repayments when that part of the loan contract clicks in. He's on his own in paying for grad school, but not completely.