Event 2203 SS&H Andrews Conference Room

Student Loan Payments and Wealth: A Threshold Approach
Gerald Daniels, Howard University

Since 2010, student loan debt has become the second-highest debt category for U.S. households. We examine how education payment-to-income ratios (PIR) impact wealth accumulation across the wealth distribution using a thresholding approach in quantile regression. We use data from the last 3 survey rounds of the Survey of Consumer Finances. Results indicate that living in a household at the 15th, 30th, 50th percentile of the wealth distribution, a one percentage point increase in the education PIR is associated with a $146.98 (2.29%), $584.84 (1.65%), and $1,306.03 (1%) wealth loss after controlling for a host of demographic and economic variables. Further, we find that these effects on wealth are sensitive to threshold values of the education PIR across the wealth distribution. Our study indicates the importance of understanding the opportunity costs associated with paying off student loans over long repayment terms with relatively low education PIRs.