Nearly four-in-ten U.S. households headed by an adult younger than 40 currently have student debt and a median net worth of just $8,700.
That’s a stark contrast to the median net worth of $64,700 that young college graduates without student debt have accumulated. Additionally, consumers without a degree and without student debt have a net worth of $10,900, once again greater than that of degree holders with debt.
While student loan debt does play a large role in the low median wealth of college graduates with student loan obligations, Pew found these consumers were more likely to take on other debts that contributed to the wealth gap.
College graduates are making more money.
… College-educated student debtors typically have a household income of $57,941, nearly twice that of homes in which the heads do not have bachelor’s degrees.
… Among the young and college educated, the typical total indebtedness (including mortgage debt, vehicle debt and credit cards, as well as student debt) of student debtor households ($137,010) is almost twice the overall debt load of similar households with no student debt ($73,250)….
It is reasonable that college-educated young adults, with their higher incomes, are able to take on more debt.
Though student debtor households tend to have larger total debt loads, indebtedness needs to be assessed in the context of the household’s economic resources. In other words, households with greater income and assets may be able to take on more debt. Using the conventional total debt-to-income ratio, where debt is measured as a share of income, college-educated student debtors are by far the most indebted.2 The median college-educated student debtor has total debt equal to about two years’ worth of household income (205%). By comparison, college-educated households without student debt and less educated households with student debt have total debts on the order of one year’s worth of household income (108% and 100%, respectively).
The hope and expectation are that their income will keep pace with inflation, and continue to grow at a rate that will enable them to manage their debt.
These young adults should also start saving for retirement, since the “power of compounding is a reason to start saving for retirement as early as possible”.
Saving “$5,000 per year only from ages 25 to 35 (10 years)” will generate a larger retirement nest egg than saving “$5,000 per year, but from ages 35 to 65 (30 years)”.