Focusing the Student Loan Conversation on the Average Borrower, Not the Average Loan

These days, anyone who follows the news can recite statistics on student debt. The media has repeated countless times phrases like “there is $1 trillion in outstanding student debt” and “borrowers have an average of $23,300 in loans.” But do these numbers really mean what the media, policymakers and advocates think they mean? Which is, do these numbers tell how much debt the typical student carries? Not at all.

First and foremost, it’s important to clarify that “$1 trillion” refers to the total outstanding balance of the entire universe of student loans. That’s all loans from federal and private sources, for undergraduate or graduate students attending or who attended any type of school. The loans could have been taken out in September of 2011 for the current school year or they could have originated in 1995 but have not been repaid yet.

Similarly, that $23,300 number, which comes from a New York Federal Reserve Bank study of a representative sample of all outstanding loan balances as of 2011, refers to the average student loan balance only for students who took out loans. It excludes students who have already paid their loans off or who did not take out any loans.

Despite their ubiquity, these numbers don’t actually paint a picture of student borrowing as experienced by the typical borrower. Yet most press accounts imply that the average student loan balance for borrowers reflects the student loan balance for the average borrower.

In fact, most borrowers carry student loan balances well below the average. According to that same study, the median student loan balance is $12,800. This means that half of borrowers owe less than that amount and half owe more. Similarly, 75 percent of borrowers owe less than $28,000, and 90 percent owe less than $54,000 currently. While the press can certainly cite the average loan balance at $23,300, they should also make clear that most borrowers currently owe significantly less.

Now consider the discussion about debt owed by recent graduates. The most recent survey for the Baccalaureate and Beyond dataset, collected by the National Center on Education Statistics, provides data on cumulative student loan balances as of 2009 for the graduating class of 2008. These data show that the average student loan balance was $25,619 for students that took out loans.

But once again, the average borrower owed far less than that amount. Specifically, the data suggest that the typical borrower (the borrower with a loan balance at the 50^th percentile) owed $19,857 one year after graduation. Seventy-five percent of borrowers owed less than $33,857 and 90 percent owed less than $50,000. On the other end, 25 percent of borrowers owed less than $10,000.

It is also important to note that the Baccalaureate and Beyond data show that 65.6 percent of students took out loans. So that means that 34.4 percent of graduates of the class of 2008 had no loans to begin with.

This is why the distinction between average and median student debt, and the distribution of debt among percentiles of borrowers matters. By focusing on average student debt, journalists, policymakers and advocates are skewing the discussion on student debt toward one extreme that affects a minority of borrowers. They’ve convinced their audience (and likely themselves) that the average loan balance (which is disproportionately affected by outlier loans with particularly large balances) should drive the discussion, not the debt of the average student borrower, nor the debt levels of the majority of borrowers.

As the discussion on student debt continues, journalists, policymakers and advocates should bear in mind what the data cited above say about the typical borrower: she is in less debt than the average loan size figures would have us believe.