Disparities in Debt

Abstract

In an era of rising college costs and stagnant grant-based student aid, many young adults rely on their parents’ resources and student loans to pay for their postsecondary education. In this study I ask how parents’ income and education are linked to young adults’ student loan debt. I develop and test two perspectives regarding the functional form of the association between parents’ income, parents’ education, and student loan debt. I have four key findings. First, the relationship between parents’ income and student loan debt is nonlinear, such that young adults from middle-income families have a higher risk for debt than do those from low- and high-income families. Second, young adults from college-educated and high-income families are relatively protected from debt. Third, the association between parents’ socioeconomic status (SES) and debt is modified by postsecondary institutional characteristics and is strongest at private and high-cost institutions. Finally, the effect of parents’ SES on debt varies across the debt distribution. Parents’ SES is strongly predictive of entry into debt, but there are few differences conditional on going into debt. This suggests that socioeconomic disparities in debt are primarily driven by the probability of going into debt rather than differences among debtors. However, compared to their more advantaged counterparts, young adults from low-SES backgrounds have a higher risk of accruing debt burdens that exceed the national average.