Millennials with heavy student loan debt still likely to be upwardly mobile

Millennials with heavy student loan debt are still likely to be upwardly mobile, says Cleveland Fed researcher

In general, we would expect student-loan borrowing to be positively correlated with measures of upward mobility, since student debt supports the acquisition of skills and education. An analysis by Federal Reserve Bank of Cleveland economist Stephan Whitaker suggests that this continues to be the case, despite the heavy debt burdens that young adults are now carrying.

From 2007 to 2015, the share of 26 to 32 year olds who have student loan balances increased from 23 percent to 37 percent, and their median balance rose 36 percent (adjusted for inflation) to $16,808. The share of borrowers with balances in excess of $25,000 more than doubled–from 12 percent to 34 percent. Could debts this large offset or delay the benefits of attending college, including upward social mobility? To answer that question, Whitaker focused on several measures of mobility and social mobility, including household formation, moving between metro areas, moving to better neighborhoods, and homeownership.

As measured by household formation and moving to better neighborhoods, Whitaker’s findings suggest that student debts have not become so burdensome that they undo the advantages of higher skills. He finds that young people who borrowed heavily during the recent expansion of student loan debt have been more likely to move up to higher-status neighborhoods (as measured by educational attainment and median neighborhood income) than their peers who borrowed less or borrowed nothing. He also finds that, while students who borrow more do delay purchasing a home, they are not substantially more likely to continue living with their parents. “In short, millennials with student loans are still likely to be upwardly mobile,” says Whitaker.

Are there some regions where this upward socioeconomic mobility is more likely to happen? Whitaker says higher shares of these individuals are found in the South and some parts of the Midwest (Columbus, Indianapolis, Kansas City). He says relatively few upwardly mobile millennials are found in the Northeast corridor and California despite the high median household incomes in those areas.

Have the gains realized by student borrowers improved as levels of student debt have risen? Whitaker says the evidence is not encouraging. “By every measure examined here, today’s most indebted student borrowers are less mobile and upwardly mobile than the top-third borrowers of the last decade. The observed advantages of heavy borrowers over nonborrowers have either remained steady or declined.” For example, says Whitaker, “Student-loan borrowers are now less likely to purchase a home than nonborrowers. These challenges may be caused by the debt itself, or they may reflect the relatively weak economic recovery.”

Read Are Millennials with Student Debt Upwardly Mobile?

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Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892