Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 17, 2013

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Students from middle-income families face the largest risk of student loan debt, according to a new study. It found that the link between a parent’s income and a student’s college-related debt is nonlinear.

The report found that nearly 41 percent of young adults left school with student loan debt. Indebted students from middle-income backgrounds, whose family income ranged between $40,000 and $59,999 annually, left with an average of 60 percent more debt that their lower-income peers with family incomes below $40,000 per year. Even students from higher middle-income backgrounds, with annual incomes ranging between $60,000 and $99,000, had nearly 40 percent more student loan debt than low income students.

When compared to higher-income families, such as the income bracket ranging from $100,000 to $149,000 per year, middle-income students left with significantly more debt. Middle-income students had 280 percent more student loan debt that their high-income peers.

The study, “Disparities in Debt: Parents’ Socioeconomic Resources and Young Adult Student Loan Debt,” was conducted by Jason Houle, an assistant professor of sociology at Dartmouth College. It used 4,789 participants from the 1997 National Longitudinal Study of Youth which recorded responses from a sample of young men and women in 1997 when the participants were 12-16 years old. The study followed up in 2009 when the participants were 24-28 years old.

Houle said that the data created an “inverted U” shape where young adults from middle-income families felt the most financial strain for higher education.

Before starting the study, he did not expect this non-linear pattern to appear. Houle told that he began this study because the majority of research on social stratification does not tackle student loan debt and its rising cost. College education is the entrance ticket to the middle-class but the cost of this ride has not been studied in the long-term.

The reason why middle-income students suffer is because of rigid financial aid cutoffs. Over 90 percent of Pell Grant recipients are from families with annual incomes of $40,000 or less.

Middle-income students, even those that come from families with incomes ranging between $40,000 and $59,999 per year, bear a large financial burden because they fall between two spectrums. They are not poor enough to access grants or scholarships and they are not funded by their rich parents.

Kimberly Lombard understands the struggle of this middle ground and was not surprised by the study findings.

“Students from middle-class families are nowhere near wealthy enough to pay for tuition and room and board upfront, but also certainly have too much money to apply for grants,” she said.

During her time at Brandeis University, her peers ranged in socioeconomic classes. Her low-income peers paid very little because of grants and scholarships. Conversely, some of her wealthy friends were so affluent that they never heard of a FAFSA form.

Besides applying for achievement or athletic scholarships, Lombard believes the middle class is left in an “abandoned zone” of private student loans or high interest rates. Taking on large debts impacted both her time at Brandeis, as well as her future career decisions. Her rich friends were able to follow their dreams because they did not have to stress about loan repayment. In her case, the job search was more stressful.

“If I didn’t have to pay off student loans, I would have considered a lot of other opportunities that I couldn’t with this financial responsibility,” she said.

The study said that when family resources and financial aid are unavailable, students turn to other funding forms such as loans.

“On the one hand, debt is a borrowed resource that young people can use to bridge the gap between their families’ resources and the rising cost of college,” the report said. “On the other hand, debt comes with inherent risks, which may limit students’ opportunities and choices after college.”

Sara Maldonado was forced to drop out of college during her last semester because the financial strain became too heavy after her father lost his job. When she filled out her FAFSA form that year, the only aid she was offered was a $2,000 government loan, not nearly enough to pay for her final semester.

“We made too much money to receive government aid but my family does not have enough to pay the $40,000 tuition bill of Catholic University,” she said.

Maldonado said that her family made a decent living at $150,000, nationally ranked as an upper-class family, but the income equated to less in her Arlington, VA hometown.

“The Washington, DC metropolitan area is incredibly expensive,” she said. “Because of the high living costs, my parents were not able to contribute much to my education.”

For the middle-income students that bear the largest burden, preventative measures can be taken. The earning potential for the student should come into play when deciding the amount of student loans requested, according to Christina Povenmire, a CFP and principal of CMP Financial Planning. A student that faces an annual income of $35,000 upon graduation should not borrow more than that amount for their entire education. If borrowers take on more than this amount, they could face serious financial problems.

“We need to do something about students getting burdened with this school debt,” Povenmire said. “The education they are walking away with can’t offset starting off with that much debt.”

Although student loans are primarily based off of a student’s credit score, even though it can be very low for approval, financial aid is based off of a family’s income. Changing this policy could have a large impact on students.

Lombard said that if grants were approved based on the student’s income, the process would be a lot more sensible. Since they are not, she must live with the outcomes of her debt. Her student loan repayments personally cost her $800 per month, forcing her to live at home instead of using that money for rent in Boston.

“Being legally defined as a dependent does not mean that I will have assistance in my loan payments,” she said. “It’s quite frustrating feeling like I am paralyzed until my debt is paid off, unable to make any moved toward moving out and learning to be independent.”