Publications / Policy Brief

The Payback Stress Index: A New Way to Measure the Pain of Student Debt

By / 1.13.2012

For new college graduates, the world is their oyster. Without many of the real-world burdens the rest of us face, they can do anything they set their mind to.

That is, unless they start their careers staggering under a pile of student debt. It would appear that student debt is one rather onerous real-world burden bestowed upon college graduates the day they are handed their diplomas—and this burden is causing them more stress now than at any point in the last decade.

Using data on average student debt and wages for young college grads, PPI has calculated the Payback Stress Index. This new measure enables us to quantify, for the first time, the increasing burden of student borrowing for today’s college graduates.

Based on the Payback Stress Index, PPI finds that paying off college debt was 58% more economically stressful for students who graduated in 2010 compared with students who graduated in 2000. Specifically, we calculated how long it would take to pay back the average student loan, given the average earnings of full-time workers aged 25-34 with only a bachelor’s degree. We then indexed that calculation to what the average repayment time was in 2000, assuming an interest rate of 6 percent, and assuming that the representative college graduate paid 5 percent of earnings at each repayment. The chart below of PPI’s Payback Stress Index maps the rise in financial stress facing each class of college graduates.

Climbing Stress Mountain, No End in Sight

Source: PPI

The Payback Stress Index allows us to compare different graduating classes within a single framework. To be sure, the PPI Payback Stress Index works with averages, and uses certain assumptions that may not hold true for every graduate—each college graduate with a student loan has their own repayment term and some were able to take on no debt at all. We’re also assuming real earnings don’t change throughout the repayment period, which affects how long it takes to repay student loans.

Still, the sharp climb in student debt payback stress has no end in sight—leading young college graduates to wonder when, or if, they will ever make it to the top and come down the other side. It’s no wonder the younger generation has started giving the traditional benefits of going to college a second thought.

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