The Consumer Financial Protection Bureau (CFPB) earlier this year raised the alarm over student debt, noting that the toll of outstanding student loans is now over $1 trillion.
Who owes this money and how are they ever going to pay it back? A researcher at the University of Wisconsin has found that the student debt burden falls heaviest on students from middle-income families.
Upper income students don't need loans. Low-income students have a number of aid opportunities. But researcher Jason Houle says for many middle-income students, loans are the only form of student aid available to them.
Houle calls it the "middle-income squeeze." The families of these young adults make too much money for their children to qualify for adequate financial aid benefits, but not enough to afford the rising costs of tuition, room and board, and additional university fees.
In his study, Houle found nearly 41 percent of all students left school with some student loan debt, and the average debt among those students was more than $22,000.
"Young adults from middle-income families are at the highest risk for student loan debt," Houle said. "As tuition costs continue to rise and outpace inflation, students increasingly use loans as the primary means of financial aid."
Among those who left school with student loan debt, Houle found that on average young adults from middle-income backgrounds, whose families earned between $40,000 and $59,000 annually, owed over $6,000 more in student loan debt than their low income peers whose families made less than $40,000 per year.
Similarly, students from somewhat more affluent middle-income backgrounds, whose families made between $60,000 and $99,000 annually, racked up nearly $4,000 more in student loan debt than young adults whose families earned less than $40,000 per year.
Pell grants go mostly to lower-income students
Over 90 percent of all Pell Grant recipients come from families with annual incomes of less than $40,000.
"Young adults whose families make just over $40,000 are less likely to qualify for such student aid packages, and tend to suffer a disproportional burden of student loan debt," Houle said.
Houle looked at other factors besides income. He sound that students whose parents had less than a college degree were also at a higher risk of accumulating student loan debt. African American students were also significantly more likely than their white peers to rack up student loan debt. In addition, he found that young adults with single parents or step families were more likely than students whose biological parents were together, to incur student loan debt.
As college graduates struggle to find high-wage jobs in today's economy, inflated student loan debt forces young adults to begin their careers at an increased risk of default and penalties for missed payments. Bankruptcy is not an option for students struggling to pay off their student loans, which, Houle said, makes student loan debt a very unique and dangerous liability.