Nearly Half of Debt in Negative Wealth Households Are Student Loans: Study

All Americans are familiar with debt, from car loans to credit cards to mortgages. But according to a recent analysis by the Federal Reserve Bank of New York, one type of debt dominates the others for households with negative wealth.

Student on campus

High amounts of student debt are driving more American households into negative wealth—when a household’s total debt exceeds its assets—according to a report on the analysis.

An estimated 14 percent of American households have negative wealth. Yet, the breakdown of debt between households with negative and non-negative wealth is striking.

For households with more than $47,000 in negative wealth, student loans accounted for nearly half of all debt. Student loans also make up about 40 percent of debt in households with between $12,500 and $46,300 of negative wealth. By contrast, student loans make up less than 10 percent of all debt in households with non-negative wealth.

Asset Composition by Wealth Group

“It is likely that the steady growth in student debt and borrowing, combined with the very slow rate of student loan repayment we have documented elsewhere, has materially contributed and will continue to contribute to negative household wealth and wealth inequality,” a blog post about the study said.

Demography is one notable factor to come out of the analysis. Compared to non-negative wealth households, people who head negative wealth households are more likely to be single parents, minorities or women.

Single mothers head 24 percent of negative wealth households, while they make up only 8 percent of households with non-negative wealth. Black and Hispanic households account for 24 percent of negative wealth households, yet they are 17 percent of non-negative wealth households.

Approximately 43 million Americans have student loans, now totaling more than $1.3 trillion. About one in seven borrowers have defaulted on their loans, according to the Federal Reserve Bank of New York.

This post was written by Bloomberg BNA data reporter Madi Alexander.