The Effect of Outstanding Student Loan Debt on Asset Accumulation
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Transcript of The Effect of Outstanding Student Loan Debt on Asset Accumulation
THE EFFECT OF OUTSTANDING STUDENT LOAN DEBT ON ASSET ACCUMULATION
BY: FRIEDI SCHESTAG, OLGA PETROVSKA & KADAR AMEK
SFSU, December 13, 2016
ORGANIZATION OF PRESENTATION
◼Quick facts about student debt and assets. ◼Literature review.◼Research question and concentration of our research. ◼Data source and description of variables. ◼Model and estimation steps.◼Results.◼Conclusion. ◼Further research.
QUICK FACTS ABOUT STUDENT DEBTIs student debt an issue? In 2012: ◼71% of all students graduating from four-year colleges had student loan debt.◼This is 1.3 million students graduating with debt in comparison with 1.1 million in 2008 and 0.9 million
in 2004. ◼66% of graduates from public colleges had student loans, 75% of graduates from private nonprofit
colleges had student debt and 88% of graduates from private for-profit colleges had student debt. ◼Average debt levels for all graduating seniors with student debt increased to $29,400 which is 25%
higher than in 2008. In 2015:◼Nationwide, about 7 in10 college seniors who graduated from public or private nonprofit colleges had
student debt. ◼Average debt amount was $30,100 which is 4% increase from the 2014 average of $28,950.
Student debt is constantly increasing, more people is borrowing money to pay for the college. Student debt is an issue. Source: The Institute For College Access & Success.
MOTIVATION TO STUDY ASSETS
◼After college we generate income, use that income to built up assets.◼Why? In order to generate more income.◼Why do we want to purchase assets? ◼Household assets is an important defining factor of economic well-being in the U.S. ◼Especially for low - moderate income families: Because in economic hardships,
such as unemployment, illness,etc. household assets can be seen as an additional source of income as well as something to fall back on.
◼Household Goals: Building up assets and avoiding excessive debt ◼ In long term: For older households (65), assets are a source of post retirement income.
LITERATURE REVIEW Elliott and Nam (2013) – the effects of student loans on net worth:◼ median 2009 net worth for households with no outstanding student loan debt is about three times
higher than for households with outstanding student loan debt.Hiltonsmith (2013) – student debt and lifetime wealth:◼ average student debt burden for a dual-headed household with bachelors’ degrees leads to a lifetime
wealth loss of nearly $208,000.Elliot and Lewis (2013) – the effects of student debt on assets:◼ median assets in 2009 for a household without outstanding student debt ($207,000) are higher than
for a household with outstanding student debt ($174,000).◼ living in a household with median assets in 2007 which has outstanding student debt is associated with
a loss of about 20% in assets compared to a household with similar levels of assets but without student debt.
Elliott, Grinstein-Weiss, Nam (2013) – the effects of outstanding student debt on assets accumulation: ◼ median assets in 2009 for a household without outstanding student debt are higher than for a
household with outstanding student debt.◼ living in a household at the 50th percentile with outstanding student debt and 2007 assets of $225,035
is associated with a loss of about 20% in 2009 assets (about $44,661) in comparison with a similar household with no student debt.
RESEARCH QUESTIONS
◼Is having outstanding student loan debt associated with assets accumulation?◼Is the amount of outstanding student loan debt associated with
assets? ◼Which type of assets gets more affected by outstanding student
loan?
◼ Lastly, evaluating the marginal effects of the coefficients at the 25th, 50th, and 75th percentiles.
DEPENDENT VARIABLES
Financial Asset (fin) Nonfinancial Asset (nfin)
Liquid Assets CDs Savings
Bonds
BondsPublicly Traded Stocks
Non-money Market Mutual Funds
Retirement Account
Cash Value Life
Insurance
Other Managed
Assets
Other Financial Assets
Vehicles Houses
Other Residential Real Estate
Net equity in
Nonresidential Real Estate
Net Equity in Privately
Held Businesses
DESCRIPTION OF BASE VARIABLES
Name Type Description Stdebt Dummy =1 if R. has outstanding student
debtstdebt Quantitative Amount of student debt
income Quantitative Amount of income in 2012
welfare Quantitative Amount received from welfare
married Dummy =1 if Married or living with spouse
race 4 Dummies White, Black, Hispanic, Asian/Other
OCCAT2 4 Dummies Occupational prestige
age Integer Age of Respondent in years
colldeg Dummy =1 if R. has college degree
SURVEY OF CONSUMER FINANCES
◼ Sponsored by the Federal Reserve Board.◼ The 2013 Survey of Consumer Finances most recent survey conducted.◼ Every 3 years.◼ Information on finances of U.S. households.◼ Data: Summary Extract Data (multiple imputation to correct for missing data).
SAMPLE CHARACTERISTICS
DATA SUMMARY STATISTICS
ESTIMATION STEPS◼Computing missing values for dependent variables: “mi impute reg” command in Stata.◼ Estimating effects of outstanding student loan debt on each type of assets using dummy
for student debt variable, OLS using ”mi estimate” command in Stata. ◼ Estimating effects of outstanding student loan debt on each type of assets using dummy
for student debt variable and age restriction (<=45/35). OLS using ”mi estimate” command in Stata.
◼ Estimating effects of outstanding student loan debt on each type of assets with age restriction (<=45/35). OLS using ”mi estimate” command in Stata.
◼ Estimating effects of outstanding student loan debt on each type of assets using student debt variable and age restriction (<=45/35). Quantile regression using ”mi estimate” command in Stata, dividing the asset distribution in 4 quartiles
MODELS
REGRESSION OUTPUT (FINANCIAL & NONFINANCIAL ASSET) ◼ Is there an effect between financial & nonfinancial asset and student debt? (using dummy for student debt
variable)
REGRESSION OUTPUT WITH AGE RESTRICTION <=45 – FIN ASSETS & <=35 – NONFIN ASSET
◼ Is there an effect between financial & nonfinancial asset and student debt? (using dummy for student debt variable)
REGRESSION OUTPUT (FINANCIAL & NONFINANCIAL ASSET) ◼ Is there an effect between financial & nonfinancial asset and student debt?
OLS RESULTS SUMMARY
Nonfinancial AssetsFinancial Assets ▪Yes, there is a relationship
between having outstanding student debt and financial assets.
▪Yes, there is a relationship between having outstanding student debt and financial assets, with age restriction of <=45.
▪Yes, there is an effect. On average, a 1% increase in outstanding student debt is predicted to decrease financial assets by $104,031.04 holding everything else fixed.
▪Yes, there is a relationship between having outstanding student debt and nonfinancial assets.
▪Yes, there is a relationship between having outstanding student debt and nonfinancial assets, with age restriction of <=35.
▪Yes, there is an effect. On average, a 1% increase in outstanding student debt is predicted to decrease nonfinancial assets by $129,394.56 holding everything else fixed.
QUANTILE REGRESSIONWhy are we using a quantile regression?
Comprehensive Picture Linear Regression -Partial View-
Outlier Problem Are the coefficient changing?
QUANTILE REGRESSION: OUTPUT, 0.25 QUANTILE◼ Is there an effect between financial & nonfinancial asset and student debt?
QUANTILE REGRESSION: OUTPUT, 0.5 QUANTILE◼ Is there an effect between financial & nonfinancial asset
and student debt?
QUANTILE REGRESSION: OUTPUT, 0.75 QUANTILE◼ Is there an effect between financial & nonfinancial asset and student debt?
QUANTILE REGRESSION SUMMARY
Financial Assets Nonfinancial Assets
Linear Regression Coefficient
-0.027
Q .25Coefficient
-0.023
Q.50Coefficient
-0.029
Q.75Coefficient
-0.020
Linear RegressionCoefficient
-0.04
Q .25Coefficient
-0.03
Q.50LR=QR
-0.04=-0.04Q.75
Coefficient-0.033
CONCLUSION◼ Linear Regression: Overall, a four-year college graduate with outstanding student debt will
be in bad financial health ( in terms of assets) than a four-year college graduate with no outstanding student debt, in short run.
◼ Linear Regression: Just by having student debt: Financial Assets predicted to go down by 54% and Nonfinancial Assets - down by 43%.
◼ Linear Regression: The effect of student debt on nonfinancial assets ($129,394.56) is higher than for financial assets ($104, 031.04).
◼Quantile Regression: For both components of the asset the effect is approximately the same and do not drastically differ from linear regression coefficient.
◼ It delays major life events for young professionals (House, Financial stability, Post-retirement life).
FURTHER RESEARCH
◼Use SCF 2016 and compare with previous research to determine trends. ◼Analyze and compare the same relationship by: Region;States (Each state have different average student debt);Type of school (Public and Private University).
THE END
THANK YOU!