Wealthy families are taking out more student loans to pay for college

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The face of student borrowing is changing.

It's been well-documented that more people are taking out larger federal student loans to pay for college than a generation ago.


But a new survey from the Pew Research Center shows the biggest increase in borrowing recently has been among affluent families, not poor households. While lower-income students are still the most likely to graduate with debt, their wealthier peers are catching up.

Half of 2012 graduates from wealthy families borrowed money to pay for college, twice the share that borrowed 20 years earlier. Borrowing is also up significantly among students who come from families with college-educated parents. That makes sense, since a college degree is associated with higher earning power.


But why are wealthy, college-educated families borrowing more in general?

Richard Fry, the report's author, offers several potential explanations:

1. Federal student loans used to be restricted to low-income students. In the 1990s, the government introduced unsubsidized loans, which were open to all students. Students from wealthier families who might not qualify for need-based aid but are not wealthy enough to finance expensive degrees may turn to these loans.


2. Wealthier families might have relied more heavily on private student loans before the financial crisis. Now, non-federal loans play a much smaller role since students of all income levels have access to federal loans (see number 1, above).

3. Wealthy families, who are slightly more likely to own homes, are less able to tap into their home equity to pay for college than they were pre-recession. The wealth of the average American household fell 39 percent between 2007 and 2010, which may have forced wealthy families into borrowing. At the same time, it is now more difficult for a family to borrow the equity from its home, as outstanding balances on lines of credit have fallen over the last five years.


"You can't use your house as a piggy bank anymore," Fry told Fusion.

Another question is why lower-income students have not ramped up their own borrowing.


"A possible explanation," Fry said, "is they tend to be more sensitive to price and costs, and as college tuitions have gone up, low-income students are increasingly going to less-expensive schools."

It's difficult to say exactly whether affluent families will continue to borrow more to pay for college, Fry said, but he "[suspects] loan financing is going to continue to be a pretty important way of paying for college…I don't know if I expect to see a major pullback among better-off students."


Emily DeRuy is a Washington, D.C.-based associate editor, covering education, reproductive rights, and inequality. A San Francisco native, she enjoys Giants baseball and misses Philz terribly.

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