It can be problematic to rely solely on an ‘average’ number to make decisions because the average rarely tells the whole story by itself. This Harvard Business Review article, The Flaw of Averages, highlights a few examples of decisions based on averages leading to travesty in areas unrelated to higher education, including a cresting river and a bankrupt California county.
Turning to higher education, consider average student loan debt. It has been well documented that average student loan debt is rising. Forbes cites an average student loan debt of $17,233 in 2005 and $27,253 in 2012.
What about the distribution of that debt? The Household Debt and Credit: Student Debt report from the Federal Reserve Bank of New York includes the distribution of student loan balance for Q4 2012, and Q4 2005 for comparison. From this data we can see that the percentage of students who owe less than $25,000 has declined from 82% of students in 2005 to 70% of students in 2012. Similarly, the percentage of students who owe more than $100,000 has increased from 1.7% of students in 2005 to 3.7% in 2012.
Source: FRBNY Consumer Credit Panel/Equifax, Slides 6 and 24.
(http://www.newyorkfed.org/newsevents/mediaadvisory/2013/Lee022813.pdf) See here for more on the sample.
Source: FRBNY Consumer Credit Panel/Equifax, Slide 24
The data above provide a clearer picture of how much debt students have. While averages can be helpful, reviewing distributions can reveal additional insights. In this case, the average student debt has increased and the percentage of students who owe more money has also increased – and both trends seem unsustainable.