How much debt you hold, compared to how much money you earn, is called your debt-to-income ratio.
Aside from being a factor lenders use in big decisions such as whether to give you a mortgage or refinance your student loans, it’s also a measure of financial health. If your debt is creeping up on your income, or you owe even more than you earn, it’s hard to make any progress.
A new analysis by multi-lender marketplace Credible aims to help graduates understand what may await them post-commencement by using this measure.
Using anonymized data submitted by 11,512 applicants who graduated between 1975 and 2015 seeking to refinance their loans through the site, Credible issued a report on debt-to-income ratio (DTI) segmented by major. The company also built an interactive chart to show borrowers’ median DTI weighed against average mid-career income, which you can manipulate below.
If you sort the graphic to include only student loans, the graduates with the best numbers — lowest ratio — majored in economics, nutrition, and graduate-level engineering. Those with the highest ratio (the worst numbers) majored in psychology and graduate-level law and veterinary science.
Take a look:
However, when you add a typical non-loan living cost like rent to a graduate’s average mid-career income, the DTI of graduates who majored in education, history, and psychology (sorry, psych majors, you’ve made the list twice) skyrockets to take the top three spots. Those with the lowest DTI majored in medicine, dentistry, and pharmacy.
“Some of these degrees with a high loan balance, like medicine, pharmacy, and dentistry have the lowest debt-to-income ratio,” Credible CEO Stephen Dash explained to Business Insider. “That’s a function of having a higher earning capacity. Even though they have high loan balances, they have equally high mid-career incomes.
“When we go back to thinking about how to choose a college degree, one element should be return on investment,” said Dash. “It’s not a short term return — it’s a career people are choosing.”
Dash pointed to the example of physicians, who graduate with an expensive medical degree but don’t earn hundreds of thousands of dollars in the first years of their practice. But in five or 10 years, earnings for those professionals accelerate. In some other professions, say, teaching, the mid-career income may not be that much different from starting income, he said. “It’s important to take into account lifetime earnings — to think about the investment in your degree in terms of the ROI you’re going to get over the life of that investment.”
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