Is Student Borrowing Getting Out of Control?
One of the scariest things about college is debt. Even as the federal government expands low-income grant programs like Pell Grants and many schools struggle to offer more need-based institutional funds, rising tuition costs force most students to take on loans to fund their education. These loans tend to follow people for decades after graduation.
This situation is especially troubling in the current economy. Since most student loans have low interest rates and can be paid over a long period of time, students in the past typically figured that their education was worth the monthly loan bill for the next 10 years. But with so many students struggling to find a job after graduation, student loan bills suddenly become one more financial obligation they're unable to meet.
Of course, that's the real problem with student loans: Not how much people are taking out per se, but their income to debt ratio after they leave school. Some people take on enormous loans during school that they have very little troubling paying off - think lawyers and other professionals whose costly education is balanced by a high expected salary. Other individuals take out relatively small loans, but still struggle to afford their payments.
In a report titled 'Who Borrows Most? Bachelor's Degree Recipients with High Levels of Student Debt', the College Board looks at the problem of student loan debt. Although they don't address income to debt ratio, they do identify trends in the characteristics and life factors that can lead to students taking on high levels of undergraduate debt.
Students at For-Profit Schools Borrowing More
For bachelor's degree recipients, the report defines high levels of student debt as a total of $30,500 or more. Students with this much debt are in the 75th percentile of all bachelor's students who graduate with debt. Because individuals who only earn a certificate or associate's degree can expect lower earnings, the report defines high debt as $24,600 or more for these students.
Percentiles of Undergraduate Degree and Certificate Graduates with Student Debt.
|Degree Program||No Debt||10th||25th||50th||75th||90th|
The report points out that not all students borrow money for college. Over half of all associate's students and one-third of all bachelor's students don't graduate with debt. Nevertheless, there's a large group of students who are burdened with more debt than they can manage.
Cumulative Education Loan Debt for Bachelor's Degree Recipients by Sector, 2007-2008
From 'Who Borrows Most? Bachelor's Degree Recipients with High Levels of Student Debt', page 1. Original data source: National Postsecondary Student Aid Study, 2007-2008.
As the graph above indicates, students at for-profit colleges tend to have significantly higher debt than students at public and not-for-profit 4-year institutions. Over half of students at for-profit institutions graduate with high levels of debt, as compared to 24% at private not-for-profits and 12% at public schools.
Students at for-profit schools are also more likely to take on nonfederal loans, which tend to have higher interest rates and typically don't offer income-based repayment plans. Over half of 2007-2008 graduates from for-profit colleges had taken out nonfederal loans. However, this isn't just a problem in the for-profit sector. Forty-two percent of students at private not-for-profit institutions also took out nonfederal loans. This may be due to the fact that tuition and fees are typically much higher at private institutions than at public colleges and universities.
Borrowing Patterns Linked to Race and Dependency Status
Because students at 4-year institutions have significantly higher debt levels than other undergraduates, the report's demographic breakdown focuses on bachelor's degree recipients. Examining race and ethnicity, the study found that black students tend to have higher debt levels than students from any other racial group.
Percentage of 2007-2008 Graduates With More Than $30,500 in Debt
The report cautions that this pattern cannot be fully explained by family income levels, and does not speculate on the cause. However, there are some differences in debt levels between ethnic groups that are tied to family income. Unsurprisingly, both white and black students from families with annual incomes over $100,000 are less likely to have high levels of debt. Black and white students from the 'middle class' (families with incomes between $30,000 and $59,999) have the highest level of debt, which may be due to the fact that low-income students qualify for more grant aid. Debt differences between family income levels are small for Asian and Hispanic/Latino students.
The report also found that independent students - those who don't receive financial support from their families - have higher debt levels than dependent students. Twenty-four percent of independent students graduated in 2007-2008 with high levels of debt, as compared to only 12% of dependent students. This may be due to the fact that independent students are far more likely to attend for-profit colleges - 8% of independent students earned their bachelor's degrees in the for-profit sector, as compared to only 1% of dependent students.
Independent students who are married and don't have their own dependents are less likely to graduate with high debt, but those who are married and have their own dependents are equally likely to borrow large amounts.
Independent students are also disproportionately likely to come from a low-income background. The study found that while the percentage of dependent students with significant debt was not generally correlated with family income, independent students are more likely to graduate with high debt levels at all institution types.