Wednesday, January 23, 2013

Student Debt

Today it is almost impossible to discuss college affordability without also considering the impact of affordability on the level of student indebtedness. This blog post considers recent data from the College Board and the Project on Student Debt about current student debt levels and offers links to relevant articles and policy proposals about student debt.

Figure 1 shows average total indebtedness of students who graduated with a bachelor’s degree from a public four-year institution. In 1999-2000, bachelor’s degree recipients had $11,100 on average in student loan debt. However, not all students take out loans and, in 1999-2000, 54% of bachelor’s graduates had debt. Of those with debt, the average borrower left school with $20,500 in student loans. By 2010-11, there was an increase in the average indebtedness of bachelor’s degree recipients such that the average debt level was $13,600. There also was an increase in the percentage of students who borrowed, which increased to 57%. Among bachelor’s degree recipients who borrowed, average indebtedness was $23,800 in 2010-11 – an increase of $3,300 of average debt since 1999-2000.

Figure 1: Average Total Debt Levels of Bachelor’s Degree Recipients, Public Four-Year Colleges and Universities, in 2011 Dollars, 1999-2000 to 2010-11
Source: The College Board, Trends in Student Aid 2012, Figure 12A

These average debt levels vary by state and Figure 2 shows average debt levels among students who have debt by state. In 2011, average debt levels ranged from a low of $17,227 in Utah to a high of $32,440 in New Hampshire. Twenty-two states had average debt levels over $25,000 and five states had average debt levels under $20,000. There is also variance in the percentage of graduates who have debt as shown in Figure 3. In 2011, Hawaii had the lowest percentage of graduates with debt (38%) and North Dakota had the highest (83%). Over 70% of students borrow in six states, but there is only one state (Hawaii) with fewer than 40% of students borrowing. 

Figure 2: Average Debt of Those with Loans, by State, Class of 2011
Source: Project on Student Debt (2012). NR = Not Reported.

Figure 3: Percentage of Graduates with Debt, by State, Class of 2011
Source: Project on Student Debt (2012). NR = Not Reported.
These trends towards increasing both the number of borrowers and levels of indebtedness have made student debt an issue of public concern that both federal and state policy will need to address. The shift to the direct lending system has made it possible for all students to now opt-in to alternative repayment plans that can help to ensure manageable student loan debt levels for borrowers. However, more policy work needs to be done. For instance, eliminating the need to opt-in to alternative repayment options and making a repayment plan like the income contingent option the default option for all borrowers would help ensure that borrowers are able to manage their debt loads and are better able to avoid defaulting on their loans. In addition, the higher debt levels and larger student loan default rates of students who attend for-profit institutions needs to be addressed as a public policy issue (see for instance #10 on the American Association of State Colleges and Universities’ Top 10 Higher Education State Policy Issues for 2013). Likewise, a new bill [H.R. 6674] introduced by Tom Petri (WI-R) in the U.S. House would enable the Internal Revenue Service to directly collect student loan payments. This idea has the potential to streamline the debt collection process, to lower the costs of loan servicing, and to provide borrowers with a reasonable way of avoiding student loan default. Allowing a tax collection agency to manage student debt repayment has been in operation in other countries for years. For instance, Australia has always used The Australian Taxation Office to collect debts from the Higher Education Contribution Scheme. A similar debt collection process deserves careful consideration in the United States. In addition, student loan debt does not impact all students equally and can constitute a special hardship for certain groups of students, such as those who drop out before completing their degrees. These special populations need particular attention in policy changes regarding student loans. Finally, the issue of student loans in bankruptcy needs to be addressed. Student loans are one of the few types of debt that are not dischargeable in bankruptcy and more consumer protections are needed. Overall, the need for thoughtful policy is pressing because the increased reliance on student loans coupled with the increase in student loan levels is already restricting educational access and limiting opportunity to learn for countless individuals.
By: Jennifer A. Delaney

1 comment:

Anonymous said...

This is one of the most balanced posts I have ever read on the issue of education debt.

My only quibble is with the term "consumer protections." Federal student loans have several consumer protections that other types of consumer loan and debt products lack. Some of what is arguably missing from federal student loan features arose from a sense of paternalism. Now that the 18-22 year-old is no longer the typical student and now that most who receive federal loans are adults, perhaps the paternalistic approach is outdated. Colleges no longer act in loco parentis.

On the other hand, people who have years of experience with credit cards, car loans, mortgages and even business loans can not easily claim they were "ripped off" by the "sharp practices" of colleges.

However, it should be easier than it is to get a fraud discharge, for example, when a nursing school recruits students knowing that it is losing its accreditation the next semester, making the education (and the loans) pretty worthless, as most other colleges will not except transfer credit in that situation.