Seniors who graduated with student loans in 2008 faced a rough job market, as the U.S. economy started heading into a recession and unemployment began rising. But according to an analysis of borrowing data released yesterday, these recent entrants to the labor market had an added disadvantage—large levels of debt.
According to the report “Student Debt and the Class of 2008,” released yesterday by the Project on Student Debt, an initiative of the Institute for College Access and Success, seniors at four-year universities who graduated last year with student loans (federal or private) on average owed $23,200, an increase of more than 24 percent over what the class of 2004 borrowed. Students who attended public universities owed $20,200 on average, while those at private, nonprofits owed $27,650.*
Though the average figures are high, the report notes that the actual amounts owe vary a great deal both by state and institution. Student borrowers attending a school in Utah, for example, owed an average of just $13,041, while those in Washington, D.C., owed more than double that, with average debt of $29,793. The capital’s appearance at the top is somewhat skewed by the fact that it has only one public four-year institution, so the borrowing reflects only students at Georgetown, George Washington, and other similarly expensive schools.
By contrast, Iowa’s appearance as the second most-indebted state is more troublesome. Graduating student borrowers there owed an average of $28,174, including an average of $31,616 owed at Iowa State University. That is a surprising result given that Iowa State’s tuition is just $6,161, which is less than what the University of Iowa charges, but it’s students owe nearly $9,000 more on average than those enrolled in the flagship. Further worrying is the fact that 73 percent of Iowa’s seniors graduated with loans, the second-most in the sample ahead of all states except for South Dakota, where 79 percent graduated with debt. On the other hand, only 49 percent of seniors in D.C. graduate with loans.
The big debt levels in the Hawkeye state are somewhat unsurprising given the allegations that have surfaced in the past few years about Iowa Student Loan, a local not-for-profit lender that aggressively marketed its products in the hopes of achieving massive growth in its loan volume. Higher Ed Watch has more on the company’s practices here.
Debt levels also vary a great deal by institution. At the high end, seniors with loans graduating from the St. Louis College of Pharmacy took out an average of $105,576, with $78,871 of that coming in the form of federal loans. This institution is more like a medical school, though, as it offers a six-year pharmacy program for students coming right out of high school. That said, there were 41 other private four-year institutions with average debt above $35,000, with another 24 public four-year schools or systems with average debt of more than $25,000.
On the other hand, only 28 four-year institutions (public and private) that reported borrowing information had average debt levels below $10,000. Some of these, such as Princeton and Williams likely got this status by offering generous institutional aid packages, while others have low tuition that is more affordable for most students.
It would be easy to look at these results and automatically equate high debt with bad and low debt with good. Unfortunately, it’s a bit more complicated. Debt is not necessarily an evil thing–taking out $40,000 to attend Harvard is likely to pay off in the end. Borrowing $1,000 instead to enroll at Jay’s Technical Institute is probably not. (A similar argument based upon intended profession could also be made, but is not as strong since students change their minds frequently.)
Unfortunately, the debt choice is usually not so clear cut. What about having to make the decision between Boston University ($37,050 in tuition and fees) versus the University of Massachusetts, Amherst ($10,232 in state)? Graduation and cohort default rates provide some indication as to whether a student is likely to complete a program and pay back their debt, but that provides little information about how the two institutions are viewed by employers, whether their students succeed in the workforce, or if they come out of school having actually learned anything. Without better information on what student loan debt actually borrows it’s difficult to judge the relative merits of borrowing short of spotting the obvious ripoffs.
But there is one gradation within the borrowing data that absolutely matters: private versus federal. Owing $40,000 in federal loans seems like a lot, but they may be eligible for income-based repayment and have a low fixed rate of interest to keep payments manageable. On the other hand, private loans do not have these benefits, so taking out $15,000 of this type of debt could very well be more expensive than taking out $25,000 in federal loans.
Overall though, it is fair to say that the general upward trend in student borrowing is not a positive development. An Education Sector report from earlier this year noted that loan borrowers make up the majority of students at all types of four-year institutions, and the average loan amount has been steadily increasing in real terms since 1992. Consistently borrowing more to purchase a largely unchanged product will move students ever closer toward the point where the price tag demanded simply is not worth the debt. It’s probably already at that point for the lowest quality schools and probably edging there for others.
Schools have two options if they want to avoid future concerns that their price tag is not worth it—cut costs or demonstrate value. Institutions have a long track recording of being unable or unwilling to do the former, so the long-term viability of all but the most elite expensive colleges and universities may well depend on the latter.
*In the interest of the English language figures represent seniors who graduated from a four-year institution in 2008 and took out a student loan, either federal or private. State data refers to the location of the institution, not a student’s home state. The percentage of students borrowing does, however, refer to the entire institution.