Introducing the Borrowing to Credential Ratio

Rising student debt and high student dropout rates are major problems facing American higher education. Most colleges are judged on these issues by two federally-calculated numbers: six-year graduation rates and student loan default rates. Each number provides important information, but neither shows the complete picture. A college could, for example, achieve a stellar graduation rate by passing students along and handing out degrees that have little value in the job market, making it difficult for graduates to earn enough money to pay off their debt. Alternatively, a college could keep tuition and loan default rates low while also providing a terrible education and helping few students earn degrees.

In a new report released today, Education Sector has created a single measure that looks at debt and graduation simultaneously: the “borrowing to credential ratio.” Using newly available U.S. Department of Education data, we calculated the total amount of money borrowed by undergraduates at individual colleges and universities and divided that sum by the total number of degrees awarded.* Here’s what we found:

• Nationwide, the overall borrowing to credential ratio has risen sharply in recent years, from $13,334 in 2007 to $14,560 in 2008 to $18,102 in 2009. The national enterprise of producing college degrees is increasingly being floated on a sea of debt.
• Certain segments of the higher education industry—in particular, for-profit colleges—are racking up far more student debt per degree than others. That varies a lot within each segment, though–the borrowing to credential ratios at companies like Strayer and Education Management Corporation are over $60,000 whereas at American Public Education it’s less than $10,000.
• State policies matter a great deal, with seemingly similar public university systems achieving widely varying results for students. The borrowing to credential ratio at Iowa State is almost double that at Florida State, for example. States that do a good job of subsidizing colleges and universities to keep tuition low and funding need-based financial aid programs have much lower ratios than states that don’t.
• Among elite colleges and universities, some are making good on their pledge to help low- and middle-income students graduate without major financial burdens while others are riding a wave of student debt to fame and fortune. The borrowing to credential ratio at N.Y.U is over $25,000 while at Princeton it’s less than $2,500.

All of this goes to show that even as student advocates struggle to keep the Pell grant program funded amidst the fallout from the debt ceiling clown circus, no amount of federal financial aid is going to solve the college affordability problem until we get serious about restraining prices.

The full report has lots of good charts and graphs like this one:

* To be clear, this does not represent the average amount of money that each graduate borrowed. That amount was $18,624 in 2007–08 according to the National Postsecondary Student Aid Study and has also been rising. The borrowing to credential ratio represents the total amount of borrowing divided by the total number of degrees awarded, which includes students who did not borrow. This provides a more accurate overall measure for individual colleges because a college could, for example, have only 10 percent of students borrowing but
have a high amount of debt per borrower.