What Does the Borrowing to Credential Ratio Mean, Exactly?

That’s a question that Kevin Carey and I have gotten a lot since releasing our Debt to Degree report last week. The report describes a new measure of college success, the ‘borrowing to credential ratio’ (let’s call it the BCR for short). The BCR seeks to combine measures of two chronic problems in higher education: dropouts and debt.

But when you create a statistic that measures multiple things, it’s hard to give an exact answer to the question of what that statistic means for a particular college. A high BCR could mean that a college’s students are borrowing too much for their degrees. Or it could mean that the college has a low graduation rate. Or, if the ratio is really high, it probably means both. The borrowing to credential ratio is a red flag, but it won’t tell you what, exactly, is wrong.

That doesn’t mean the ratio is meaningless, though. It still does a good job of simultaneously capturing the two variables we wanted to measure: dropouts and debt.

Below, for example, is a chart comparing each institution’s BCR with its graduation rate as reported in IPEDS. There is a clear correlation between the two measures: higher graduation rates correlate with lower BCR’s.

To show this relationship more clearly, here is the same chart with trend lines for each sector:

The same is true when you correlate BCR with average loans (for average loan, I multiplied the percent of students borrowing by the average debt for those who borrow). As the chart below shows, higher average loan debt means a higher borrowing to credential ratio:

And again, with trend lines added: