5 Things You Should Know About Borrowers Who Drop Out

Today marks the first day of Student Debt Week of Action. This makes Degreeless in Debt: What Happens to Borrowers Who Drop Out even timelier as I investigated what happens to a growing class of students who drop out of college, but have loans to repay.  Unlike their degree-holding peers, those who drop out are more likely to be unemployed and earn less money, making it harder for them to pay back their loans.  As they are four times more likely to default on their loans than graduates, more will suffer devastating consequences.  It’s a constant downward spiral.  So what does all this mean?

1. When talking about the student debt crisis, we must focus not only on the consequences of borrowers who graduated, but also of borrowers who dropped out. Especially in our recession, the media has always loved to tell sensational stories of students thousands of dollars in debt, only to become overeducated bartenders.  But at least those students have a degree to count on when the recession draws to a close. And while they face real problems in today’s economy, the fates of students who took out loans, but failed to graduate are even worse.
2. Not all degrees are created equal. While borrowers who drop out have higher unemployment and default rates than borrowers who graduate, certificate-holders were just as likely to be unemployed and to default on their loans as those who had dropped out.
3. Not all institutions are created equal. Graduates from for-profit less-than-four-year institutions fared no better than borrowers who dropped out.  Consider the table below.  While the for-profit sample size is small, and the incomes only represent a job within the first few years of graduating, this raises the question of how much the degrees themselves are really worth.

2009	Among all borrowers who dropped out (n = 2,564)	Among borrowers who graduated from for-profit less-than-four-year institutions  (n=255)
Unemployment Rates	25.3%	26.9%
Default Rates	16.8%	15.9%
Median Income	$25,000	$23,500

4. While the consequences are most severe for students at for-profit institutions, all institution sectors must worry about the consequences of rising tuition. Every sector had an increase in the proportion of borrowers who drop out.  Nobody is off the hook.  And it’s not likely due to poorer academic performance.  In 2009, the proportion of borrowers who dropped out did so with higher grades than in 2001- with more students dropping out with a GPA over 3.25. At for-profit less-than-four-year institutions, for example, the proportion of borrowers who dropped out with a GPA over 3.25 their first year increased from 26% to 52%.  It is more likely that increased tuition prices have forced more students to adopt strategies – like delaying enrollment after high school, and enrolling part time or working full time the first year – to minimize debt. These strategies, however, only put students at greater risk of not graduating.
5. All colleges – not just for-profit – must rein in college costs. President Obama has put colleges and universities on notice: The funding they get from taxpayers will go down if they can’t stop tuition from going up.  So long as college prices continue to rise, and family income remains stagnant, and schools shift grant aid to merit aid, then students will continue to be forced to make choices that put them at greater risk for dropping out.  Students’ reliance on loans will only continue to grow. And more students will be left with no degree, but with a burdensome debt.