College Degrees Requiring More Student Debt

A new report looks at how much debt is taken on per college for each degree issued.

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Debt to Degree: A New Way of Measuring College Success, a report released in early August by Education Sector, attempts to provide students choosing colleges and policymakers with a single measure of value that combines debt and graduation. The report creates a "borrowing to credential ratio" for colleges by measuring the total amount of money borrowed by undergraduates and dividing that sum by the total number of degrees awarded. In short, it determines for each college how much student debt is taken on for each degree issued.

[For information on debt and loans, see U.S. News's Paying for College guide.]

This borrowing to credential ratio is Education Sector's attempt to assess the impact of two disturbing trends. First, barely half of the students who start college get a degree within six years. Second, as regular readers of this blog know well, educational debt is now greater than credit card debt and is closing in fast on $1 trillion.

Unsurprisingly, the report shows a rapid increase over the last three academic years in the average amount of student debt needed to procure a degree. In 2006–2007, students borrowed $13,334 for every credential earned. That amount rose to $14,560 in 2007–2008, a 9 percent increase. In 2008–2009 it rose another 24 percent to $18,102. The authors identify a number of possible factors behind this trend, including the rising cost of higher education, increases in tuition caused by state budget cuts, and a rise in student loan borrowing caused by falling incomes during the recession.

Debt to Degree also reveals big differences within sectors. Within the four-year institutions sector, for example, the average borrowing to credential ratio at public four-year universities was $16,247 and $21,827 at private nonprofit colleges and universities. In contrast, it was $43,383 at for-profit universities. For-profit colleges also have higher borrowing to credential ratios among two-year and less-than-two-year institutions.

The study's authors note that they only used data for undergraduate federal student loans. Because students at for-profit universities are more likely to utilize private student loans, including those loans would have made the difference between for-profit universities and public and nonprofit colleges and universities even greater.

[When choosing a school, consider student loan debt.]

It is important to reflect on the reasons for these numbers. Public universities receive subsidies that private nonprofit colleges and universities and for-profit universities do not, so it is not surprising that their borrowing to credential ratio is lower. But the ratios at private nonprofit colleges and universities are still much lower than those of for-profit universities.

The report provides several reasons for this discrepancy. The rapid expansion of for-profit universities may mean that a disproportionately large number of students have borrowed but not yet graduated. Additionally, overall graduation rates at many for-profits are low and borrowing rates (because for-profits tend to get a majority of their revenue from federal grant and loan programs and actively encourage students to take out loans) are high. Finally, nonprofit colleges and universities often provide scholarships and grants that for-profits do not.

[Get more information about college scholarships.]

However, the for-profit universe is not monolithic. Tuition at the colleges run by American Public Education (where many of the students use military tuition assistance to help pay for college) is low and it has a borrowing to credential ratio of just $9,728. In contrast, two for-profits focusing on bachelor's degrees, the Apollo Group and Strayer Education, have high ratios of $48,107 and $66,651 respectively.

There are also factors the borrowing to credential ratio does not take into account, such as rates of delinquency and default. Students at public four-year and private, nonprofit four-year institutions are more likely to repay their loans on time without resorting to deferment or forbearance and less likely to default than students at public and for-profit two-year institutions and for-profit four-year institutions.

From a policy perspective, it is important that the borrowing to credential ratio is not used to reduce college access for low-income students. Unless policymakers focus on comparing similar institutions (as the authors of Debt to Degree do), they could punish institutions with fewer resources that actually are graduating students with low levels of debt relative to peer organizations. As the Education Optimists blog points out, for example, the more Pell recipients an institution enrolls, the worse it performs on this ratio. This could create incentives to focus on enrolling either high-income students or only those low-income students with a very high likelihood of graduation.

[See schools with the highest percentages of undergraduates receiving Pell grants.]

For students, taking a look at the borrowing to credential ratio is one tool that can help inform their choice of college. A high ratio could indicate that a college is unaffordable or that a low percentage of its students are graduating—and that's worth knowing before you take on the burden of student loans.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.