What Do You Do When Students Refuse to Borrow?

By Allie Bidwell, Communications Staff

Many prospective college students are strongly opposed to taking out federal student loans to finance their college education, even when doing so could provide a positive return on investment, according to a new study from researchers at Vanderbilt University.

The study examined survey responses from a diverse sample of 6,000 high school seniors, community college students, and adults who are not currently enrolled in higher education about their general attitudes toward borrowing, borrowing specifically for education, and their choices between hypothetical financial aid packages – some containing only cash, only grants, or a combination of grants and loans. The researchers found that many prospective students are loan averse, meaning they are unwilling to go into debt to pay for college, even if it could benefit them in the long-run.

Overall, about one in five high school seniors and non-student adults said they were opposed to borrowing money specifically to pay for college, compared with about 9 percent of community college students. Many respondents were also wary of accepting financial aid packages that contained loans – 39 percent of high school seniors, 33 percent of community college students, and 23 percent of adults were opposed to accepting packages with loans.

“Certainly on average, the returns to a degree are significant and large. If one of the ways to get you to be able to complete your degree would be to borrow … on average, we would say that is a wise financial decision to students,” said Angela Boatman, a co-author of the study (with Brent Evans and Adela Soliz) and an assistant professor of public policy and higher education at Vanderbilt. Boatman noted that she and her co-authors were interested in those who would borrow the average amount – which researchers estimate is around $30,000 – and whether borrowing that amount could help students get a degree. If so, she said, “that’s an incredibly sound investment.”

There are many reasons prospective students might be deterred from taking on debt to pay for college, such as personal past negative experiences with debt, overweighting extreme circumstances like defaulting, or a larger societal narrative that emphasizes the potential negative consequences associated with debt.

But as a trade-off to avoiding loans, Boatman said a certain subset of students could end up working more hours to bridge the gap, which research has shown can have a negative impact on students’ academic performance. Some students might also enroll part-time, or use unusual enrollment patterns to cover the cost without borrowing, but ultimately prolong their time to degree. “Stopping out” – even for short periods of time, Boatman said – is highly correlated to never actually getting a degree.

Brent Tener, director of the Office of Student Financial Aid and Scholarships at Vanderbilt, said it’s important for those in the financial aid office to help loan averse students understand what their options are, whether that means ending up with debt or not.

“Frankly, in some cases they may not have a lot of other good options that in the situation they’re in, and a loan is going to be necessary to let them enroll that semester or keep them enrolled,” Tener said.

But at that point in time, Tener said, it could be a good opportunity to more closely examine the student’s situation, help them estimate their monthly repayment, and discuss whether incurring that debt is better than having to stop out of school temporarily.

“Is that investment right now going to pay dividends to get you where you want to go in the future?” Tener said administrators should ask students. “When you put $7,500 up against $50,000 [in potential lost wages from delayed workforce entry], that $7,500 looks like a pretty good investment.”

It can also help policymakers and researchers to look into the variation among loan averse students across different demographic characteristics, Boatman said. Hispanic respondents and male respondents tended to be more loan averse than white respondents and female respondents, the researchers found. But overall, the researchers also found that their three measures about loan aversion were not highly correlated to each other.

“That was an interesting finding to us because I think it illuminates the fact that this is a more complex phenomenon than I think we previously understood, or at least how we talked about it traditionally,” Boatman said. “The fact that those things don't necessarily align shows us there are multiple dimensions to this phenomenon of loan aversion.”

And like Tener, Boatman said it could be important for aid administrators to try to understand the perceptions students have about borrowing “and really talk with them about what parts of those may be real, serious concerns, and what parts may be informed by conversations they’ve heard, or a larger narrative that may or may not be true.”

“Sometimes they don’t want to borrow,” Boatman said. “And if that’s where that conversation ends, I think it’s missing an important component about what might be underlying that decision.”


Publication Date: 4/13/2017

Karri M | 4/13/2017 1:29:05 PM

Our school does package student loans in with our scholarship. We offer Work Study and Loan as 'self-help,' and emphasize to students that we do not swap self-help for scholarship if a student rejects it. We keep an eye on borrowing, and we identify students who have borrowed the max consistently over the course of a few years and try to reduce their borrowing by offering institutional scholarship (we have that luxury-I know a lot of schools don't).

We also have an incredibly low default rate, and the average amount a student borrows over the course of four years is considerably less than the national average.

Still, we have students who are hesitant to borrow. We try to alleviate their fears by letting them know that student loans are a great way to build credit, and that if a student is able to borrow responsibly, by the time they graduate their monthly payment will be around the same as a car payment. Combined with our school's employment center, internship opportunities, etc. our students are more likely to feel that if they borrow responsibly, it isn't impossible for them to get a job out of college that will make repayment manageable.

Beyond that, if our students borrow $20,000 over the course of four years, and our COA over the course of four years is $240,000, the amount they're borrowing relative to the amount they likely receive in scholarships and other gift aid is so small. When you frame it that way, I think it changes the approach that a family may take to borrowing.

I do think that the best method for reducing a student's fears about loans is to ensure that they are educated borrowers. This means telling them about the interest rates, the repayment options, helping them identify their servicer and logging into NSLDS, and making sure they *understand* all of this. And that requires more than just the online Entrance and Exit Counseling required by ED.

David S | 4/13/2017 11:54:09 AM

Over the course of my career, the attitude towards student loans has gone from "OK, good, this helps me pay for school" to "Hmm, I have to pay this back, right? Could I get grants or scholarships instead?" to "Student Loans Are The Single Most Evil Thing Ever Invented And I Hate You For Suggesting I Borrow One."

A lot of this is the result of extremely negative coverage in the media; stories about people drowning in debt while working at Starbucks with a PhD attracts more clicks than "Most Borrowers Do Just Fine (and the Stories About PhD's at Starbucks Are Just Silly)." Then come the stories about debt incurred at fly-by-night schools that offer no useful credentials, then the stories about loan servicers providing disservice. Then add social media, where everyone with a phone and 2 thumbs becomes a journalist, and the "facts" about student loans get more distorted than Jimi Hendrix's Stratocaster.

We can keep educating students and families about the return on investment, but face it, sticker shock and a no-guarantees job market, along with the media noise, make it a harder sell than ever. To stick with my musical metaphor, it's like trying to be heard playing a tin whistle over Spinal Tap's amps turned up to 11.

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