Report: Most Borrowers Take Out Student Loans for Non-Tuition Expenses

By Allie Bidwell, NASFAA Senior Reporter

Student loans have become more commonplace for today’s college-going population. Sticker price tuition has continued to increase, and grant-based financial aid hasn’t kept pace, so many students fill the gap with other resources, such as savings or federal student loans. But a new report delves into exactly what the average student takes out loans to pay for, and finds most borrowers take out loans in excess of just tuition and fees, suggesting non-tuition expenses may be driving up college cost for students and families, and in some cases student loan debt.

The report, published this week by New America, examines net tuition for students from different backgrounds and different sectors of higher education, compared with the cumulative debt borrowed in federal student loans, loans to parents, and private student loans, through analyzing data from the National Postsecondary Student Aid Study for the 2015-16 academic year.

“While the rationale for borrowing to cover tuition has been accepted by many, the use of student borrowing to pay for non-tuition expenses is substantially more controversial,” the report said. “On the one hand, since many students’ options for covering their non-tuition expenses are limited, they may have no choice but to borrow to pay for non-tuition elements of their education or else forgo certain expenses. However, some college administrators and federal policymakers believe that students are borrowing to live lavishly. Indeed, the research suggests that most undergraduates must make complicated choices in order to maximize their current and future well-being, since covering basic needs enables them to perform well in school even if it requires taking on debt. But borrowing increases risks later down the road.”

The report found that overall, borrowing is not always widespread in a given year. In 2015-16, just 38 percent of undergraduates took out a loan, and fewer than one-third overall borrowed more than they paid in tuition and fees. But when looking at just those who do take out student loans, about three-quarters of borrowers took out loans in excess of what they paid in tuition and fees.

That translates into about 4.7 million undergraduate students overall borrowing more than they pay in tuition and fees—2.6 million from public four-year public institutions, about 1 million from private nonprofit institutions, 800,000 from community colleges, and less than 400,000 students at for-profit colleges. The type of institution students enroll in also correlates to whether they will take out student loans and how much they will borrow, according to the report. For example, just 14 percent of community college students take out loans, but nearly all of those who do (13 percent) borrow in excess of tuition and fees. By comparison, while a larger share of students at private nonprofit institutions take out loans (58 percent), 20 percent of those borrow less than tuition and fees.

The report also found that certain types of students are more likely to borrow above what they pay in tuition and fees. Students from the lowest income quintile are nearly as likely as those from the highest income quintile to take out student loans (39 percent and 40 percent, respectively). But low-income students are much more likely to borrow in excess of tuition—32 percent of the 39 percent who took out loans borrowed above tuition. Meanwhile, 21 percent of the 40 percent of higher-income students who took out loans borrowed above tuition.

Generally, the report found that although low-income students borrow at similar rates to higher-income students, they tend to borrow much less. Still, the amount they borrow to cover non-tuition expenses is higher.

“Since low-income students and their families have fewer resources to devote to the cost of college, this may explain why they are more likely to use loans to cover nontuition expenses,” the report said.

Aside from family income background and institutional sector, the analysis delved into how race and ethnicity connects to borrowing. They found that overall, black student swere much more likely to borrow and to borrow above the net price of tuition, while Asian students were both the least likely to borrow and the least likely to borrow in excess of tuition.

“While the share of those taking on student debt has continued to climb, the data support the notion that much of the growth in borrowing can be traced to changes in tuition pricing, not shifts in student lifestyles,” the report said. “However, exceptions do exist: borrowing for non-tuition expenses is particularly common among low-income borrowers and those who attend low-cost schools—or both.”

The authors went on to point out that students at community colleges and for-profit colleges are the least likely to complete their programs, and that default rates in those two sectors are higher than those in public or private nonprofit four-year institutions.

“This means that students at these schools who borrow are at heightened risk of taking on more debt than they can repay, regardless of whether or not they apply those loans to their tuition or their non-tuition costs,” the report said. “However, college administrators have much more control over tuition than non-tuition expenses, and many community colleges already charge very low or zero tuition to low-income students. As a result, attention in the debate over reducing risks for these students centers around borrowing for non-tuition expenses.”

The authors said policymakers should look to changes that would reduce the amount of debt students need to incur in the first place, boost academic quality, or both, such as by bolstering accountability measures that would limit the “availability of low-quality degree programs.”

“However, providing additional need-based grant aid to students for living expenses is the best strategy to simultaneously help students succeed in school and reduce the risks of financing higher education through debt,” the report said. “Rather than pouring resources into proposals to make college tuition free or debt free, a holistic approach to reducing student debt that considers both direct and indirect educational expenses and leverages federal, state, and institutional resources is needed.”


Publication Date: 8/30/2018

Ashraf M | 8/31/2018 1:2:29 PM

I ran across this problem when I was working on default management at a previous school: by sometimes unnecessarily borrowing above and beyond their direct costs, students ended up putting themselves in more debt than they were able to repay. But when we spoke to students about borrowing less money, the response we received was (in summary) that student loan refunds were their "right", and that it was their "business how the loan is paid it off, not the school's". But then, when the time to did arrive to repay these loans, the narrative morphed into, "I didn't remember borrowing *that* much in loans". The fact is the impact of loan counselling is limited, because human nature--and especially young adults--far too often makes people look to their immediate needs at the expense of their future well being, and ignore all advice given at loan counseling. It would be far better to treat a loan like a loan, and allow the schools to restrict how much students can borrow about their direct costs. It may not overnight solve the $1.6 trillion student loan debt, but it may still be a solution whose time has come.

Robert F | 8/31/2018 11:39:57 AM

I can't comment in regard to other schools or states, but I know that my employer is the "Low" cost option in our state, other then CC. So a freshmen with a $5500 loan will only pay HALF of the tuition and fees. Additional borrowing is needed for the other half plus room and board. Even a freshmen getting a full Pell grant and a state grant plus the $5500 now has the tuition, fees and board paid in full, but still needs to borrow for room which is equal in cost to the tuition, fees and board. For Pell students parents will often be turned down for PLUS and the additional Unsub loan will pay about half of the room. MAKES NO SENSE! Huge tax breaks for billionaires and corporations, but Needy students cannot get the money necessary to keep them out of life long debt. I agree with Jeff T., the system is rigged and not toward helping folks "lift themselves up by their own boot straps".

Jeff T | 8/30/2018 9:5:07 PM

Students at my school are often forced to borrow to help cover housing and meals. Attending a 4 year university while living at home isn't always possible in a geographically large state with only a handful of public, 4 year universities, students often have no choice. Debt is reduced by enrolling at CC straight out of HS, that eliminates 50% of the potential debt; enroll in an online program, okay, but that's not a viable option for every major or at every school. Plus, there's still a digital divide, low income students don't always have the broadband connection necessary to take advantage of online degree programs. And what about students who aren't getting any Pell or institutional grants? Undergraduates from middle to upper class families can't cover the cost of attendance at a 4 year public if tuition, fees, books, room and board are included, that's still a 20K investment so even with the Pell, a merit scholarship and an institutional grant, you'll still need a student loan. And let's not forget that it's graduate students who are doing a disproportionate amount of the borrowing, comprising roughly 15% of the United States student population but shouldering 40% of the debt. Graduates are typically receiving nothing besides student loans to fund their degrees. So no, the borrowing habits of American college students are NOT the primary reason why student loan indebtedness continues to grow. The issue is systemic, it's political, it has to due with federal ED policy, with our tax laws, with the money spent on interminable, senselessly wasteful foreign wars and the maintenance of a global military industrial complex in the name of, ahem, freedom.

Kyle R | 8/30/2018 11:43:51 AM

Another reason why the elimination of gainful employment is necessary. A rule that holds us accountable for debt-to-earnings ratios for metrics that are out of our control. We can't completely control how much a student borrows or how they utilize their education post graduation, yet our Title IV eligibility was at stake.

Joseph S | 8/30/2018 11:9:40 AM

As someone involved with financial aid work directly from 1967-94 and inc then continuing to speak on the topic to various groups, schools and parents, i always caution against loans unless they are for related school costs. And yes, that IS what is driving up the indebtedness. If a student gets the maximum PELL and in NYS the maximum TAP, why are they borrowing! We all need to stress this more and help abate the level of borrowing.

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