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