October 7, 2014

The Changing Profile of Student Borrowers

Explanations for the General Increase in Borrowing

Given the growth of student debt, many analysts are investigating why students are borrowing more.

An obvious and popular explanation is that college tuition inflation has increased the costs that students and their families have to pay. However, the absence of consistent historical data on tuition paid after student financial aid and tuition discounts makes it difficult to measure the actual net price students pay to go to college. So it is far from clear how much of a role tuition inflation is playing. For example, some researchers find that, in the aggregate, aid in the form of grants, tuition discounts and tax credits for education has kept up with the increase in sticker-price tuition (Greenstone and Looney, 2013), so that the growth in the net cost of college (the amount students and their families are responsible for through loans or other means) has been modest.

Another contributing factor to rising student debt is the recent growth of for-profit colleges and universities. Graduates who borrow and obtain their degree from for-profit institutions tend to have greater amounts of debt than borrowers at public institutions and private non-profits (Miller, 2014). A growing share of graduates get their degrees from for-profit institutions (Hinze-Pifer and Fry, 2010).

Careful studies of the increase in student debt among students completing bachelor’s degrees do not fully explain the run-up in debt. Observable characteristics of the students and the colleges they attend (including college costs) explain only about one-third of the overall increase in debt at graduation between 1990 and 2008 (Hershbein and Hollenbeck, 2013).

An additional compositional change may be graduate versus undergraduate education. Figures on federal loan volumes suggest that federal loans per graduate student are much greater than those per undergraduate (Baum, 2013). And, reflecting rising educational attainment, a greater share of young adults have graduate degrees. So some of the increase in student debt reflects the rising popularity of graduate education, where borrowing is more prevalent (Akers and Chingos, 2014).