Setting the (Education Loan) Record Straight

While average education loan debt at graduation continues to increase every year, the percentage of students graduating with student loan debt is also growing. How many students and their families are borrowing to finance a college degree and how much are they borrowing?

Mark Kantrowitz recently analyzed data from the 2011-2012 National Postsecondary Student Aid Study (NPSAS). Among the observations in his student aid policy analysis report, Debt at Graduation:

• The burden of paying for college has shifted from federal and state governments to families.
• As a result, students are shifting their enrollment to lower-cost colleges and/or graduating with more debt.
• Education loan debt is common for most students. For example, more than two-thirds of Bachelor’s degree recipients graduated with federal and private student loan debt. Of those who applied for federal student aid, nearly ninety percent of Bachelor’s degree recipients graduated with student loan debt in 2011-12. An even greater percentage of graduate and professional school students graduated with student loan debt.
• The average student loan debt at graduation among Bachelor’s degree recipients who graduated in 2011-2012 with student loan debt was $29,384. (The average student loan indebtedness is $20,265 if one calculates the average for all Bachelor’s degree recipients, including those who graduated with no debt.)
• Oftentimes, the amount of debt parents borrow to help their children pay for school is excluded from cumulative undergraduate education loan debt statistics. Kantrowitz has calculated the total education debt at undergraduate graduation to include Parent PLUS Loans. The average total education loan debt at graduation (including parent borrowing) for Bachelor’s degree recipients who graduated with debt was $35,432. Considering all Bachelor’s degree recipients, including those who graduated with no debt, the total education loan indebtedness was $24,510.
• Debt at graduation for graduate and professional students has increased more dramatically than for undergraduate students. “For example, the average debt at graduation for law school graduates increased from $93,336 in 2007-08 to $135,527 in 2011-12 ($11,048 per year) and the debt at graduation for medical school graduates increased from $127,017 to $180,109 ($13,273 per year),” Kantrowitz wrote.
• These increases in total graduate education loan indebtedness might be attributed to the introduction of the Grad PLUS Loan in 2006 and the limited availability of gift aid to graduate and professional school students.
• Surprisingly, most undergraduates do not graduate with six-figure student loan debt. In fact, less than one percent of undergraduate students graduate with debt exceeding $100, 000. (Unless undergraduate students borrow from non-federal student loan programs, it is impossible for them to graduate with six-figure student loan debt).
• Six-figure student loan debt is more common for graduate and professional students. Six-figure student loan debt is most common among law school and medical school graduates where nearly 60% and 70%, respectively, of these students graduate with six-figure student loan debt (including both undergraduate and graduate loans). These figures are up sharply from four years ago, when about a third of law school and half of medical school students graduated with six-figure student loan debt.

Kantrowitz suggests that undergraduate as well as graduate and professional students should borrow no more for their entire education than their expected annual starting salary at graduation. If total student loan debt is less than annual income, the student will be able to repay his or her loans in 10 years or less.

Otherwise, students will find their major lifecycle decisions such as marriage, car and home purchases, raising children and saving for retirement may be adversely affected.