Study: Student Debt Increasing for Four-Year Graduates

Equal Justice Works

This October, the U.S. Department of Education released the brief report "Degrees of Debt." The report compares the effects of student debt on three cohorts of students who received a bachelor's degree over a 15-year period, and has some interesting - and in one case surprising - findings.

The three cohorts examined in the report graduated in 1992-1993, 1999-2000 and 2007-2008. The 2007-2008 cohort graduated during the Great Recession, which may influence some of the numbers.

The report looks at each of the cohorts a year after graduation and compares their student loan borrowing; their ability to repay their loans; and the relationship between their student debt and the likelihood of going to graduate school and of living with their parents.

On the borrowing front, the report found that over time, a greater percentage of students are borrowing and, in constant 2009 dollars, they are borrowing more. Forty-nine percent of the 1992-1993 cohort borrowed, compared with 64 percent of the 1999-2000 cohort and 66 percent of the 2007-2008 cohort.

Over the course of the 15 years, the average amount borrowed by each successive cohort grew from $15,000 to $22,400, and then to $24,700.

As other studies have documented, the report found that students at public four-year institutions were least likely to borrow and those at four-year for-profit institutions were most likely to borrow. In fact, an extremely high 90 percent of the 2007-2008 cohort took out student loans to finance their education at for-profit four-year institutions.

Diving down deeper into these numbers reveals two fascinating and scary bits of information. First, while the average amount borrowed grew between the 1999-2000 cohort and the 2007-2008 cohort, the average amount borrowed in federal loans actually decreased by almost $3,000. As the authors of the report note, this means that "by definition ... private loan debt increased."

[Know what to consider before consolidating student loans.]

The Student Loan Ranger is a big proponent of taking out federal student loans because of their far superior borrower protections. Some students are not maximizing their federal loan borrowing before turning to private loans, which we consider a dangerous practice.

The findings in the study that the amount borrowed in federal loans has decreased so significantly should be a wake-up call: More students need to be given guidance on the benefits of federal loans and the federal loan limits for undergraduates need to be increased.

The second big takeaway from the numbers is the finding that, as the report states, "Pell Grant recipients' cumulative debt was higher in each successive cohort: from $15,700 in 1992-93, to $24,200 in 1999-2000, to $26,100 in 2007-08 (in constant 2009 dollars)." This is further confirmation Pell Grants are not keeping up with the rising cost of college.

[Check out how the student loan deal will affect borrowers.]

Pell Grants are a vital resource for students from less-privileged households seeking a higher education. These are the students who have the fewest resources to draw upon if they struggle with their debt; in fact, their parents may have also taken out parent PLUS loans to help finance their education, which were not included in the report.

The study also found that the number of borrowers not repaying their loans a year after graduation increased with each cohort, growing from 18 percent to 25 percent and ending at 29 percent for the 2007-2008 cohort. This includes borrowers in forbearance - both for financial difficulties and because they are back in school - and in default.

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Some of this may be that students were graduating into the Great Recession, but it also doesn't factor in that many borrowers struggling with their loans may be taking advantage of income-driven repayment plans to avoid forbearance and default.

What is surprising, however, is that the study found that enrollment in graduate school and moving back in with parents was not associated with levels of debt. Instead, it appeared to be associated with the year of graduation, indicating just how greatly young adults were suffering, and continue to suffer, during the recession.

If you or anyone you know is having trouble managing their student debt, check out our free webinars and our e-book, and keep up to date with this blog, on Facebook and on Twitter via the hashtag #studentdebthelp.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.