Income-Based Repayment Becoming a Costly Solution to Student Loan Debt

This post was originally published at The Conversation.

When Congress established the income-driven repayment for federal student loans back in 2007, it was touted as a way to help student loan borrowers save money by capping monthly payments at a certain percentage of a borrower’s income.

Since then, student loan debt has risen from US$500 billion to where it is now approaching the $1.5 trillion threshold. The federal government expects to forgive over $100 billion of the $350 billion in loans under income-driven repayment as of 2015. That means taxpayers are picking up the bill.

This has put the entire income-driven repayment system in jeopardy as there have been proposals by congressional Republicans and the Trump administration to reduce the amount of loans forgiven and end the Public Service Loan Forgiveness program, which is a special repayment option for people in public service fields. So far, these proposals have failed to become law, but expect to see them put forth again in the future as concerns about program costs continue to grow.

As a researcher who specializes in higher education policy and financial aid, here are some of my insights on how income-driven repayment works, why its future is now in jeopardy and some potential options that can protect the most vulnerable borrowers while also helping taxpayers.

How it works

Six months after they leave college, students who took out a federal student loan are automatically put into a repayment plan with fixed monthly payments over 10 years. This is similar to how mortgages and car loans work. However, repayment can often be a major burden for student loan borrowers who take low-paying jobs or struggle to find employment after college.

To address this issue, Congress and the Department of Education created a number of options during the George W. Bush and Barack Obama presidencies that tied student loan borrowers’ payments to their discretionary income, that is, how much money they have left after meeting their basic needs.

Most students who take out federal loans today qualify for a plan called Pay As You Earn. This plan – known as PAYE – limits monthly payments to 10% of a student loan borrower’s discretionary income for up to 20 years.

There are two requirements. First, student loan borrowers must fill out paperwork each year with their income to be eligible for income-driven repayment. In recent years, more than half of federal student loan borrowers have failed to complete the paperwork on time, putting them back into the standard plan. Second, if any part of the loan is not repaid within 20 years, the remaining balance is forgiven. But this forgiveness counts as income and taxes must be paid on it in that year.

Borrowers who work for government agencies and certain nonprofit organizations can qualify for Public Service Loan Forgiveness, which limits payments to 10% of discretionary income for as little as ten years with no income tax penalty. So far, just 1% of borrowers who applied for forgiveness have had their loans forgiven, but this rate will likely increase over time as the Department of Education gets better at managing the forgiveness process.

Problems abound

In some respects, the biggest problem with income-driven repayment is that too many people are taking advantage of it.

The share of students who reduced their loan balances by even one dollar within five years of leaving college has fallen from 67% to 51% over the last five years as low monthly payments under income-driven repayment mean that many borrowers’ balances are growing instead of shrinking. This has increased the projected price tag of these programs to the federal government well beyond expectations.

These programs tend to be used more frequently by borrowers with large debt burdens – especially those who have more than $100,000 in debt. Data from the Department of Education show that students who owe $100,000 or more make up just over one-third of all outstanding student debt but nearly half of all borrowers in income-driven repayment.

Trying to pay back $100,000 in student loans is certainly not easy, and I can speak from experience thanks to my wife’s law school debt. But most of the borrowers with large student debt burdens tend to be professionals with graduate degrees and reasonably high incomes. Many of the borrowers who have the greatest difficulty repaying their loans never earned a college degree and thus did not see substantial financial benefits from their investment.

What can be done?

As a researcher of student financial aid, my concern is that policymakers might throw the proverbial baby out with the bathwater and get rid of the entire income-driven repayment system.

In my view, a better way to stop borrowers with $100,000 in debt from getting most of the benefits is to limit the amount forgiven. This can be done by capping the amount of loans that can be repaid through income-based repayment or extending the repayment term.

President Obama proposed limiting Public Service Loan Forgiveness to the first $57,500 in loans, although this did not pass Congress. His administration also implemented a program that required graduate students to pay for five more years than undergraduate students.

The savings from requiring higher-income borrowers with large loans to repay more of their loans can then be used to help the most vulnerable borrowers. Students who dropped out of college after a semester or two could see their debt forgiven more quickly and without having to pay additional income taxes. This may be a tough political sell, but this could also encourage students – especially those who are the first in their families to attend college – to give college a shot.

Some of the money could also be used to support larger Pell Grants to reduce the need for borrowing in the first place. Cutting the total amount of loans forgiven in half would allow for an increase of about 20%, or $1,200 per year, in the maximum Pell Grant, which is $6,195 for the 2019-2020 academic year. This would help cover much of the tuition increases over the last decade and reduce student loan debt.

The Conversation

How Much Money Should Students Borrow for College?

Well-known personal finance personality Dave Ramsey apparently tweeted out something about paying for college yesterday. When I went to click on the link, I got the following notice from Twitter.

As far as I am aware, this is the first time that someone has blocked me on Twitter (I only use the blocking function for likely Russian bots and people who have made racist or sexist statements against people I know). And I’m pretty sure I know the reason why Ramsey blocked me—this interview that I did with Money magazine last spring in which I noted that his advice to avoid all college debt is a generally bad idea for students. Limiting ridiculous credit card debt and having a plan to pay off debt eventually are sound recommendations, but delaying the labor market benefits of a college credential to work your way through debt-free just doesn’t make long-term sense for most people. (And research shows that borrowing for college can improve student outcomes.)

On the other hand, students also should be reasonable about how much they borrow for college. While I was pulling up the Money magazine link for the previous paragraph, I noticed that their feature piece today is on someone with $185,000 in student loan debt and who is struggling to make minimum payments. There are key details missing in the piece, such as how much of the debt is for graduate school, the person’s income, and how much interest has capitalized, but this is certainly a cause for concern absent additional information (which seems to be missing from many of these pieces).

So this brings me to a question that I get asked quite a bit: how much should students borrow for college? To me, the correct answer is generally “it depends”—but most people don’t like that classic answer from a tenured professor. This leads me to specify some basic ground rules that students and their families should consider before signing that Master Promissory Note.

For undergraduate students: I am generally not concerned if students take out the maximum amount in federal student loans in their own name while in college. Younger (dependent) students can typically take out up to $31,000 in federal loans, while independent students can take out up to $57,500. These loans have generous income-driven repayment options that reduce payments if college doesn’t work out financially for a student. (Any forgiven balance outside of Public Service Loan Forgiveness may be taxed, but my guess is that Congress patches that fix on an annual basis going forward.)

Beyond that amount, students and their families may be able to get Parent PLUS or private loans, which generally require a co-signer and varied levels of creditworthiness in order to qualify. Parent PLUS loans scare me (as I talked about last fall with NPR), as they require many parents to pay loans into their retirement and have much lower credit standards than private loans. Students and their families need to have long and hard conversations about borrowing beyond the federal student loan limit to see if parents or co-signers can afford to repay those loans and the student’s likely ability to help parents repay those debts.

For graduate students: Most six-figure student debt burdens are from graduate school, since students can borrow up to the full cost of attendance in their own name through the Grad PLUS program and many of these programs tend to be expensive. New program-level College Scorecard data show that a large number of master’s and professional doctorate programs graduate students with more than $100,000 in debt. And I can speak to this personally as my wife and I are down to the final year of payments on her $110,000 in law school debt.

Income-driven repayment plans and PSLF extend to all graduate debt through the federal government, so there is some protection against low earnings after attending graduate school. However, unless a student is sure that he or she is going to be in a public service field and receive PSLF, it is important to keep loan balances in mind. Income-driven repayment plans require 20 years of payments instead of the ten years under PSLF, and this requires committing ten percent of your income over 150% of the poverty line for much of your prime earning years. Sit down with your family and try to get a handle on expected future earnings (program-level earnings data will come out this fall) and other expenses such as childcare and housing and see what is affordable. $100,000 in debt is extremely manageable for a two-income household making $150,000 per year, but much harder for a single adult making $60,000 per year.

The right answer for how much a student should borrow for college depends quite a bit on individual circumstances, but in general the modest federal loan limits for undergraduate students are manageable for most graduates with the help of income-driven repayment programs. Dave Ramsey may be an influential voice in the personal finance world, but following all of his advice on paying for college is likely to be a losing proposition for many students.

Some Thoughts on Program-Level College Scorecard Data

The U.S. Department of Education has been promising to make program-level outcome data available on the College Scorecard for several years now. The Obama administration started the underlying data collection after releasing the initial Scorecard to the public in 2015, and the Trump administration elevated this topic by issuing an executive order earlier this year. I was at a technical review panel at ED last month on this topic, and I just noticed earlier today that members of the public can now comment on our two-day discussion in one of Washington’s most scenic windowless conference rooms.

So I was surprised to see a press release this afternoon announcing that the College Scorecard had been updated in several important ways. This update includes more than just program-level data. The public-facing site now has data on certificate-granting institutions, as well as using IPEDS data on graduation rates that go beyond first-time, full-time students. Needless to say, I’m happy to see both of these improvements, even though I am somewhat skeptical that students pursuing vocational certificates will access the public-facing Scorecard to the same extent that students seeking bachelor’s degrees will.

But this blog post focuses on program-level Scorecard data, which are preliminary and will be updated as soon as later this year. I used the combined 2015-16 and 2016-17 dataset (the most recent year available), which includes data on all graduates who received federal financial aid. This means that coverage is better for certain programs than others; for example, law schools are better covered than PhD programs since relatively few PhD students borrow compared to law students. The dataset contains 194,575 programs across 6,094 institutions.

Here are some highlights:

  • Median debt data are only available for 42,430 programs (21.8% of the sample), as small programs do not have data shown due to privacy concerns. But based on IPEDS completions, about 70% of students are enrolled in programs where debt data are available.
  • Here are the average median debt burdens by credential level:
    • Undergraduate certificate: $10,953 (n=4,146)
    • Associate: $15,134 (n=5,952)
    • Bachelor’s: $23,382 (n=23,649)
    • Graduate certificate: $48,513 (n=266)
    • Master’s: $42,335 (n=7,011)
    • First professional: $141,310 (n=660)
    • Doctoral: $95,715 (n=716)
  • 172 programs had over $200,000 in median debt, and it looks like the top 116 programs are all in health sciences. The data are preliminary, but Roseman University of Health Sciences’s dentistry program has the top listed debt burden at a cool $410,213. Meanwhile, 3,970 programs had median debt burdens below $10,000.

I am thrilled to see program-level debt data, both as a researcher (if I only had more time to sit down and dive into the data!) and as the newly-minted director of higher education graduate programs. Thanks to this dataset, I now know that roughly half of the students in the educational leadership doctoral program (K-12 and higher ed) at Seton Hall borrow, and median debt among graduates is $63,045. I hope that colleges around the country use this tool to get a handle on their graduates’ situations now that data are available for more than just those programs that were covered by gainful employment.

Oh, and about gainful employment. Once earnings data come out (which hopefully will be soon), it will be possible to calculate a debt-to-earnings ratio for programs that cover a large number of students even without the sanctions present in the now-mothballed gainful employment regulations. Also expect to see loan repayment rates in the updated Scorecard, which will shed some interesting light on income-driven repayment rate usage and the implications for students and taxpayers.

What is Public Service Loan Forgiveness? And How Do I Qualify to Get It?

This piece was originally published at The Conversation.

The first group of borrowers who tried to get Public Service Loan Forgiveness – a George W. Bush-era program meant to provide relief to those who went into socially valuable but poorly paid public service jobs, such as teachers and social workers – mostly ran into a brick wall.

Of the 28,000 public servants who applied for Public Service Loan Forgiveness earlier this year, only 96 were approved. Many were denied in large part due to government contractors being less than helpful when it came to telling borrowers about Public Service Loan Forgiveness. Some of these borrowers will end up getting part of their loans forgiven, but will have to make more payments than they expected.

With Democrats having regained control of the U.S. House of Representatives in the November 2018 midterm elections, the Department of Education will likely face greater pressure for providing better information to borrowers, as it was told to do recently by the Government Accountability Office.

The Public Service Loan Forgiveness program forgives loans for students who made 10 years of loan payments while they worked in public service jobs. Without this loan forgiveness plan, many of these borrowers would have been paying off their student loans for 20 to 25 years.

Borrowers must follow a complex set of rules in order to be eligible for the Public Service Loan Forgiveness program. As a professor who studies federal financial aid policies, I explain these rules below so that up to 1 million borrowers who have expressed interest in the program can have a better shot at receiving forgiveness.

What counts as public service?

In general, working for a government agency – such as teaching in a public school or a nonprofit organization that is not partisan in nature – counts as public service for the purposes of the program. For some types of jobs, this means that borrowers need to choose their employers carefully. Teaching at a for-profit school, even if the job is similar to teaching at a public school, would not qualify someone for Public Service Loan Forgiveness. Borrowers must also work at least 30 hours per week in order to qualify.

What types of loans and payment plans qualify?

Only Federal Direct Loans automatically qualify for Public Service Loan Forgiveness. Borrowers with other types of federal loans must consolidate their loans into a Direct Consolidation Loan before any payments count toward Public Service Loan Forgiveness. The failure to consolidate is perhaps the most common reason why borrowers who applied for forgiveness have been rejected, although Congress did provide US$350 million to help some borrowers who were in an ineligible loan program qualify for Public Service Loan Forgiveness.

In order to receive Public Service Loan Forgiveness, borrowers must also be enrolled in an income-driven repayment plan, which ties payments to a percentage of a borrower’s income. The default repayment option is not income-driven and consists of 10 years of fixed monthly payments, but these fixed payments are much higher than income-driven payments. The bottom line is it’s not enough to just make 10 years of payments. You have to make those payments through an income-driven repayment plan to get Public Service Loan Forgiveness.

Parent PLUS Loans and Direct Consolidation Loans have fewer repayment plan options than Direct Loans made to students, so borrowers must enroll in an approved income-driven repayment plan for that type of loan. Borrowers must make 120 months of payments, which do not need to be consecutive, while enrolled in the correct payment plan to receive forgiveness.

How can borrowers track their progress?

First of all, keep every piece of information possible regarding your student loan. Pay stubs, correspondence with student loan servicers and contact information for prior employers can all help support a borrower’s case for qualifying for Public Service Loan Forgiveness. Unfortunately, borrowers have had a hard time getting accurate information from loan servicers and the Department of Education about how to qualify for Public Service Loan Forgiveness.

The U.S. Government Accountability Office told the Department of Education earlier this year to improve its communication with servicers and borrowers, so this process should – at least in theory – get better going forward.

Borrowers should also fill out the Department of Education’s Employment Certification Form each year, as the Department of Education will respond with information on the number of payments made that will qualify toward Public Service Loan Forgiveness. This form should also be filed with the Department of Education each time a borrower starts a new job to make sure that position also qualifies for loan forgiveness.

Can new borrowers still access Public Service Loan Forgiveness?

Yes. Although congressional Republicans proposed eliminating Public Service Loan Forgiveness for new borrowers, the changes have not been approved by Congress. Current borrowers would not be affected under any of the current policy proposals. However, it would be a good idea for borrowers to fill out an Employment Certification Form as soon as possible just in case Congress changes its mind.

Are there other affordable payment options available?

Yes. The federal government offers a number of income-driven repayment options that limit monthly payments to between 10 and 20 percent of “discretionary income.” The federal government determines “discretionary income” as anything you earn that is above 150 percent of the poverty line, which would translate to an annual salary of about $18,000 for a single adult. So if you earn $25,000 a year, your monthly payments would be limited to somewhere between $700 and $1400 per year, or about $58 and $116 per month.

These plans are not as generous as Public Service Loan Forgiveness because payments must be made for between 20 and 25 years – instead of 10 years under Public Service Loan Forgiveness. Also, any forgiven balance under income-driven repayment options is subject to income taxes, whereas balances forgiven through Public Service Loan Forgiveness are not taxed.The Conversation

Why the Democrats’ New ‘Debt-Free’ College Plan Won’t Really Make College Debt-Free

This article was originally published at The Conversation and is co-authored with Dennis Kramer II of the University of Florida.

Rising student loan debt and concerns about college affordability got considerable attention from Democrats in the 2016 presidential campaign. Those issues are bound to get renewed attention since House Democrats recently introduced the Aim Higher Act – an effort to update the Higher Education Act, the federal law that governs federal higher education programs.

The bill promises “debt-free” college to students. As scholars who focus on higher education finance and student aid, we believe the bill actually falls well short of that promise.

What ‘free’ really means

In its current form, the bill guarantees two years of tuition-free community college to students. However, the Democratic bill does not address the fact that tuition is only about one-fifth of the total cost of attending community college. Rent, food, books and transportation make up the rest of the cost of attendance and are not covered by this plan.

The “debt-free” label is problematic for other reasons. For instance, the maximum Pell Grant – $6,095 for the 2018-2019 school year – already covers community college tuition in nearly all states. This means the neediest students likely already have access to federal grant funds to cover tuition. Although the bill would increase Pell awards by $500 each year and reduce debt somewhat for the neediest students, many needy students will still need to take out loans to attend college.

States may not cooperate

Another reason the Democrats’ “debt-free” college plan does not live up to its name is the fact that its tuition-free provision requires states to maintain their funding for public colleges in order qualify for more federal funds under the proposed bill. This approach is similar to the state-federal partnership that was part of the recent Medicaid expansion, which led 16 conservative states to decline to expand Medicaid. Many conservative-leaning states might push back against the Aim Higher Act’s tuition-free provision because it restricts states’ ability to cut higher education spending.

Slim chance of becoming law

The ConversationIt is unlikely that either the PROSPER Act or the Aim Higher Act become law in the near future given the lack of comprehensive support within the Republican Party and Democrats’ minority status in Congress. But there are a few parts of both bills that could get bipartisan support, such as simplifying the process for applying for federal financial aid, creating better data systems to help track students’ outcomes, and allowing Pell Grants to be used for shorter-term training programs. Although neither the Republican nor the Democratic bills appear likely to pass, expect both parties to use their proposals in the upcoming midterm elections.

A Look at Federal Student Loan Borrowing by Field of Study

The U.S. Department of Education’s Office of Federal Student Aid has slowly been releasing interesting new data on federal student loans over the last few years. In previous posts, I have highlighted data on the types of borrowers who use income-driven repayment plans and average federal student loan balances by state. But one section of Federal Student Aid’s website that gets less attention than the student loan portfolio page (where I pulled data from for the previous posts) is the Title IV program volume reports page. For years, this page—which is updated quarterly with current data—has been a useful source of how many students at each college receive federal grants and loans.

While pulling the latest data on Pell Grant and student loan volumes by college last week, I noticed three new spreadsheets on the page that contained interesting statistics from the 2015-16 academic year. One spreadsheet shows grant and loan disbursements by age group, while a second spreadsheet shows the same information by state. But in this blog post, I look at a third spreadsheet of student loan disbursements by students’ fields of study. The original spreadsheet contained data on the number of recipients and the amount of loans disbursed, and I added a third column of per-student annual average loans by dividing the two columns. This revised spreadsheet can be downloaded here.

Of the 1,310 distinct fields of study included in the spreadsheet, 14 of them included more than $1 billion of student loans in 2015-16 and made up over $36 billion of the $94 billion in disbursed loans. Business majors made up 600,000 of the 9.1 million borrowers, taking out $6.1 billion in loans, with nursing majors having the second most borrowers and loans. The majors with the third and fourth largest loan disbursements were law and medicine, fields that tend to be almost exclusively graduate students and can thus borrow up to the full cost of attendance without the need for Parent PLUS loans. As a result, both of these fields took out more loans than general studies majors in spite of being far fewer in numbers. On the other end (not shown here), the ten students majoring in hematology technology/technician drew out a combined $28,477 in loans, just ahead of the 14 students in explosive ordinance/bomb disposal programs who hopefully are not blowing up over incurring a total of $61,069 in debt.

Turning next to programs where per-student annual borrowing is the highest, the top ten list is completely dominated by health sciences programs (the first two-digit CIP not from health sciences is international business, trade, and tax law at #16). It is pretty remarkable that dentists take on $71,451 of student loans each year while advanced general dentists (all 51 of them!) borrow even more than that. Given that dental school is four years long and that interest accumulates during school, an average debt burden of private dental school graduates of $341,190 seems quite reasonable. Toss in income-driven repayment during additional training and it makes sense that at least one of the 101 people with $1 million in federal student loan debt is an orthodontist. On the low end of average debt, the 164 bartending majors ran up an average tab of $2,963 in student loans in 2015-16 while the 144 personal awareness and self-improvement majors are well into their 12-step plan to repay their average of $4,361 in loans.

What Explains Racial Gaps in Large Graduate Student Debt Burdens?

In my previous blog post, I used brand-new data from the 2015-16 National Postsecondary Student Aid Study (NPSAS) to look at trends in debt burdens among graduate students. The data point that quickly got the most attention was the growth in the percentage of African-American graduate students with at least $100,000 in debt between their undergraduate and graduate programs, with 30% of black students having six-figure debt burdens in 2015-16 compared to just 12% of white borrowers. This means that roughly 150,000 black borrowers had $100,000 in debt, more than half of the number of white borrowers with the same debt level (250,000) despite white graduate student enrollment being four times as white as black grad student enrollment.

My next step is to examine whether the black-white borrowing gap could be explained by other demographic and educational factors. I ran two logistic regressions with the outcome of interest being $100,000 or more in total educational debt using PowerStats, with the results presented in odds ratios. (To interpret odds ratios, note that they are percent changes from 1. So a coefficient of 0.5 means that something is 50% less likely to happen and 1.5 means that something is 50% more likely to happen.) The first regression below only controls for race/ethnicity.

Table 1: Partial regression predicting likelihood of $100,000 or more in debt among graduate students.
  Coefficient (Odds Ratio)    
Characteristic 95% CI p-value
Race/ethnicity (reference: white)
  Black or African American 2.50 (1.91, 3.26) 0.000
  Hispanic or Latino 1.12 (0.89, 1.41) 0.347
  Asian 0.62 (0.46, 0.83) 0.002
  American Indian or Alaska Native 1.31 (0.49, 3.50) 0.595
  Native Hawaiian/other Pacific Islander 1.35 (0.38, 4.74) 0.640
  More than one race 1.73 (1.08, 2.77) 0.023
Source: National Postsecondary Student Aid Study 2015-16.    

 

This shows that black students were 150% more likely to have six-figure debt than white students (p<.001), while Asian students were 38% less likely (p<0.01). Hispanic students had a slightly higher point estimate, but it was not statistically significant.

I then controlled for a number of factors that could be associated with high graduate student debt amounts, including other demographic characteristics (gender, age, and marital status), level of study (master’s or doctoral), institution type, and field of study. The regression results are shown below.

Table 2: Full regression predicting likelihood of $100,000 or more in debt among graduate students.
  Coefficient (Odds Ratio)    
Characteristic 95% CI p-value
Race/ethnicity (reference: white)
  Black or African American 2.30 (1.79, 2.97) 0.000
  Hispanic or Latino 1.03 (0.80, 1.33) 0.828
  Asian 0.69 (0.48, 0.98) 0.036
  American Indian or Alaska Native 0.97 (0.25, 3.77) 0.964
  Native Hawaiian/other Pacific Islander 1.61 (0.44, 5.84) 0.468
  More than one race 1.82 (1.12, 2.95) 0.015
Female 1.00 (0.84, 1.19) 0.990
Age as of 12/31/2015 1.04 (1.03, 1.04) 0.000
Marital status (reference: single)
  Married 0.68 (0.55, 0.85) 0.001
  Separated 0.94 (0.51, 1.73) 0.840
Graduate institution (reference: public)
  Private nonprofit 1.64 (1.36, 1.98) 0.000
  For-profit 2.15 (1.64, 2.82) 0.000
Graduate degree program (reference: master’s)
  Research doctorate 3.00 (2.38, 3.78) 0.000
  Professional doctorate 7.07 (5.61, 8.90) 0.000
Field of study (reference: education)
  Humanities 0.99 (0.66, 1.48) 0.943
  Social/behavioral sciences 1.85 (1.38, 2.48) 0.000
  Life sciences 1.71 (1.14, 2.56) 0.009
  Math/Engineering/Computer science 0.34 (0.20, 0.57) 0.000
  Business/management 0.91 (0.64, 1.28) 0.577
  Health 1.93 (1.47, 2.53) 0.000
  Law 1.38 (0.90, 2.11) 0.140
  Others 1.26 (0.89, 1.79) 0.186
Source: National Postsecondary Student Aid Study 2015-16.    

 

Notably, the coefficient for being African-American (relative to white) decreased slightly in the regression with additional control variables. Black students were 130% more likely to have six-figure debt burdens than white students, down from 150% in the previous regression. Not surprisingly, doctoral students, students at private nonprofit and for-profit colleges, and students studying health, life sciences, and social/behavioral sciences were more likely to have $100,000 in debt than public university students, master’s students, and those studying education. Meanwhile, STEM students were far less likely to have $100,000 in debt than education students, which is not surprising given the large number of assistantships available in STEM fields.

This regression strongly suggests that the black/white gap in large student debt burdens cannot be explained by other demographic characteristics or individuals’ fields of study. Financial resources (such as the large wealth gap between black and white families) are likely to blame, but this is not well-measured in the NPSAS. The best proxy is a student’s expected family contribution (EFC), which only measures a student’s own resources as an adult student. Including EFC as a variable in the model brings the black/white gap down to 120% (not shown here for the sake of brevity), but a good measure of wealth likely shrinks the gap by a much larger amount.

Examining Trends in Graduate Student Debt by Race and Ethnicity

For many of us in the higher education world, the release of the newest wave of the National Postsecondary Student Aid Study (NPSAS) is something akin to a national holiday. The NPSAS is a nationally-representative dataset of both undergraduate and graduate students that has provided a snapshot every four years of the state of how students pay for higher education. (Going forward, there will be a new dataset produced every two years, which is great news!) The 2015-16 NPSAS dropped on Tuesday morning, which sent nerds everywhere running to their computers to run numbers via PowerStats.

In this post, I look at graduate student borrowing, which is of increasing interest to policymakers given the average size of graduate student loan burdens and the potential implications for taxpayers thanks to income-driven repayment and Public Service Loan Forgiveness. I used the TrendStats tool to look at graduate student loan debt by race/ethnicity every four years from 2000 to 2016, based on concerns raised by Judith Scott-Clayton about the growth in student debt among African-American students.

The first figure looks at overall trends in graduate student borrowing across each of the five cohorts. The percentage with no debt fell from 51% in 2000 to 39% in 2008 before remaining steady throughout the rest of the period. Meanwhile, the percentage with at least $50,000 in debt (for both undergraduate and graduate school) went up from 9% in 2000 to 32% in 2016, with a steady upward trend across every cohort. The increases were even larger among those with more than $100,000 in debt, with that share going from 1.5% to 14.2% during this period. (The introduction of Grad PLUS loans in 2006 probably didn’t hurt that trend, although the jump between 2008 and 2012 was larger than the jump between 2004 and 2008.)

I broke down the borrowing data by race/ethnicity to look at the percentage of graduate students with no debt at all across each cohort. Across each cohort, at least 60% of Asian students had no debt, while the percentage of white students with no debt was 51% in 2000 before meandering around 40% in more recent cohorts. Forty-five percent of Hispanic students had no debt in 2000, which steadily fell to 27% in 2016. Among African-American students, however, the percentage with no debt fell from 37% in 2000 to 17% in both 2012 and 2016. Part of this may be due to the higher likelihood of black students to study in fields with fewer graduate assistantships (such as education), but family resources likely play a crucial role here.

Finally, I examined the percentage of students with at least $100,000 in educational debt by race and ethnicity. All groups of students started out at between one and two percent with six-figure debts in 2000, but those rates quickly diverged. By 2012, 7% of Asian students, 11% of white students, 14% of Hispanic students, and 21% of black students had at least $100,000 in educational debt. In the newest NPSAS wave, all racial/ethnic groups except black students stayed within one percentage point of their 2012 level. But in 2016, an astonishing 30% of African-American graduate students had at least $100,000 in debt—nearly three times the rate of white students.

In future posts, I will look at some other interesting tidbits from the new NPSAS data. But for right now, these graphics are so depressing that I need to step away and work on something else. Student loan debt isn’t a crisis for all students, but it’s an increasingly urgent matter for African-American students in particular as well as for taxpayers who will be expected to pay for at least partial loan forgiveness.

[Check out my next post for some regressions that explore the extent to which the black/white gap in the percentage of grad students with $100,000 in debt can be explained by other factors.]

Examining Long-Term Student Loan Default Rates by Race and Ethnicity

Since the release of long-term student loan default data in the Beginning Postsecondary Students Longitudinal Study last fall, one finding that has gotten a great deal of attention is the large gap in default rates by race and ethnicity. Judith Scott-Clayton of Teachers College, Ben Miller of the Center for American Progress, and I all highlighted the high percentage of African-American students who began college in the 2003-04 academic year and defaulted on their loans by 2015. As the chart below shows, black students were more than twice as likely to default on their loans than white students (49% versus 20%), with some differences by institutional type.

But since some of the difference in default rates could be due to other factors (such as family resources and the type of college attended), I ran logistic regressions using the handy regression tools in PowerStats. The first regression just controls for race/ethnicity, while the second regression adds in other control variables of interest. The results are presented as odds ratios, meaning that coefficients larger than 1 reflect a higher likelihood of default and coefficients smaller than 1 reflect a lower likelihood. (Here’s a good primer on interpreting odds ratios.)

In the first regression, the odds ratios for black (3.69), Hispanic (2.09), multiracial (2.56), and American Indian/Alaska Native students (2.45) were all significantly higher than white students at p<.05, while Asian students (0.48) had significantly lower default rates.

Results of logistic regression predicting student loan default rates by 2015 (with controls).
Variable Odds Ratio Lower 95% Upper 95% p-value
Race/ethnicity (reference group: white)
  Black or African American 3.6890 3.0490 4.4620 <0.01
  Hispanic or Latino 2.0870 1.5770 2.7600 <0.01
  Asian 0.4750 0.3170 0.7120 <0.01
  American Indian or Alaska Native 2.4540 1.1220 5.3680 0.03
  Native Hawaiian / other Pacific Islander 0.7170 0.1640 3.1330 0.66
  Other 1.2200 0.7610 1.9560 0.41
  More than one race 2.5640 1.6800 3.9140 <0.01
Source: Beginning Postsecondary Students Longitudinal Study.

After adding in control variables, the coefficients for underrepresented minority students were somewhat smaller. But for African-American (2.56) and multiracial (2.45) students, they were still significantly higher than for white students after adding other controls. This means that black students were about 150% more likely to default than white students—an enormous gap after taking a number of other important factors into account. The coefficients for Hispanic and American Indian students were no longer significant, and Asian students were still less likely to default than white students (an odds ratio of 0.42).

Variable Odds Ratio Lower 95% Upper 95% p-value
Race/ethnicity (reference group: white)
  Black or African American 2.5587 2.0370 3.2139 <0.01
  Hispanic or Latino 1.2606 0.9526 1.6683 0.10
  Asian 0.4249 0.2629 0.6869 <0.01
  American Indian or Alaska Native 1.7371 0.7307 4.1299 0.21
  Native Hawaiian / other Pacific Islander 0.3473 0.0473 2.5505 0.30
  Other 0.8835 0.4458 1.7509 0.72
  More than one race 2.4492 1.5499 3.8704 <0.01
Parents’ highest level of education (reference group: high school grad)
  Did not complete high school 0.7242 0.5085 1.0315 0.07
  Some college or associate degree 0.7883 0.6404 0.9702 0.02
  Bachelor’s degree 0.6181 0.4821 0.7923 <0.01
  Graduate/professional degree 0.5502 0.4242 0.7135 <0.01
Income as percent of poverty level 2003-04 0.9981 0.9976 0.9987 <0.01
Dependency status 2003-04 (reference group: dependent)
  Independent 1.4552 1.0738 1.9719 0.02
Gender (reference group: female)
  Male 1.3553 1.1491 1.5984 <0.01
Age first year enrolled 0.9893 0.9709 1.0081 0.26
First institution sector 2003-04 (reference group: community colleges)
  Public 4-year 0.7858 0.6403 0.9644 0.02
  Private nonprofit 4-year 0.7756 0.6025 0.9985 0.05
  Private nonprofit 2-year or less 1.4838 0.6498 3.3880 0.35
  For-profit 2.1968 1.7624 2.7384 <0.01
Source: Beginning Postsecondary Students Longitudinal Study.

Additionally, the regression also shows the importance of parental education, family income, and sector of attendance in predicting the likelihood of long-term default. Notably, students who began at a for-profit college were about 120% more likely to default on their loans than community college students, while four-year students were less likely. Men were 36% more likely to default on their loans than women, an interesting finding given men typically earn more money than women.

Much more needs to be done to dig deeper into factors associated with long-term student loan default rates. But at this point, it appears clear that other demographic and institutional characteristics available in the BPS do relatively little to explain the large gaps in default rates between black and white students. It would be helpful to have measures of family wealth available given large black-white differences in wealth to see how much of the variation in default rates is due to family resources.

Examining Average Student Loan Balances by State

In a blog post last month, I used newly-available data from the U.S. Department of Education’s Office of Federal Student Aid to look at the amount of student loan dollars in income-driven repayment plans by amount of debt. In that post, I showed that students with more debt were far more likely to use IDR than students with less debt, with students having over $60,000 in debt being about twice as likely to use IDR as those with between $20,000 and $40,000 in debt.

In this post, I want to highlight some other new data that provides interesting insights into the federal student aid portfolio. I looked at state-level data (based on current residence, not where they went to college) that shows outstanding balances and the number of borrowers for both all Direct Loans (the vast majority of federal student loans at this point) and for those enrolled in income-driven plans. I then estimated the average loan value by dividing the two. The data are summarized in the table below.

 All Direct Loans  Loans in IDR plans
State  Balance ($bil) Borrowers (1000s)  Avg loan  Balance ($bil) Borrowers (1000s)  Avg loan
AL 15.9 522.2        30,400 5.4 100.0        54,000
AK 1.7 59.9        28,400 0.6 10.3        58,300
AZ 21.2 711.9        29,800 7.7 137.1        56,200
AR 8.5 312.9        27,200 3.0 62.0        48,400
CA 102.8 3307.3        31,100 36.7 600.2        61,100
CO 20.4 662.1        30,800 7.7 133.6        57,600
CT 12.1 414.6        29,200 3.4 59.6        57,000
DE 3.1 101.2        30,600 1.0 17.4        57,500
DC 5.0 102.2        48,900 2.4 25.7        93,400
FL 65.7 2063.1        31,800 26.4 473.1        55,800
GA 45.8 1350.2        33,900 16.6 279.2        59,500
HI 3.1 104.5        29,700 1.1 18.2        60,400
ID 5.3 191.7        27,600 2.1 41.6        50,500
IL 45.7 1439.7        31,700 14.9 247.9        60,100
IN 21.6 794.7        27,200 7.3 152.3        47,900
IA 10.4 405.8        25,600 3.3 67.8        48,700
KS 9.2 339.5        27,100 2.9 57.6        50,300
KY 13.8 507.1        27,200 4.9 102.6        47,800
LA 14.1 499.1        28,300 4.9 95.2        51,500
ME 4.4 158.8        27,700 1.5 30.0        50,000
MD 25.1 707.2        35,500 8.3 123.5        67,200
MA 23.1 783.7        29,500 7.0 114.3        61,200
MI 37.9 1262.4        30,000 13.2 243.4        54,200
MN 19.9 709.9        28,000 6.7 124.4        53,900
MS 10.6 360.7        29,400 3.8 75.2        50,500
MO 21.0 707.2        29,700 7.6 143.5        53,000
MT 3.0 106.5        28,200 1.2 23.1        51,900
NE 5.7 216.9        26,300 1.9 37.8        50,300
NV 7.5 262.9        28,500 2.8 51.6        54,300
NH 4.7 165.2        28,500 1.4 26.2        53,400
NJ 29.7 999.5        29,700 8.4 145.1        57,900
NM 5.3 189.3        28,000 2.1 39.7        52,900
NY 67.9 2113.1        32,100 24.0 387.8        61,900
NC 32.7 1065.5        30,700 11.8 213.6        55,200
ND 1.8 75.1        24,000 0.6 12.0        50,000
OH 45.4 1577.1        28,800 16.0 313.8        51,000
OK 10.3 383.0        26,900 3.6 71.5        50,300
OR 14.9 475.8        31,300 6.1 107.7        56,600
PA 46.1 1539.3        29,900 15.1 275.3        54,800
RI 3.3 119.6        27,600 1.0 18.8        53,200
SC 18.2 584.7        31,100 6.8 123.5        55,100
SD 2.6 98.9        26,300 0.9 17.9        50,300
TN 21.3 700.7        30,400 7.8 146.0        53,400
TX 76.5 2772.1        27,600 26.1 516.4        50,500
UT 6.9 256.8        26,900 2.7 47.3        57,100
VT 2.1 66.4        31,600 0.8 13.1        61,100
VA 29.9 913.8        32,700 10.1 166.0        60,800
WA 20.1 674.8        29,800 7.4 128.0        57,800
WV 5.4 200.3        27,000 1.8 37.0        48,600
WI 17.0 646.6        26,300 5.7 114.5        49,800
WY 1.2 45.3        26,500 0.4 8.0        50,000

Nationwide, the average outstanding Direct Loan balance was right at $30,000, with significant variation across states (ranging from $24,000 in North Dakota to $48,900 in Washington, DC). The average outstanding balance in IDR was $55,800, which suggests that many borrowers in IDR attended graduate school in order to accumulate that amount of debt. State-level average IDR balances ranged from $47,800 in Kentucky to an impressive $93,400 in Washington, DC. California, Hawaii, Illinois, Maryland, Massachusetts, New York, Vermont, and Virginia all had average balances over $60,000—and they are all high cost of living states with high percentages of adults obtaining graduate or professional degrees.

Once again, kudos to the Department of Education for slowly releasing more data on the federal student loan portfolio. But there are still quite a few important data points (such as school-level data or anything on PLUS loans) that still aren’t available to the public.