The College Board has issued another of its reports on student loan debt, focusing this time on the 17 percent of students who graduate from four-year colleges with “high debt levels”—that is, more than $30,500 worth of education loans. The average debt load for those high -borrowing students, one out every six graduates with bachelor’s degrees, was $45,500 in 2007-2008, the academic year covered by the study. That’s a staggering amount, considering that the average annual starting salary for a new college graduate is about $49,000 (for liberal arts majors, it’s only $36,000). Two-thirds of college students and their parents borrow for higher education, and a fourth of those borrowers are at the highest debt level. About a third of that debt is in non-federally guaranteed loans that typically bear higher interest rates and are more difficult to defer repaying. High levels of student debt typically correlate with high levels of loan default, as college graduates discover that the entry-level jobs for which they qualify right after graduation don’t pay enough to enable them to keep up with their loan repayment schedules.
What is most intriguing—and disconcerting—about the new College Board study, titled “Who Borrows Most?” is the role played by race and ethnicity in student borrowing. “[H]igh debt levels are more prevalent among black bachelor’s degree recipients than among those from other racial/ethnic groups, and these differences are not entirely explained by differences in family income levels.” the study reports. Some 27 percent of black recipients of bachelor’s degrees in 2007-2008 borrowed $30,500 or more to pay for college, compared with 16 percent of whites, 14 percent of Hispanics, and 9 percent of Asians. The racial/ethnic discrepancies in taking on debt existed at all income levels, from the poorest (families earning less than $30,000 a year) to the solidly middle-income. Only among families at the highest income levels–those earning $100,00 or more a year—were the borrowing levels among ethnic groups roughly comparable: Nine percent of well-off white students graduated with more than $30,500 in loans, compared with 11 percent of well-off blacks and 10 percent of well-off Hispanics. Even in this prosperous group that could presumably afford high debt levels, Asians stood out for their low levels of borrowing. Only five percent of Asians from families earning $100,000 or more a year graduated from four-year colleges with more than $30,500 in student debt.
What does this all suggest? To the report’s authors, Sandy Baum and Patricia Steele, it suggests that a sizable percentage of college undergraduates make rash and uninformed decisions about how much to borrow in order to pay for their educations and need an array of government interventions to protect them from the consequences of their poor planning. “[I] is difficult for students to estimate in advance [It] is vital that policies be designed to protect students from unmanageable debt to the extent possible,” they write. The new student-loan provisions tacked onto the healthcare overhaul that President Obama signed into law this year—increases in the size of federal Pell grants for low-income students and easier repayment and forgiveness terms for those who borrow directly from the government—seem to be the kind of “policies” that Baum and Steele have in mind. “Strong income-based repayment is important as a supplement to moderating price increases and increasing the generosity of need-based financial aid,” they write.
In fact, their study suggests that many students make surprisingly rational decisions about education debt. Students from the very poorest families—those with less than $30,000 in annual income—tended to take on significantly less debt to earn their bachelor’s degrees than those from better-off families, no matter what their race and ethnicity. Middle-income students, not the poor, tended to be the most extravagant borrowers. Pell grants and institutional aid undoubtedly accounted in part for the lower debt levels among the poorest students, but those students might also have chosen to attend less expensive institutions. For example, only seven percent of students from very poor families who graduated from public four-year colleges took on $30,500 or more in student loans.
The real reason behind burgeoning high-level student debt—and it’s a serious problem—may not be poor financial planning by students that requires paternalistic intervention—and may be only partly escalating college costs. The ethnic disparities in student borrowing that transcend family income levels suggests that family stability (or lack thereof) may account for which students have to borrow large sums of money in order to earn a bachelor’s degree and which students don’t. Census figures document, for example, that 87 percent of Asian and 78 percent of non-Hispanic white children live with two married parents, compared with 68 percent of Hispanic children and only 38 percent of black children. Single parenthood tends to take a toll in poverty. Some 61 percent of both Hispanic and black children live in low-income families, compared with only 28 percent of Asian children and 26 percent of white children, according to the National Center for Child Poverty.
It is not surprising, then, that many black families, dependent on a single, sometimes precarious income, may have little in the way of savings for college, and that strong Asian families are more likely to have savings and other resources to pay for children’s education. Indeed, the greatest proportion of high-level debt recorded in the College Board study was incurred by so-called “independent” students: older students lacking financial help from their families. A full 24 percent of them took on $30,500 or more in loans to cover college expenses, and of those attending the for-profit colleges that pitch themselves to non-traditional-age students, 53 percent graduated with high-level debt.
What all of this suggests is that the government policies reflected in the new education-aid law may make it easier for college graduates with large amounts of student debt to repay their loans (or shift their loan burdens to taxpayers if they cannot repay), the most effective way not to incur that high-level debt in the first place is to have a two-parent family, no matter what its income level. And that’s a matter of culture, not economics.