New data informs college, student debt decisions

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For years, as college costs have ballooned, many economists have warned of a “higher-education bubble” and have sounded the alarm about a student-debt crisis. Massive new datasets can help policymakers and researchers to better understand the roots of the crisis as well as craft sound solutions.

With more than $1 trillion in student debt, the problem is undeniable. A new study by Brookings Institution economists Adam Looney and Constantine Yannelis aims to break down this problem by delving into which borrowers are struggling the most.

Looney and Yannelis found that the student debt crisis is mostly concentrated among nontraditional borrowers—borrowers at two-year community colleges or for-profit institutions. They found that 70 percent of student loan defaults are by students who graduated from a two-year or for-profit school.

“They borrowed substantial amounts to attend institutions with low completion rates and, after enrollment, experienced poor labor market outcomes that made their debt burdens difficult to sustain,” Looney and Yannelis write. “More than a quarter defaulted on their loans within three years and many more are not making progress repaying their loans.”

Those students tend to be older and are less likely to have financial support from their parents. Many of them are first-generation college students. They are also more likely to come from low-income households, compared with students who attend a traditional four-year college or university.

Borrowing has increased so rapidly at for-profit schools that in recent years the number of borrowers has outstripped the number of enrollees. Once these students graduate, their financial outlook is often grim. After graduation, the median earning for these students is close to $20,000.

The majority of borrowers with balances of $50,000 or more are students who borrowed for graduate school—meaning they were also likely to have higher incomes and lower default rates. The authors note, however, that almost one-third of students with large balances borrowed for only undergraduate programs, mostly at for-profit schools. These students are in the most trouble.

The White House last year released a new College Scorecard, which includes data from more than 7,000 higher-ed institutions on average annual tuition, graduation rates and median salary 10 years after graduation. Rather than ranking the universities—an idea universities had criticized—the government chose to simply offer the Scorecard as a way to access relevant data.

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The Scorecard isn’t perfect. Graduation rates, for example, do not include students who transfer to another school and are often strongly determined by the types of students that choose to enroll. And the data on median income only includes students who received federal aid and must report their income annually. Several universities protested that the College Scorecard assesses colleges on how much money graduates earn rather than the formative experience an education can provide.

Nevertheless, these new sources of data are an important addition to the higher-ed policy conversation. Researchers can download the Scorecard’s data for their own use, so it’s a fair bet we’ll see more detailed analysis in the weeks and months to come.

Daniel Huizinga is a columnist for Opportunity Lives covering business and politics. Follow him on Twitter @HuizingaDaniel.

This article first appeared on Opportunity Lives.