Student Aid Policy Analysis Papers
Who Graduates with Excessive Student Loan Debt?
www.studentaidpolicy.com/excessive‐debt/
Mark Kantrowitz
President
MK Consulting, Inc.
December 14, 2015
Executive Summary
Student loan debt has been growing rapidly over the last decade. But, while milestones may be
impressive, what matters more is the growth in excessive student loan debt at graduation.
A borrower has excessive student loan debt when the borrower graduates with more debt than he or
she can afford to repay in a reasonable amount of time, such as within 10 years of graduation. This
paper defines excessive debt as occurring when the
borrower’s debt‐service‐to‐income ratio – the percentage
A borrower has excessive
of monthly gross income devoted to repaying student loan
student loan debt when 10% or
debt – is 10% or more under a standard 10‐year repayment
more of a borrower’s gross
plan.
income must be devoted to
This paper provides a rational justification for using the 10%
repaying the borrower’s
debt‐service‐to‐income ratio as a cap on affordable student
student loan debt, assuming a
loan debt. It derives the threshold by assuming that part of
10-year repayment term
the after‐tax increase in income for Bachelor’s degree
recipients (as compared with high school graduates) is
available to repay student loan debt, assuming a 10‐year repayment term. The 10% threshold
corresponds to using half of the additional net income to repay student loan debt. The paper also
derives a 15% debt‐service‐to‐income threshold as a “stretch limit” by assuming that three‐quarters of
the additional net income is available to repay student loan debt.
The 10% and 15% debt‐service‐to‐income thresholds are also consistent with the rule of thumb that
total student loan debt at graduation should be less than the borrower’s expected annual starting salary.
This paper presents several other new results concerning students graduating with excessive student
loan debt.

The percentage of Bachelor’s degree recipients graduating with excessive student loan debt has
been growing for the last three decades. But, the percentage of Bachelor’s degree recipients
graduating with student loan debt who graduate with excessive debt has remained at slightly
more than a quarter of Bachelor’s degree recipients who graduate with student loan debt for
the last two decades. This suggests that the growth in the percentage of Bachelor’s degree
recipients with excessive debt is driven by the overall growth in the percentage of students who
must borrow to pay for college.

Students who graduate with excessive student loan debt are more likely to delay major life‐cycle
events, such as buying a home, getting married and having children, than students who
graduate with affordable debt.

Students who graduate with excessive debt are more likely to take a job outside their field, to
work more than desired and to work more than one job. They are also significantly more likely
to say that their education debt influenced their employment plans.

Students who graduate with excessive debt are just as likely to own a car as students who
graduate with affordable debt, but are less likely to have a car payment of $350 or more. Thus,
graduating with excessive student loan debt can be the difference between owning a new car
and a used car.

Students who graduate with excessive debt are less likely to feel that their undergraduate
education was worth the financial cost, as of one year after graduation.
‐1‐
Growtth in Stud
dent Loaan Debt
Rapid growth in the am
mount of outsstanding stud
dent loan deb
bt has drawn the
t attention of news med
dia
“
loan problem.” Outstanding sttudent loan debt exceeded
d credit card debt
and the public to the “student
in 2010, auto
a
loans in 2011
2
and $1 trillion
t
in 201
12, now secon
nd only to hom
me mortgagee debt.
While thee growth in ou
utstanding stu
udent loan deebt is notewo
orthy, the imp
pact on individual borroweers
matters more.
m
This chaart, which is based
b
on dataa from the Naational Postseecondary Stud
dent Aid Stud
dy
(NPSAS), demonstrates
d
s the steady growth
g
in thee percentage of Bachelor’ss degree recip
pients who
graduate with student loan debt an
nd the average debt at graduation for th
hose who graaduate with debt.
d
Growth in SStudent Loan De
ebt at Grraduatio
on
for Baachelor'ss Degree
e Recipie
ents
Average Stud
dent Debt
% Graduating with Student Loan
ns
80%
$60,000
0
$50,000
0
$40,000
0
49.4%
% 70.2%
69.0%
66.5% 67.7%
65
5.4%
70%
2% 64.2%
62.2% 63.2
70.9%
60.3%
%
69.6%
58.4%
1% 68.3%
67.1
60%
% 65.9%
64.8%
63.7%
62.7%
61
1.2%
59.3%
50%
53
3.7%
40%
$30,000
0 45.5%
30%
$20,000
0
20%
$10,000
0
10%
2014‐15
2013‐14
2012‐13
2011‐12
2010‐11
2009‐10
2008 09
2008‐09
2007‐08
2006‐07
2005‐06
2004‐05
2002‐03
2003‐04
2001 02
2001‐02
2000‐01
1999‐00
1998‐99
1997‐98
1996‐97
1994‐95
1995‐96
1993‐94
0%
1992‐93
$0
0
But, the growth
g
in deb
bt at graduatio
on is not neceessarily a problem, if mostt borrowers can
c afford to repay
r
their loans. So, it is imp
portant to ask: How manyy students aree graduating with
w excessivee debt?
‐2‐
Defining Excessive Debt
Student loan debt is excessive when the borrower cannot afford to repay it in full within a reasonable
amount of time, such as within 10 years or less after graduation.
The standard repayment term for federal student loans is 10 years. Borrowers can reduce their monthly
loan payment by choosing a longer repayment term. For example, extended repayment and income‐
driven repayment plans can increase the repayment term to 20, 25 or even 30 years. But, increasing the
repayment term also increases the total amount paid over the life of the loan.
Borrowers who increase the repayment term will still be repaying their own student loans when their
children enroll in college. They will be less likely to have saved for their children’s college education and
they will be less willing to borrow to help them pay for college. Thus, the burden of repaying excessive
student loan debt will be severe enough to affect the next generation’s ability to pay for college.
Determining whether the student loan debt is affordable requires a comparison of debt with income,
not debt by itself. Six‐figure student loan debt might be excessive for a borrower with just a Bachelor’s
degree in a low‐paying liberal arts field, but not for a borrower who earns an advanced degree, such as
an M.D. in a lucrative specialty like oncology, cardiology or orthopedics. To determine whether the
student loan debt is affordable, the monthly loan payment must be compared with monthly income.
Many students pursue a college education in order to obtain a better‐paying job. Accordingly, it is
reasonable to require that the incremental increase in net income after taxes from obtaining a college
degree should be sufficient to repay the student loan debt. Moreover, one could argue that half of the
increase in take‐home pay should be available for repaying student loans and half for other priorities, so
that the college graduate derives an immediate financial benefit from earning a college degree.
Table 502.30 of the 2014 Digest of Education Statistics provides data on the median annual earnings of
full‐time, year‐round workers age 25 to 34 by educational attainment for selected years from 1995 to
2013.1 This data is based on the U.S. Census Bureau’s Current Population Survey (CPS). In 2013, the
median annual earnings for full‐time, year‐round workers with only a Bachelor’s degree in the decade
from age 25 to age 34 was $48,530, compared with $30,000 for workers with just a high‐school diploma
or GED. This yields an average $18,530 increase in annual gross income from obtaining a Bachelor’s
degree. Assuming a 25% federal income tax rate, 7.65% in FICA taxes and up to 9.8% in state and local
income taxes, this yields $10,655 after taxes, or 22.0% of gross income. Half of this figure is 11.0%,
setting a reasonable limit on the percentage of income available to repay student loan debt.
Table P‐24 of historical income tables for the Current Population Survey (CPS)2 provides similar data
concerning median earnings by educational attainment for full‐time, year‐round workers age 25 and
older.3 However, unlike table 502.30, this data is not limited to the decade from age 25 to 34.
Nevertheless, this income data yields a similar result, capping the percentage of income reasonably
available to repay student loan debt at 11.2% of gross earnings in 2013 and 2014 and around 10.2% in
the early 1990s.
1
http://nces.ed.gov/programs/digest/d14/tables/dt14_502.30.asp
https://www.census.gov/hhes/www/income/data/historical/people/
3
https://www.census.gov/hhes/www/income/data/historical/people/2014/p24.xls
2
‐3‐
This chart shows limits based on percentages of historical income data derived from Table 502.30.
Percentage of Income Available to Repay Student Loans, 1995‐2013
12.0%
10.0%
10.7%
9.8%
9.4%
10.2%
10.0%
2007
2008
9.1%
10.4%
9.6%
9.6%
9.6%
2009
2010
2011
11.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1995
2000
2003
2005
2012
2013
As this chart demonstrates, the debt‐service‐to‐income percentage has averaged about 10.0% for the
last two decades. Using a similar approach to base the stretch limit on three‐quarters of the increase in
net income after taxes would yield a percentage of gross income that averages around 15%.
Thus, student loan debt at graduation should be considered affordable if the monthly loan payments
assuming a 10‐year repayment term are less than 10% of gross monthly income. The student loan
payments will still be affordable, but more of a financial stretch for the borrower, if the payments are
less than 15% of gross monthly income.
To set this in context, this table shows a histogram of debt‐service‐to‐income ratios for Bachelor’s
degree recipients in 2007‐08 based on 2009 income, using the 2012 follow‐up to the 2007‐08
Baccalaureate & Beyond longitudinal study (BB12). The mode is at 7% and the median is at 8%.
Distribution of Monthly Loan Payment as Percent of Monthly Income
10
8
6
4
2
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
0
‐4‐
This table shows the percentage of Bachelor’s degree recipients graduating in 2007‐08 with excessive
student loan debt for various caps on the debt‐service‐to‐income ratio, based on BB12 data. Thus, the
10% threshold corresponds to about a quarter of Bachelor’s degree recipients graduating with excessive
student loan debt.
Cap on
Percent of
Debt‐Service‐to‐Income
Bachelor’s Degree Recipients
Ratio
Graduating with Excessive Debt
5%
49.3%
8%
33.7%
10%
27.2%
15%
16.2%
20%
10.0%
25%
6.6%
Note that data for the first year after graduation tends to represent a ceiling on the amount of student
loan debt and a floor on the amount of income, since student loan debt tends to decrease and income
tends to increase over the borrower’s career. So, the debt‐to‐income and debt‐service‐to‐income ratios
will tend to decrease over time.
This definition of excessive debt in terms of the debt‐service‐to‐income ratio represents a more direct
measure of whether students are graduating with affordable student loan debt than the cohort default
rate (CDR). The cohort default rate measures the percentage of students entering repayment during one
federal fiscal year who default by the end of a subsequent federal fiscal year. Defaulting on a student
loan is a potential consequence of excessive debt, but not the only possible consequence. Also, some
borrowers default on their student loans for reasons other than affordability of the debt. So, the cohort
default rate is, at best, an indirect measure of whether students are graduating with affordable student
loan debt. The CDR does not measure other non‐paying statuses, such as deferments, forbearances and
delinquencies. Moreover, borrowers who graduate with excessive debt might reduce the debt‐service‐
to‐income ratio by choosing alternate repayment plans that stretch out the repayment term instead of
defaulting. Also, the cohort default rate is prone to manipulation by colleges that encourage borrowers
to apply for deferments and forbearances, pushing the default outside the measurement window.
The derivation of a 10% to 15% cap on the debt‐service‐to‐income ratio is also more rational than the
flawed reasoning used to justify an 8% cap on the debt‐service‐to‐income ratio in the 2014 gainful
employment regulations.4 The regulations selectively cited papers that based an 8% cap on the
difference between mortgage underwriting standards for all debt and mortgage underwriting standards
for mortgage debt. In addition to arbitrarily overlooking similar approaches that justified different caps
on the debt‐service‐to‐income ratio, the regulations’ derivation of the student loan cap from mortgage
underwriting standards assumes that mortgage lenders know more about affordable student loan debt
than student loan experts. It also assumes that student loan debt is affordable only if the borrower is
able to afford to buy a home instead of renting an apartment.5
4
Federal Register 79(211):64890 ‐65103, October 31, 2014. See specifically the discussion that begins on page
64917. https://www.gpo.gov/fdsys/pkg/FR‐2014‐10‐31/pdf/2014‐25594.pdf
5
The Administrative Procedure Act requires federal agencies to provide a reasoned basis for justifying regulations,
but there is no requirement that the reasoned basis involve good reasoning.
‐5‐
Rule of
o Thumb
b: Total Debt
D
Lesss than Annual
A
In
ncome
The rule of
o thumb thatt total studen
nt loan debt at graduation should be lesss than the exxpected annu
ual
starting saalary corresponds to a perrcentage of grross monthly income within the range of 10% to 15%
%, as
shown byy this table. This
T table assu
umes a 10‐year repaymentt term. Accordingly, the rule of thumb is
consistent with the disstinction betw
ween affordab
ble and excesssive student loan debt.
In
nterest Rate
0.0%
1.0%
2.0%
3.0%
3.4%
4.0%
4.29%
Percentage
e of
Perccentage of
Gross Incom
me Interest Rate Grosss Income
10..0%
5.0%
12.7%
10..5%
6.0%
13.3%
11..0%
6.8%
13.8%
11..6%
7.0%
13.9%
11..8%
8.0%
14.6%
12..1%
8.5%
14.9%
12..3%
9.0%
15.2%
Percen
ntage of College
C
G
Graduate
es with Excessive
E
Debt
Using the 10% debt‐se
ervice‐to‐income ratio as a threshold on
n affordable vs.
v excessive debt,
d
it becom
mes
possible to calculate th
he percentagee of college students who graduate witth excessive student
s
loan debt.
d
This chartt shows how the
t percentagge of Bachelo
or’s degree reecipients who
o graduated with
w excessivee
student lo
oan debt has changed over the last four decades. Exxcessive studeent loan debt is based on the
t
10% cap on
o the debt‐service to inco
ome ratio, inccome the year after graduaation and a 10‐year repayment
term. Datta for 1993‐94
4, 2000‐01 an
nd 2007‐08 arre based on th
he Baccalaureeate and Beyond (B&B)
longitudin
nal studies. Data for 1976‐‐77, 1985‐86 and
a 1989‐90 are based on
n a similar series of studiess, the
Survey of Recent College Graduatess (RCG). This chart
c
shows an
a increasing trend in the percent of
Bachelor’s degree recipients who are graduatingg with excessiive student lo
oan debt.
Pe
ercent of Bachellor's Deggree Reccipients
who Grraduate with Exccessive Debt
D
16
6.0%
14.4%
14
4.0%
1
11.9%
12
2.0%
9
9.8%
10
0.0%
8
8.0%
8.3%
6.7
7%
6.5%
1976
6‐77
1985‐86
6
6.0%
4
4.0%
2
2.0%
0
0.0%
89‐90
198
‐6‐
19
993‐94
20
000‐01
2
2007‐08
This chartt uses the sam
me data to calculate the peercentage of Bachelor’s deegree recipien
nts with excessive
student lo
oan debt as a percentage of
o those graduating with student loan debt,
d
not all Bachelor’s
B
degree
recipientss. When those
e who graduaate with no deebt are omittted, slightly more
m
than a quarter of
Bachelor’s degree recipients who borrowed for their
t
educatio
on are graduaating with exccessive studeent
loan debt.
Pe
ercent of Bachelorr's Degree
e Recipients with
Stud
dent Loan
ns who Grraduate with
w Exce
essive Deb
bt
35.0%
%
2
28.9%
30.0%
%
25.0%
%
27.5%
27.2%
2000‐01
2007‐08
22.9%
%
20
0.0%
20.0%
%
14.3
3%
15.0%
%
10.0%
%
5.0%
%
0.0%
%
1976‐77
1985‐‐86
198
89‐90
19
993‐94
This demo
onstrates that a relatively constant percentage of sttudents who borrow
b
are grraduating witth
excessive debt. It suggests that the recent growtth in the perccentage of Bachelor’s degrree recipientss who
wth in the peercentage of students
s
who
o must borrow
w to
are graduating with exxcessive debt is due to grow
pay for co
ollege, due to a shift in thee burden of paaying for colleege from the federal and state
s
governm
ments
to families.
Overall, an average of 12.6% of monthly incomee is used to repay student loans
l
the year after graduation
for 2007‐0
08 Bachelor’ss degree recip
pients who grraduated with
h student loan
n debt, based
d on BB12 datta.
The averaage decreasess to 8.9% wheen students who
w graduated with no deb
bt are includeed.
Women are
a more likely to graduatee with excessiive debt than
n men (29.1% to 24.3%). Th
hey also havee a
higher aveerage debt‐se
ervice‐to‐inco
ome ratio (13.2% to 11.6%
%), mostly duee to women earning
e
lower
6
income th
han men after graduation, even when employed
e
in the
t same occupations.
Caucasian
n students are
e more likely to graduate with
w excessive debt (30.0%
%) than Black or African‐
American students (14
4.6%) or Hispaanic or Latino
o students (21
1.2%). This maay be due to a greater incrrease
in incomee for minority students who obtain colleege degrees, even though the average income is low
wer
than for Caucasian
C
students. It could also be duee to differencces in the balaance between
n student and
d
parent ed
ducation debtt.
6
Catherinee Hill and Chrisstianne Corbett, Graduating to
t a Pay Gap: The
T Earnings of
o Women and Men One Yearr after
College Gra
aduation, AAU
UW, 2012. http://www.aauw.org/research//graduating‐to‐‐a‐pay‐gap/
‐7‐
Students majoring in theology (64.7%), law and legal studies (43.1%), communications (36.2%),
agriculture (34.1%), education (33.9%), humanities (33.5%) and design (33.1%) are more likely to
graduate with excessive debt, presumably due to the lower income in these fields of study. Students
majoring in engineering (16.3%) and computer science (23.8%) are less likely to graduate with excessive
debt, presumably due to the higher income in these fields of study.
Students who borrowed private student loans are more likely to graduate with excessive student loan
debt (36.4% vs. 22.8%). This may be because it is more difficult for dependent students to borrow
excessively with federal student loans alone, given the low annual and cumulative loan limits on federal
student loans.
A college’s annual cost of attendance correlates with the percentage of students graduating with
excessive student loan debt, as shown in this table based on BB12 data. College costs are a key driver of
debt at graduation, so higher‐cost colleges are more likely to have more students graduating with
excessive student loan debt.
2007‐08 Annual
Percent Graduating
Cost of Attendance with Excessive Debt
Less than $10,000
22.2%
$10,000 to $19,999
24.7%
$20,000 to $29,999
29.5%
$30,000 to $39,999
34.6%
$40,000 or more
34.6%
The college affordability index7 correlates with excessive student loan debt. Students for whom the
college affordability index is 75% or more are more likely to graduate with excessive debt than students
for whom the college affordability index is less than 25% (32.7% vs. 24.8%).
Dependent students (as defined for federal student aid purposes) are more likely to graduate with
excessive debt than independent students (30.2% vs. 23.2%). This is largely because students who are
age 30 or older are much less likely to graduate with excessive student loan debt (16.4%), slightly more
than half the rate for younger students.
College graduates who work for the military (22.3%) or government (22.9%) are less likely to have
excessive student loan debt than graduates who work for a for‐profit company (27.6%), a non‐profit
organization (31.2%) or who are self‐employed (36.6%). Students who work in science, technology,
engineering and mathematics (STEM) occupations are much less likely to graduate with excessive debt
(14.8%) than students who work in non‐STEM occupations (28.2%).
7
The college affordability index is the ratio of the net price to total family income. Colleges that are more
affordable for a student have a lower college affordability index. The net price is the difference between the
annual cost of attendance and gift aid (grants, scholarships and other money that does not need to be earned or
repaid).
‐8‐
This chartt shows that high‐income
h
B
Bachelor’s
deegree recipien
nts are less likkely to have excessive
e
stud
dent
loan debt than low‐inccome Bachelo
or’s degree reecipients, baseed on BB12 data.
d
Percent with Excessivve Debt
P
by An
nnualized Salary
S
Perccentile, 20
009
45
5.0%
39
9.2%
40
0.0%
36.7%
35
5.0%
27.9%
30
0.0%
25
5.0%
19.3%
%
20
0.0%
15
5.0%
9
9.7%
10
0.0%
5
5.0%
0
0.0%
First Quintile Seccond Quintile
t
20%) (2
20% to 39%)
(Less than
Third Quintille
(40% to 59%
%)
Fourth Qu
uintile
(60% to 79%)
7
Fifth Quintile
(80% or more)
This chartt shows that Bachelor’s
B
deegree recipien
nts with higheer student loaan balances are more likelyy to
have exceessive studentt loan debt th
han Bachelor’’s degree reciipients with lo
ower studentt loan balancees,
based on BB12 data.
Percent wiith Excessive Debt
P
by Cumullative Loan
n Amount through 20
007‐08
70.0%
57.9%
60.0%
61.1%
%
4.9%
54
50.0%
%
35.9%
40.0%
38.5%
36.8%
27..9%
30.0%
20.6%
20.0%
10.0%
10.0%
0.0%
Less than $10,000 to $20,0
000 to $30,000
0 to $40,000 to
o $50,000 to $6
60,000 to $70,0
000 to $80,000
0 or
99 $49,999 $59,999 $69,999
$
$79
9,999
moree
$10,000 $19,999 $29,999 $39,99
hooled studen
nts are more likely to grad
duate with exccessive debt (48.3%) than students with a
Home‐sch
high school diploma (2
27.1%) or GED
D (25.9%).
Students who
w receive private scholaarships are more
m
likely to graduate with excessive debt
d
(31.2% vss.
26.8%), peerhaps becau
use scholarship recipients are
a more likeely to enroll att higher‐cost colleges.
‐9‐
High school GPA, undergraduate GPA, SAT test scores, disability status, participation in study abroad,
status as a transfer student, institutional selectivity, in‐state vs. out‐of‐state enrollment and Federal Pell
Grant recipient status do not seem to have a significant impact on whether the student graduates with
excessive debt or not.
Consequences of Graduating with Excessive Debt
Students who graduate with excessive student loan debt are more likely to have borrowed private
student loans (42.8% vs. 27.3%), based on BB12 data. Dependent undergraduate students cannot
graduate with excessive debt using only federal student loans.
Students who graduate with excessive student loan debt are more likely to feel that their undergraduate
education was not worth the financial cost as of the year after graduation (35.8% vs. 22.2%) and more
likely to say that the debt influenced their employment plans (64.3% vs. 41.6%), based on BB12 data.
Students who graduate with excessive debt are less likely to have a car payment of $350 or more as of
four years after graduation (44.9% vs. 54.1%) and to be paying a mortgage (34.1% vs. 42.5%), based on
BB12 data. But, borrowers appear to be equally likely to have a car payment. Rather, excessive debt
seems to manifest itself in a lower car payment and a lower monthly rent or mortgage payment, so that
the student loan payment is a greater percentage of overall household debt payments. Curiously,
students who graduate from for‐profit colleges tend to have higher car payments and higher monthly
rent or mortgage payments, despite their higher student loan debt.
These are some of the other reported consequences of graduating with excessive debt, based on BB12
data:







Delayed buying a home (49.8% vs. 38.1%)
Delayed getting married (27.1% vs. 20.9%)
Delayed having children (36.4% vs. 27.9%)
Took a job instead of enrolling in further postsecondary education (43.3% vs. 33.0%)
Took a job outside of field (50.8% vs. 36.4%)
Work more than desired (47.8% vs. 36.4%)
Worked more than one job (33.0% vs. 23.4%)
Potential Compliance with Gainful Employment
The average debt‐service‐to‐income ratio is 15.2% for private non‐profit colleges, 12.6% for private for‐
profit colleges and 11.0% for public colleges, based on BB12 data.
Using the 8% debt‐service‐to‐income ratio threshold used in the gainful employment regulations, 40.0%
of Bachelor’s degree recipients at private non‐profit colleges would have excessive debt, compared with
33.8% of Bachelor’s degree recipients at private for‐profit colleges and 30.0% of Bachelor’s degree
recipients at public colleges, based on BB12 data. This suggests that private non‐profit colleges would
have more problems complying with the gainful employment regulations than private for‐profit colleges,
if the gainful employment regulations were applied to Bachelor’s degree recipients at private non‐profit
colleges. Most Bachelor’s degree granting institutions would have problems complying with the gainful
employment regulations even if the threshold for affordable debt were set at 15%.
‐ 10 ‐
Correllation of Excessivve Debt with
w Debtt and Inccome
Previous studies
s
by oth
her researcheers have repo
orted that borrrowers with lower debt leevels are morre
likely to default
d
than borrowers
b
witth higher debt levels. The data
d
concerning excessivee debt at
graduatio
on presented in this reportt is not consistent with theese previous studies.
s
This suggests
s
that
financial stress
s
– the faailure to keep
p debt in syncc with incomee – does not explain
e
the reesults reporteed by
the previo
ous studies.
A previous study by the author of th
his paper dem
monstrates th
hat default rattes increase with
w increasees in
uggesting thaat graduating with excessivve debt can be
b a cause of
the debt‐sservice‐to‐inccome ratio, su
student lo
oan default.8 This chart sho
ows that the debt‐service‐‐to‐income raatio correlates with the
percentagge of borrowe
ers in a deferment or forbeearance, an in
ndicator of financial stresss.9
Perccent in Defferment/Fo
orbearance
by Deb
bt‐Service‐‐to‐Income
e Ratio, 20
009
2
20.0%
17.6%
18.0%
16.0%
14.0%
14.2%
15.0%
15.7%
%
12.6%
1
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
5% or more
8 or more
8%
10% or moree
8
15% or more
m
20% or more
Mark Kan
ntrowitz, Relatiionship of Defa
ault Rates to Debt
D
and Incom
me, August 17, 2010.
www.finaid
d.org/educators/20100817affordabilitymeasures.pdf
9
Defermen
nts and forbeaarances are tem
mporary suspensions of the obligation
o
to make
m
paymentss on a student loan.
Interest may continue to
o accrue duringg a deferment or
o forbearancee.
‐ 11 ‐
This chartt shows that the
t debt‐servvice‐to‐income ratio correlates with deffault rates.
Percent in
n Default in
n 2012
by 200
09 Debt‐Se
ervice‐to‐Income Ratio
3
3.5%
3
3.1%
3
3.0%
2.8%
2.6%
2
2.5%
3
3.2%
2..5%
2.2
2%
2
2.0%
1.5%
1.0%
0
0.5%
0
0.0%
5% or more
8% orr more 10% or
o more 15% o
or more 20% or
o more 25% or more
This chartt shows that higher
h
cumulaative undergrraduate debt through 2007‐08 correlattes with increased
percent in
n default in 20
012, based on
n BB12 data.
Percent in
n Default in 2012
by Cumulativve Undergrraduate De
ebt througgh 2007‐08
8
4
4.7%
5
5.0%
4
4.5%
4
4.0%
3.6%
3
3.5%
$30,,000 to
$39
9,999
$40,,000 to
$49,999
3
3.5%
3
3.0%
2
2.5%
2
2.0%
1.5%
1.9%
2..0%
$10,0
000 to
$19
9,999
$20,0
000 to
$29
9,999
1.1
1%
1.0%
0
0.5%
0
0.0%
Less than
$10,,000
‐ 12 ‐
$50
0,000 to
$7
74,999
This chartt shows that the
t percentagge of Bachelo
or’s degree recipients with excessive deebt increases with
increasingg debt, based on BB12 datta.
Percent with Excessivve Debt
P
by Cumulative Und
dergraduatte Debt, 20
007‐08
70
0.0%
62.5%
66.0%
60
0.0%
50
0.0%
%
43.9%
36.8%
40
0.0%
35..6%
26.2%
30
0.0%
20.5%
20
0.0%
11.4%
%
10
0.0%
0
0.0%
Less th
han $10,000 to
o $20,000 to $3
30,000 to $40,0
000 to $50,000 to $75,000 to $100,000
$10,00
00 $19,999 $29,999 $39,999
$
$49,,999 $74,999 $99,999 or more
This chartt shows that the
t percentagge of Bachelo
or’s degree recipients with excessive deebt decreasess with
increasingg income, bassed on BB12 data.
d
Pe
ercent witth Excessive Debt
by Annualizzed Salaryy in 2009
9
45
5.0%
40
0.0%
38.0%
35
5.0%
30
0.0%
25.2%
%
25
5.0%
20
0.0%
15
5.0%
10.4%
10
0.0%
5
5.0%
1.3%
0
0.0%
t
$25,000
Less than
$25,000 to $49,999
$
$50,000 to $74,999
9 $75,000 to
o $99,999
‐ 13 ‐
This chartt shows that Bachelor’s
B
deegree recipien
nts with higheer annualized salaries havee lower debt‐‐
service‐to
o‐income ratio
os, based on BB12 data.
Average
e Debt‐Se
ervice‐to‐‐Income Ratio
R
by Annualizzed Salaryy in 2009
9
30
0.0%
23.5%
25
5.0%
20
0.0%
15
5.0%
9.8%
10
0.0%
6.3%
4.1%
5
5.0%
0
0.0%
Less than
t
$25,000
$
$50,000 to $74,999
9 $75,000 to
o $99,999
$25,000 to $49,999
This chartt shows that Bachelor’s
B
deegree recipien
nts with higheer cumulativee undergraduaate debt havee
higher debt‐service‐to‐income ratio
os, based on BB12
B
data.
Average
e Debt‐Se
ervice‐to‐‐Income Ratio
R
byy Cumulattive Unde
ergraduate Debt, 2007‐08
40
0.0%
35.2%
35
5.0%
30
0.0%
27.3%
25
5.0%
18..2%
20
0.0%
15
5.0%
10
0.0%
10.3%
12.7%
%
20.0%
14.3%
7.6%
%
5
5.0%
0
0.0%
Less th
han $10,000 to
o $20,000 to $3
30,000 to $40,0
000 to $50,000 to $75,000 to $100,000
$10,00
00 $19,999 $29,999 $39,999
$
$49,,999 $74,999 $99,999 or more
‐ 14 ‐
This chart shows that the distribution of debt is similar across income strata, so it is unlikely for
borrowers with low debt to also have much lower income, thereby, yielding higher debt‐service‐to‐
income ratios. So, even if there is a minimum income threshold required for basic living expenses, it is
unlikely to cause differences in ability to repay student loan debt for borrowers with low cumulative
undergraduate debt.
Distribution of Cumulative Undergraduate Debt
by Annualized Salary in 2009
35.0%
Less than $25,000
30.0%
$25,000 to $49,999
25.0%
$50,000 to $74,999
20.0%
15.0%
$75,000 to $99,999
10.0%
$100,000 or more
5.0%
0.0%
Less than $10,000 to $20,000 to $30,000 to $40,000 to $50,000 to
$10,000
$19,999
$29,999
$39,999
$49,999
$59,999
Cumulative Undergraduate Debt
This chart is similar, but shows the distribution of annualized salary in 2009 by cumulative
undergraduate debt. It shows that low‐income graduates aren’t any more or less likely to have lower
cumulative undergraduate debt.
Distribution of Annualized Salary in 2009
by Cumulative Undergraduate Debt
60.0%
Less than $10,000
50.0%
$10,000 to $19,999
40.0%
$20,000 to $29,999
30.0%
$30,000 to $39,999
$40,000 to $49,999
20.0%
$50,000 to $59,999
10.0%
0.0%
Less than
$25,000
$25,000 to
$49,999
$50,000 to
$74,999
$75,000 to
$99,999
$100,000 or
more
Annualized Salary in 2009
Perhaps, the results found in other studies depend more on college completion than the amount of
student loan debt. After all, students who drop out of college tend to have less student loan debt than
‐ 15 ‐
students who graduate because they are enrolled for fewer payment periods. Thus, the amount of debt
may be a dependent variable and not an independent variable, influenced by college completion as a
confounding factor.
Recommendations
It is increasingly important to understand the consequences of excessive student loan debt because of
the increasing prevalence of student loan debt.
This paper discusses excessive student loan debt by Bachelor’s degree recipients only, due to the
limitations of available data. It does not report on excessive debt by recipients of other degrees, such as
Associate’s degrees, Certificates and more advanced degrees. It also does not report on excessive debt
owed by students who drop out of college. It does not report on other reasons why students might fail
to repay their student loans, such as dissatisfaction with the quality of their education.
Recommendation: The U.S. Department of Education should initiate a study of the
consequences of excessive student loan debt. This study can be implemented by tracking
outcomes for all degree levels and for non‐completers in a manner similar to that of the
Baccalaureate & Beyond (B&B) longitudinal study, namely as a follow‐up to a subset of
participants in the quadrennial National Postsecondary Student Aid Study (NPSAS). Congress
should provide sufficient funding for this study to ensure that it occurs. Without funding, there
is no guarantee that this study will be implemented, even if mandated by Congress.
Although the 2009 follow‐up to the 2003‐04 Beginning Postsecondary Students longitudinal study
(BPS:04/09) may be used to calculate the percentage of college graduates with Associate’s degrees and
Certificates who have excessive debt, the data is not comparable with the data used in this paper from
the Baccalaureate & Beyond (B&B) study for Bachelor’s degree recipients. The B&B study provides
income data one year after degree attainment. The BPS study provides income data income data in 2009
for cumulative degree attainment during the prior six years. Even if one restricts the degree attainment
to students who received a degree in 2007‐08, the BPS study still involves an additional restriction to
students who first enrolled in 2003‐04. The BPS study also does not address whether graduate and
professional school students are graduating with excessive student loan debt. Thus, the data in this table
is at best suggestive.
BPS:04/09
Percent of
Cumulative Persistence and Degree Percent with
Borrowers with
Attainment as of 2008‐09
Excessive Debt Excessive Debt
Attained Bachelor’s Degree
15.6%
24.4%
Attained Associate’s Degree
5.2%
8.9%
Attained Certificate
2.8%
4.7%
No Degree, Still Enrolled
2.4%
5.3%
No Degree, Left without Return
4.5%
9.5%
Colleges often refer to student loans as a form of financial aid, arguing that student loans make college
more affordable. Student loans delay the repayment obligation, but do not reduce or eliminate it. But,
despite widespread claims that student loans make college more affordable, few, if any, colleges track
whether their students are graduating with affordable debt. Monitoring long‐term trends is necessary
for anticipating and identifying problems when they occur. If too many students are graduating with
‐ 16 ‐
excessive debt, it can affect the college’s reputation. It can also have an impact on charitable
contributions to the college. Increasing awareness is the first step in exercising restraint.
Recommendation: Each college and university should annually track the percentage of students
graduating with excessive debt. The data should be disaggregated by degree level.
Recommendation: Alternately, the U.S. Department of Education could track the percentage of
students graduating with excessive debt for each college and university. This will require
tracking of private student loans in addition to federal student loans. It will also require an
approach that protects the privacy of individual student data, especially data concerning
income. Perhaps, it could be implemented in a manner similar to the one used for the gainful
employment regulations.
Recommendation: Colleges and universities should include a discussion of excessive debt and
the consequences of borrowing too much in their loan counseling programs. Students who are
predicted to graduate with excessive debt based on borrowing patterns and academic major
should be targeted for more aggressive loan counseling and financial literacy training.
Recommendation: Financial aid award letters should be standardized to clarify distinctions
between loans and grants. Increasing awareness of debt is the first step toward exercising
restraint. The financial aid award letters should include an “excessive debt alert” for students
who are predicted to graduate with excessive debt based on past borrowing patterns.
‐ 17 ‐