Where the Debt Comes From
by Daniel Luzer
HIgh debt levels are a common feature of public policy discussions about college, both here and elsewhere. We often associate debt with tuition, but what’s really going on here?
It’s hard to tell because so much of the college tuition discussion is rather complicated. This is because it’s not really clear what the trends really are in how much people actually pay from year to year. There’s sticker price, which is huge and rises every year. Then there’s “financial aid,” which includes both grants and loans. Some elite colleges post gigantically high sticker prices, and then make sure no one graduates with loans. Some other private schools end up saddling virtually all students with gigantic loans.
How do all of these polices impact each other, and what’s the relationship between tuition, financial aid policy, and real student debt? James Monks of the University of Richmond recently performed a study to see how this works out.
The results are interesting. As Monks explains:
While the cost of attendance does play a statistically significant role in determining student debt levels at private institutions, admissions and financial aid policies, graduation rates, and the mix of majors across students are also significant and important in determining student debt levels. Specifically, whether an institution is need-blind in admitting its students and/or meets the full demonstrated need of all of its students can increase average student debt upon graduation by as much as 30 percent.
Monks discovered that colleges that pledge to meet all students’ financial needs have graduates with lower debt than those who don’t pledge to meet their need. Graduates of colleges with no loans policies have 47 percent lower debt levels than colleges (most of them) without that policy.
These revelations aren’t much of a surprise, of course, but what’s also interesting is that he discovered that, across institutions, it was policies like these that had more impact on debt than other thinks that might seem to matter more.
In public colleges, for instance, Monks found that the sticker price didn’t have much impact on debt levels (colleges with higher list prices don’t have graduates with significantly higher debt levels than those with lower list prices).
He also indicates that it turns out that average private college graduates don’t have higher debt than average public college graduates,
Things that do lead to (or, well, are statistically correlated to) higher debt levels include lower SAT scores and more students who graduate with “practical” majors; those connected to fields where students might expect to earn more money.