Average student loan debt increases – again

Student debt: Bernie Sanders ranted about it, other politicians talk about it, and a new study by the Institute for College Access and Success (TICAS) confirms that newly minted college graduates in the class of 2015 left school with a record high average student loan burden of $30,100.

Currently, student loan debt in the United States totals nearly $1.4 trillion. For the seven-in-ten students who must borrow to go to school, debt payments can mean anything from more roommates to indefinitely postponing life decisions such as starting a family or buying a home.

Experts say that while the numbers revealed in the study are significant, the actual effect that borrowing has on individuals is more important. The study's authors share a range of recommendations: everything from reducing the need to borrow, to simplifying repayment programs, to increasing colleges' accountability, to state and federal government agencies to help reduce the burden on students.

“This average is higher than ever before, and it represents a huge range of average debt loads at different schools, from $3,000 to more than $50,000,” says Lauren Asher, the president of the Institute for College Access and Success, in a phone interview with The Christian Science Monitor.

“These growing numbers signify that in the United States, more and more people are having to borrow to get a college education.”

The Institute for College Access and Success used the most recent figures provided by all public and nonprofit four-year colleges that reported student loan data. More than half of the nation’s schools in that category made the decision to report that information.

The study’s authors found that average debt loads for the class of 2015 varied from state to state, from $18,873 in Utah to $36,101 in New Hampshire.

Since many schools did not report information, and this particular study only examined debt loads for students who graduated with a four-year degree, the actual average student loan burden could well be higher. Financial aid expert Mark Kantrowitz tells the Monitor that his figures show the average debt burden per student to be around $37,000.

There is some argument over whether or not growing student debt loads actually have an impact on economic participation in areas such as home ownership and other purchases.

While the National Association of Realtors published a study this summer that found that student loan burdens delay and depress home purchasing, Mr. Kantrowitz says that the “domino effect” of student loans is a myth.

“People who graduate with too much debt tend to delay life cycle events,” he says, but the decline in first mortgage rates are due to “tighter underwriting criteria,” not an entire generation abstaining from home purchasing entirely.

However, Natalia Abrams, the executive director of student debt and loan policy nonprofit Student Debt Crisis, tells the Monitor that every financial decision is impacted by an individual’s student loan burden, preventing new graduates from buying vehicles and other purchases, large and small.

Yet despite the burden that loans represent, student debt experts are some of the first to point out that obtaining a college degree is generally a wise financial decision for individuals who wish to obtain better-paying jobs with higher entry requirements.

“It’s a big problem that people don’t know what they’re getting into,” says Urban Institute senior fellow Matthew Chingos. His own research shows that, of those borrowers receiving federal loans, approximately 28 percent were not aware that they were receiving those loans, he says. 

“The focus should not be so much on the numbers,” says Dr. Chingos, “but on the real problems people are facing.”

A borrower with just $5,000 in debt but no college degree, for example, could be in far worse trouble than a new engineer with tens of thousands of dollars in loans and a stable job.

Instead, experts say, the focus should be on helping borrowers make the right decisions, and ensuring that federal aid meets students' need, so that they are not forced to take on private loans with higher interest rates.

“One of the biggest drivers of this overall trend is that states are spending less on education,” Ms. Asher tells the Monitor. Driving college costs down and encouraging states to allot aid based on need, not merit, can help reduce loan burdens for the roughly three-quarters of undergraduates who attend state colleges.

Accountability also plays a role. Some states require schools to inform students of their loan balance, or in California’s case, tell students when they are eligible for federal loans that they have not yet applied for.

Improving the way that students make college and financial decisions by providing more information can also help.

One major problem, however, is federal loan limitations mean that undergraduate students can only take on $31,000 in federal loans, which generally have far lower interest rates and better possible repayment options than private loans.

As Asher says, “The average loan burden is getting close to the federal maximum for borrowing.”

Ms. Abrams agrees, telling the Monitor that many people must take a combination of federal and private loans because federal loans often don’t cover the cost of schooling. As a result, the federal government will play a major role in whether the student debt situation in the United States gets better or worse.

Nevertheless, experts like Asher and Abrams say that, from this election cycle to the continued publication of reports like this week’s study, legislative attention is growing. And that’s a good thing, Abrams says.

“I’ve seen legislators on both sides of the aisle talking about this problem, and that gives me hope. I think we might be heading in the right legislative direction.”