Why Do Students Borrow So Much? Part 2

Income Levels of Students Who Received Loans:

Much of the recent growth in federal student loan borrowing has been through the Stafford Unsubsidized Loan program. From its inception in 1993-1994 to 1999-2000, the amount of unsubsidized loans more than tripled-rising from $4.1 billion to $12.9 billion. In the same period, amounts of subsidized loans grew 40 percent, from about $12.5 billion to $17.5 billion (U.S. Department of Education 1999 and 2000a).

Because students may receive unsubsidized loans regardless of their families' incomes, a large share of the added loan dollars appear to have gone to students from middle- and upper-income families. The percentage of undergraduate students from families with income between $60,000 and $79,999 who received federal student loans grew from 56 percent in 1992-93 to 67 percent in 1995- 96. At the same time, the proportion of borrowers from families with income of less than $20,000 who received federal loans dropped from 52 percent to 49 percent (U.S. Department of Education 2000b and 2000c). Middle- and upper-income families who might not have qualified for need-based Stafford Subsidized Loans became eligible to receive Stafford Unsubsidized Loans. While the unsubsidized program allowed more middle- and upper-income students to receive loans, it is possible that a number of these students were borrowing more than they really needed to attend postsecondary education (King 1999, Redd 1994 and 1999). 

The Effects of Loans on Borrowers who Receive Degrees

However, the growth in indebtedness has to be put into a larger context. For some students, borrowing could be a wise investment because it allows them to finish their educational programs and increases the odds of achieving success in employment and other areas of life. For others, borrowing might lead to financial burdens. It is commonly suggested that loan repayment obligations may cause some loan recipients to delay home and car purchases, marriage, child rearing, and other aspects of life (Baum and Saunders 1998).

Recent information (Baum and Saunders 1998, Choy 2000, Davis 2000) shows that despite the recent increases in borrowing, loan repayment obligations represent just a small portion of most borrowers' after-college salaries. For borrowers who received bachelor's degrees in engineering from four-year public colleges and universities in 1999, monthly loan repayments accounted for just 4.4 percent of average starting salaries. For computer science majors, loan repayments represented only 4.5 percent of average wages, and among education majors, loan repayments equaled only 7 percent of starting salaries. These findings are not meant to suggest that all borrowers were able to repay their loans without hardship. Students from medical, dental, and other professional degree programs typically face debts of $100,000 or more (National Association of Student Financial Aid Administrators 1999). Another study (Davis 2000) shows that borrowers who do not finish their educational programs have a much more difficult time in repaying their loans. Students who leave higher education without obtaining a bachelor's degree often have lower incomes than degree recipients, which makes it much harder for non- completers to repay their loans.