—by Marie O'Malley, vice president marketing, Nellie Mae
The issue of student loan debt—borrowing levels and the impact of loan repayment—has been on the public policy agenda for more than two decades. Nellie Mae's effort to shed light on this issue by analyzing the behaviors and attitudes of borrowers in repayment began in 1987. The fourth in a series of surveys was recently completed, the 2002 National Student Loan Survey (NASLS), and the results published in February 2003.
The benefits of higher education, both personal and economic for the recipient, are readily acknowledged by most Americans, and the decision to attend college is generally viewed as a wise one. However, higher education is expensive and the cost has to be covered, either by the individual, by external entities or by some combination of both. For students who haven't saved for the full cost of education, and whose parents haven't saved, and for those who don't earn enough in scholarships, grant aid or institutional discounts, their access to education is through credit.
Students are given education loans today on the assumption that their future earnings will allow them to repay the loans after they've finished school. It behooves all of us to ensure that students aren't over-borrowing, hence risking their ability to repay their debt and jeopardizing an economic cycle that allows the next generation to borrow, giving them the access and opportunity provided by student loans.
According to NASLS, students appreciate the opportunity afforded them through loans.
- Over 70% of borrowers agree that student loans were very or extremely important in allowing them access to education after high school.
- Additionally, 58% said student loans were very or extremely important in allowing them to attend the college of their choice.
- Of the students who attended graduate school, 72% said student loans were very or extremely important in allowing them to pursue graduate studies.
Borrowing to finance higher education is a social norm, considered to be an investment in the borrower's future. A significant majority of borrowers, 59%, believe the cost of the student loan investment was worth the benefits received. Almost half of the respondents have no complaints about their loans, but the other half feels some level of burden.
Those who say they feel burdened by their education debt increased to 55% from 50% in 1997. Fifty-four percent also say they would borrow less if they had to do it over again, up from 45% in 1997.
Groups that are especially vulnerable to feeling burdened by their education debt include:
- borrowers who didn't earn a degree;
- those from low-income families (defined as Pell recipients);
- non-white borrowers;
- older borrowers;
- those who say they weren't aware of how much they were borrowing at the time they borrowed; and
- those who did not participate in exit counseling.
Not surprisingly, negative feelings about education debt—regardless of the actual debt amount—increase as the percentage of gross monthly income spent on education loan payments increases. Borrowers who require less than 7% of their gross monthly income to pay their education debt generally do not feel difficulty. We see perception of difficulty somewhat amplified for those with education debt-to-income ratios of 7%–11%. The feelings of burden increase for those with education debt-to-income ratios of 12%–16%. Degree of perceived difficulty is particularly high when debt-to-income ratios exceed a threshold of 17%. The median debt-to-income ratio for all borrowers is 8%. Just under one fifth of the borrowers have payment to income ratios greater than 17%.
The 2002 National Student Loan Survey suggests an increased need to monitor borrowing and repayment patterns, as well as monitor borrowing levels in relation to anticipated future earnings. Special attention should be paid to the groups identified in the report as more vulnerable to feelings of burden caused by education debt. Helping students to recognize how much they are borrowing, assisting them with financial management strategies, and providing them with realistic long-term repayment scenarios for their accumulated debt are all important to ensuring the success of the borrower in repayment and the continuing health of the student loan program.