Although the education debt level has risen, and borrowers are feeling more burdened by their debt, one significant finding of this study is that a consistent majority of students who borrow to pay for their higher education believe they could not have gone to college without student loans. Over 70% continue to agree that student loans were very or extremely important in allowing them access to education after high school. (The earlier percentages of students who gave this response are 76% in 1997, 71% in 1991 and 67% in 1987.)
The perception of access offered by student loans is further amplified by the 58% who said student loans were very or extremely important in allowing them to attend the college of their choice; and, of the students who attended graduate school, 72% said student loans were very or extremely important in allowing them to pursue graduate studies.
In addition to the benefit of access, respondents report significantly reduced negative impact of student debt on their educational decisions. Among those borrowers who left school without completing a degree, only 29% reported that loans were a very or extremely important factor in their decision compared to the 50% who gave this response in 1997. Forty-two percent of those who did not go on to graduate school said their student loans had a major influence on their decision not to go to graduate school, but this is a much lower percentage than the 69% who gave this response five years ago.
The effect of student loans on career plans remains small. Only 17% of borrowers said student loans had a significant impact on their career plans. Fifty-nine percent said student loans were worth incurring because of the career opportunities provided.
Seventy percent said student loans were worth incurring for the personal growth provided. However, only 59% agreed that the benefits of incurring student loans are worth it overall, while 26% gave a neutral response to this question. Compared to all previous surveys, this is the lowest percentage to respond positively to this question. (The earlier percentages of students who gave this response are 66% in 1997, 74% in 1991 and 68% in 1987.)
Undergraduate student loan debt has increased significantly since 1997. The average undergraduate debt is $18,900, up 66% from $11,400. The median undergraduate debt rose 74% to $16,500 from $9,500. Those who attended private four-year colleges borrowed most (average $21,200/median $18,400), followed by those who attended public four-year colleges (average $17,100/median $16,200), next were those who attended vocational/technical school (average $15,000/median $11,900), and those borrowing the least attended public two-year institutions (average $8,700/median $7,700).
The gap in education debt levels between undergraduate students attending four-year private institutions and those attending four-year public institutions is narrowing. Although education debt for both groups has increased, students attending four-year public institutions assumed increased debt at a faster rate than students attending four-year private institutions. Since 1997, the growth in average debt for undergraduates attending public institutions is 57% compared to 38% for those attending private institutions. The growth in median debt for undergraduates attending public institutions is 67%, vs. 32% for those attending private institutions. The average debt of undergraduates attending four-year public institutions is now 84% of the average amount owed by those attending private institutions, whereas five years ago it was only 71%. The median debt of those attending four-year public institutions has grown to 75% of that owed by those attending private institutions, from 61% five years ago.
Alternative or private education loans have become a growing source of funds for students over the last several years and the current usage rate is probably not fully reflected in our study. Only 5% of our respondents reported using alternative education loans in addition to other sources of financing for undergraduate study. However, those with alternative loans show a much higher average education debt than those with only federal loans. For those who used alternative loans and did not go on to graduate school, 23% report accumulating more than $40,000 in total debt, compared to 5% of those who used only federal loans.
The percentage who reported using credit cards for part of their cost of undergraduate education has not increased from the 27% reported 5 years ago. However, those who used credit cards to finance part of their undergraduate education report a higher average credit card amount and a higher student loan debt amount than others. Those who used credit cards to pay for part of their education reported a median credit card balance of $3,400 at the time they left school compared to a median balance of $1,600 for all students with a credit card. Those who used credit cards to pay for part of their education had average undergraduate education loan debt of $21,200, almost 20% higher than average undergraduate education loan debt of $17,700 for those who did not rely on credit cards.
Students attending graduate school borrow, on average, an additional $31,700 beyond their undergraduate borrowing, an increase of 51% since 1997. The median debt level for graduate school borrowing is $23,700, an increase of 72% since 1997. Those borrowing for professional study, particularly law and medicine, drive up the average graduate level of borrowing. Law and medical student borrowers report an average accumulated debt from all years (undergraduate and graduate study) of $91,700 while the average combined debt for all graduate students is $45,900.
The increase in education debt monthly payments is less than the increase in debt levels. This is particularly important since income levels have not increased at the same rate as debt levels. In 2002, the average monthly payment on undergraduate debt is $182, vs. $161 in 1997. This 13% increase in monthly payments is much lower than the 66% increase in undergraduate education debt. The average combined (all education debt) monthly payment for all borrowers increased by 32% to $261 but is still lower than the 48% increase in average education debt.
Students appear to be managing their monthly payments because of current low interest rates and because of participation in non-standard payment plans. Thirty-one percent of respondents are on alternate (graduated, income-sensitive, extended or consolidated) payment plans, far more than the 17% on alternate plans in 1997. In 2002, the repayment interest rate on Stafford Loans was 4.06% (after July 1) and 5.99% (before July 1) vs. the average 1997 rates of 8.26%.
Managing monthly payments is critical to managing stressful feelings about total debt. Regardless of the actual education debt amount, negative feelings about education debt 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%. About one third of the borrowers have payment to income ratios of 12% or higher.
Students who said they knew how much they were borrowing as they borrowed, and who said they received counseling about repayment at the time they left school reported feeling less burdened by their education loans than less well-informed borrowers.
An increased number of borrowers feel more burdened by their education debt, with about a quarter of the borrowers perceiving themselves as having significant problems. 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. However, compared to previous surveys, the same low percentage of borrowers—about 15%—say the benefits are just not worth the difficulty of making payments.
For the first time, we are seeing a difference in perception of burden between low-income student borrowers and others. Students who came from low-income families (defined as Pell Grant recipients) report feeling more burdened by their debt than non-Pell recipients, when controlling for all other factors. This is a change from previous studies when there was no significant difference in attitudes between low-income and non-Pell recipients.
African-American borrowers express greater perception of burden, even with lower debt-to-income ratios, and less satisfaction that the benefits of borrowing were worth it.
Those who have been in repayment at least three years experience lower education debt payment-to-income ratios as their income increases over time. Surprisingly, they feel more burdened than those who have been repaying less than three years. Objectively the burden is decreasing, and education debt payment constitutes a relatively small portion of the total debt payments respondents are making. But factors such as higher consumption levels, increased family obligations, and making more and more monthly payments over time may be contributing to a feeling of difficulty.
In addition to assessing perceptions of burden, the study looks at patterns of behavior to measure impact of burden. For the first time in fifteen years, the probability of owning a home decreases by a small amount as debt levels increase. Family structure, age and income remain the most important determinants of home ownership, but an additional $5000 of debt reduces the probability of owning a home by about 1%. Debt levels do not affect the probability that a borrower will borrow to buy a car.
Borrowing to finance higher education is a social norm, considered to be an investment in the borrower's future. A significant majority of borrowers credit the availability of student loans with a major role in assuring educational opportunity and 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 between one quarter to one half feel burdened by their debt.
The 2002 National Student Loan Survey suggests an increased need to monitor borrowing and repayment patterns, as well as borrowing levels, especially among the groups identified in the report as most likely to feel burdened 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. Special attention must be paid to borrowers who didn't earn a degree, those from low-income families, non-white borrowers, older borrowers, and those with anticipated future earnings that will require greater than twelve percent debt-to-income monthly payments.
Copyright 2003 Nellie Mae Corporation
Download the full results of the 2002 National Student Loan Survey report (PDF, 752KB).