In the Dark on Student Loan Borrowing

As we wrote yesterday, newly released data by the U.S. Department of Education’s National Center for Education Statistics provides disturbing news about the growth of private student loan borrowing, particularly at the nation’s for-profit colleges and trade schools.

But the data’s release also brings to light a more basic problem: the government’s inability to collect and disseminate accurate and timely information about student debt. This is a major failing, as it leaves public officials without the vital information they need to make sound student aid policy.

As it stands now, the most comprehensive information available comes from the National Postsecondary Student Aid Study (NPSAS), a nationally representative survey that aims to determine how students and their families pay for college. Unfortunately, NCES conducts this survey only every four years. As a result, the information it provides becomes dated quickly.

Up until the release of the latest edition of the NPSAS survey last week, student aid analysts and policymakers have had to rely on five year old data to try to understand student loan trends, even though there has been an explosion in private loan borrowing during that period of time. By relying on the old data, public officials have been able, at least to some extent, to downplay concerns about the hazardous amount of high-risk debt many financially needy students have been taking on. [As we have just learned from an analysis of the data from our friends at the Project on Student Debt, the percentage of undergraduates taking out private loans jumped considerably during this time period, from 5 percent in 2003-04 to 14 percent in 2007-08.]

Nowhere is this deficiency more glaring than in the government’s tracking of private loan borrowing at for-profit colleges and trade schools. The latest study shows that the percentage of students at proprietary schools taking out private loans has skyrocketed in recent years, from 13 percent in 2003-04 to 42 percent in 2007-08. Wouldn’t that information have been helpful for lawmakers to know last year when they were reauthorizing the Higher Education Act?

The information NPSAS provides also has other limitations. While the data set is helpful in identifying broad trends, it does not include a large enough sample to provide reliable statistics on private loan borrowing at individual colleges. As a result, it’s difficult to identify schools that may be pushing students to borrow private loans without first exhausting their cheaper and safer federal student loan options.

Clearly a better source of data is needed to provide more useful and up-to-date information on students’ borrowing trends.

Luckily, there is a relatively simple solution, as Matthew Reed of the Institute for College Access and Success (TICAS) wrote in a guest post for us last year. Congress should require lenders to report all the private loans they make to the National Student Loan Data System (NSLDS), the database that the Education Department currently uses to track federal student loans. In addition, the Department should be required to issue annual reports generated from this system to provide up-to-date information on student loan borrowing trends.

As Matthew pointed out, the Higher Education Act directs the Department to use the database in part for research and policy analysis regarding student debt levels — including analyzing factors such as family income and the type of institution attended. But the Department has made very little use of this authority as of yet, besides publishing aggregate federal loan volume numbers and calculating cohort default rates.

Ideally, we believe the Department should be required to publish the following:

• Loan volume by loan program and loan type for each institution (unsubsidized/subsidized Stafford loans, PLUS loans, private loans, etc.)
• Average cumulative debt levels for students graduating from college each year at the state, national, and institutional levels.
• Average cumulative debt levels for students leaving college without completing a degree or certificate program.
• Data on borrowing patterns by income level and demonstrated financial need.
• Data on borrowing patterns by students who receive Pell Grants.

Armed with this information, policymakers would no longer have to wait years to get a very limited view of what’s really happening on college campuses.

[Disclosure: Higher Ed Watch is supported in part by the Institute for College Access and Success, which runs the Project on Student Debt.]

Image used under a Creative Commons license from flickr user LensENVY