Policy Implications

While the share of those taking on student debt has continued to climb, the data support the notion that much of the growth in borrowing can be traced to changes in tuition pricing, not shifts in student lifestyles. However, exceptions do exist: borrowing for non-tuition expenses is particularly common among low-income borrowers and those who attend low-cost schools—or both. Borrowing for non-tuition expenses also has differential effects across sectors, because enrollment and the share of students who borrow varies considerably.

According to the National Center of Education Statistics, more than 17 million undergraduate students were enrolled in higher education in the fall of 2015 (see table below). Of these, our estimates indicate that about 28 percent took on loans in excess of tuition and fees, which translates to about 4.7 million borrowers (with an additional 1.8 million borrowing less than they pay in tuition and fees). Applying similar calculations across sectors, we conclude that around 2.6 million of those borrowers attended public four-year schools, a little over one million attended private nonprofits, 800,000 attended public two-year schools, and an additional 370,000 attended for-profit institutions.

Source: Borrowing rates from New America analysis of National Postsecondary Student Aid Study, 2015-16; enrollment figures from the National Center for Education Statistics Digest of Education Statistics, Table 303.25.

While a small share of students borrow in excess of their institutional charges, those who do are disproportionately low-income students who attend low-cost schools. But students at community colleges and for-profit institutions have the lowest odds of completing a degree,¹ and default rates among these two sectors are nearly double that of four-year public or private nonprofit schools.² This means that students at these schools who borrow are at heightened risk of taking on more debt than they can repay, regardless of whether or not they apply those loans to their tuition or their non-tuition costs. However, college administrators have much more control over tuition than non-tuition expenses, and many community colleges already charge very low or zero tuition to low-income students. As a result, attention in the debate over reducing risks for these students centers around borrowing for non-tuition expenses.

Even for those students who do borrow for non-tuition costs, many are left with thousands of dollars in educational costs not covered by loans or grants. For instance, the typical student from a family earning less than $22,000 a year borrows $3,800 more than he pays in tuition and fees, yet he has a significant gap in his overall need, with net enrollment costs amounting to $7,000 more than the grants and loans he receives. In these cases, the additional resources available in the form of student loans may help students meet basic needs. Combined, these factors mean that students must decide whether borrowing more could help them complete their degree or would merely saddle them with higher loan payments down the road.

Additionally, policymakers should take steps to to reduce the amount of debt students need to take on, to improve the quality of the education for which they are borrowing, or both. In order to reduce the risks associated with higher education, building a robust accountability system that limits the availability of low-quality degree programs might make it more likely that students who borrow for their living expenses are able to repay their debt, simply by ensuring that they are borrowing for programs with demonstrated economic value. Currently, the cohort default rate (CDR) serves as the main outcome standard directly tied to schools’ access to federal financial aid. While the CDR standard is designed to protect students and taxpayers from the negative consequences of student loan default, the use of a single metric for access to hundreds of billions in federal aid has led to unintended consequences, like funneling students into options that delay default until they safely clear the three-year accountability window or opting out of the loan program altogether. Federal policymakers could improve institutional quality by holding schools to a higher bar for student outcomes; reforming the accreditation process to emphasize the importance of student outcomes; and leveraging and coordinating state actors to set higher standards for colleges and protect borrowers from poorly performing institutions.

However, providing additional need-based grant aid to students for living expenses is the best strategy to simultaneously help students succeed in school and reduce the risks of financing higher education through debt. Rather than pouring resources into proposals to make college tuition free or debt free, a holistic approach to reducing student debt that considers both direct and indirect educational expenses and leverages federal, state, and institutional resources is needed.