Why Do Students Borrow So Much? Recent National Trends in Student Loan Debt (continued)

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. 

Summary

Federal student loan borrowing grew primarily because the maximum loan limits were increased and middle- and upper-income students became eligible for Stafford Unsubsidized Loans. However, despite the increases in cumulative debt that occurred, most undergraduate loan recipients appear to be able to repay their loans with little difficulty, as long as they complete their degree programs. However, repayment obligations are much more difficult for professional school students, who often leave their institutions with debt of $100,000 or more, and for undergraduate borrowers who do not complete degree programs. More research would provide greater insights into how indebtedness affects these students after they leave higher education. 

References

Baum, S. and D. Saunders. (1998). " Life After Debt: Results of the National Student Loan Survey." Journal of Student Financial Aid, 28(3) 7-23. EJ 584 134. 
Choy, S.P. (2000). Debt Burden After College. Washington, DC: U.S. Department of Education, National Center for Education Statistics Report Number 2000-188. 

College Board. (2000). Trends in College Prices. Washington, DC: The College Board. 

Davis, J.S. (2000). College Affordability: Overlooked Long-Term Trends and Recent 50-State Patterns. Indianapolis, IN: USA Group Foundation.