A Mystery Behind the Rise of Student Debt

Yes, college prices have skyrocketed. But students are also paying fewer of their own dollars towards tuition than 20 years ago. Why?

The wild growth of student debt seems like an illness with an obvious cause. Both enrollment and tuition prices went on a tear over the past two decades. Add the two together, and you get today's trillion-dollar problem. Right?

Well, not quite. In a recent report, the Hamilton Project's Michael Greenstone and Adam Looney argue that the student-loan boom is, in fact, a bit more more mysterious than journalists and student advocates tend to acknowledge. It's not that tuition hikes and growing class rolls aren't playing a part -- they certainly are. But there's something else going on, too. In time, it seems, the average student has started paying less out of pocket towards her own education, as shown in the green area in the graph below (the purple area shows grant aid and the blue shows loans). 


Here's a nitty-gritty version of the story. According to Greenstone and Looney's calculations, out-of-pocket spending started to slide during the '90s. Adjusted for inflation, students contributed about $4,000 of their own money a year towards tuition at the start of that decade. By 2000, though, student contributions were down to about $3,000. They roughly stabilized until the recession, at which point they plunged once more. Today, students are paying just $2,125 out of pocket.

It's not much of a puzzle why students and their families leaned harder on loans and federal aid after 2008. The country got poorer and the Obama Administration just about doubled the size of the Pell Grant program for low-income and working-class students. Families had less money. The government offered more.

But what happened during the 1990s?

Like Greenstone and Looney, I don't have an answer ready. But I think I can eliminate one possibility. While college enrollment grew during the period, there wasn't some massive, disproportionate influx of low-income students. Here, based on Department of Education data, is how the distribution of undergrads between income brackets changed over the decade at public colleges. If anything, college kids got relatively wealthier overall.


Meanwhile, at private colleges students became a tiny bit more middle class. But the number of truly poor students shrank.


These charts include only at full-time, dependent students who have family help paying for school. But the pattern is similar with self-financing independent students, who made up about half of all undergrads at the time. Meanwhile, part-time students are generally less likely to borrow for school than full-time students, meaning any increases among their ranks should have increased out-of-pocket payments.

Again, shrinking family contributions are just one piece of the puzzle when it comes to student debt. But it seems like an important one to understand.