“We now know that we have this population that is not being served well,” says Beth Akers, a fellow in Brookings’s Center on Children and Families. “That is what we really want to tackle. We don’t want to perpetuate this system.” This new research offers an opening for policy experts to target their proposals at the true roots of the problem, to help nontraditional borrowers as well as the schools they attend.
Politicians, always attentive to voters’ economic anxieties, have taken up the issue of student debt on the stump. “College is supposed to help people achieve their dreams, but more and more, paying for college actually pushes those dreams further and further out of reach,” Hillary Clinton said in New Hampshire last month as she unveiled a $350 billion college-affordability plan that would (among other things) ensure that borrowers needn’t spend more than 10 percent of their incomes to repay student loans. Sen. Bernie Sanders, her rival for the Democratic presidential nomination, wants free tuition at all four-year public colleges and institutions.
Among Republican candidates, Jeb Bush has extolled the virtues of free community-college programs in states like Tennessee. Sen. Marco Rubio, who has struggled with his own student loans, has praised the idea of basing repayment plans on students’ post-graduation income.
But the problem, this latest data suggest, may not lend itself to such broad-brushed solutions. The danger of debt depends dramatically on the type of college the student attends. Students who go to most nonprofit and public four-year institutions and graduate schools default at lower rates, the Brookings research found. A whopping 27 percent of student borrowers at for-profit schools defaulted on their loans in 2011, compared with just 7 percent at selective colleges.
That’s largely because these traditional students usually finish their degrees, even in the wake of a devastating economic recession. That way, they earn more money in the labor market, reducing the burdens of repaying their loans.
Nontraditional borrowers, in contrast, borrow lots of money to attend schools with poor track records of actually granting degrees. The jobs they find pay relatively low wages and make it harder to repay their student loans. Median earnings of traditional borrowers from selective schools in 2013 came to $48,000, the Brookings paper found, more than twice the $23,200 that nontraditional borrowers from for-profit schools earned.
The Brookings research also shows that outsized loan balances, although becoming more frequent, are still relatively rare. In 2013, more than 10 percent of all borrowers owed more than $50,000, and roughly 5 percent owed more than $100,000. (In 2000-2001, a mere 7 percent of borrowers carried balances greater than $50,000.) What matters most in cases of high balances is the type of degree students obtain for the money, and the earnings that this degree might bring. Only about a third of borrowers with balances of more than $50,000 needed the loans as undergraduates, and a majority of those attended for-profit colleges. The rest of the borrowers went to graduate or professional schools, which typically offer a surer bump in potential earnings.