Blacks Owe More When They Graduate

NEW YORK — A growing minority of college graduates are borrowing too much and using the kinds of loans that are likely to cause them significant repayment difficulties. Who Borrows Most? Bachelor’s Degree Recipients with High Levels of Student Debt focuses on these students.

The report examines characteristics of undergraduate students whose debt levels are greatest. The problem is not that all students are borrowing too much but that some groups of borrowers may be at risk of serious financial difficulty. Many young people have a limited understanding of the effects of the obligations they are undertaking and cannot accurately predict future earnings.

College Board President Gaston Caperton said, “The analyses in Who Borrows Most? emphasize the urgent need not only to strengthen postsecondary financing policies but to provide better guidance and improved financial literacy for students before they take out loans that will get them into trouble down the road. The College Board remains committed to working with our member schools and colleges, policymakers and families to help students understand their options and make levelheaded decisions.”

Who Borrows Most? found that, of the 66% of bachelor’s degree recipients who graduated with debt, 25% borrowed $35,500 or more. High debt does not necessarily indicate that a student will have difficulty repaying the debt; many students with relatively low debt may struggle because of weak earnings or failure to complete a certificate or degree program. For example, the 10% of associate degree recipients who graduated with more than $20,400 in debt may be at least as vulnerable as the bachelor’s degree recipients with twice as much debt.

The report found that high debt is most common among students who graduated from for-profit institutions, where over half of 2007-08 bachelor’s degree recipients graduated with $30,500 or more in debt. Nonfederal borrowing is also most widespread in this sector. Among for-profit bachelor’s degree recipients, 65% of borrowers had an average of $11,300 in nonfederal debt — in addition to their federal student loans.

Sandy Baum, professor emerita of economics at Skidmore College and one of the report’s authors, said, “Students using nonfederal loans to pay for college are of particular concern because private student loans generally have higher interest rates and do not come with the same repayment protection as federal student loans. These are the students who are more likely to face repayment difficulties.”

Debt Levels by Income

High undergraduate debt is more common among independent students, who generally do not receive support from their parents. Twenty-four percent of independent students graduating with a bachelor’s degree in 2007-08 had at least $30,500 of debt. Overall, the frequency of high debt is twice as high among independent students as among dependent students.

Among dependent students, debt is not correlated with family income.

“The lowest-income students are not the most likely to graduate with high debt. In fact, low-income dependent students are no more likely than middle-income students to graduate from college with a great deal of debt,” said Patricia Steele, an independent policy analyst for the College Board and coauthor of the report.

Who Borrows Most? also found that debt is more prevalent among black bachelor’s degree recipients than among those from other racial/ethnic groups, and these differences are not entirely explained by differences in family income. Twenty-seven percent of 2007-08 black bachelor’s degree recipients borrowed $30,500 or more, compared to 16% of whites, 14% of Hispanics/Latinos, and 9% of Asians.

The vast majority of high-debt graduates have federal loans. However, some do not. Among high-debt graduates, the highest incidence of this pattern is among Asian students. The report also found that dependent white and Asian bachelor’s degree recipients have higher average nonfederal debt than do blacks and Hispanics/Latinos.

The highest concentration of nonfederal debt is among dependent students from families with incomes of $100,000 or higher, for whom 70% of the debt is nonfederal. It is quite likely that many of these families never apply for federal financial aid so are not offered federal student loans.

In addition to federal Parents Loans for Undergraduate Students (PLUS), some parents take out private loans. Higher-income parents of high-debt bachelor’s degree recipients are more likely than those with incomes below $60,000 to take out PLUS Loans, and they borrow more when they do.

“Student loans can contribute significantly to providing educational opportunities. However, it is vital that we educate students and parents about loans. We also need to design policies to protect students as much as possible from unmanageable debt,” said Baum.

The College Board

The College Board is a not-for-profit membership organization composed of more than 5,700 schools and colleges. Each year, the College Board serves more than seven million students and their parents, 23,000 high schools, and 3,800 colleges through major programs and services in college readiness, college connection and success, advocacy and policy research. Among its widely recognized programs are the Advanced Placement Program® (AP®) and the SAT®.