What we really know (and don’t) about student debt

Student loans are instrumental in broadening access to postsecondary education, from community college through graduate and professional schools. Loans serve as an important supplement to grants and scholarships in making educational investments affordable. Used wisely, they can benefit individual students and the country as a whole by helping increase educational attainment.

However, the rapid increase in the total volume of debt and the repayment difficulties that many people experience have led to a vigorous debate on whether and how public policy should be involved in the market for student loans. Within the past three years, there have been almost as many major news articles on the topic of student debt as there were in the preceding 30.  

Despite this increased attention, surprisingly little is known about how student debt has changed for different types of students, what factors can explain it, and what effects it has on life outcomes. Perhaps most fundamentally, do the benefits exceed the costs?

To take a deeper look at student loans and their consequences, the W.E. Upjohn Institute for Employment Research organized a conference that gathered some of the nation’s leading experts on higher education finance and student debt. The proceedings of the conference, co-sponsored by the Spencer Foundation and the Education Policy Initiative at the University of Michigan Ford School of Public Policy, appear in the Upjohn Press volume, Student Loans and the Dynamics of Debt. Conference presentations revealed some surprises:

  • Much of the aggregate student debt increase over the past decade is due to more people pursuing education, as well as interest accumulation due to low repayment during the Great Recession.
  • Between 2011 and 2013 the average loan balance among all postsecondary students declined.
  • Among bachelor’s graduates, debt at graduation grew faster over the 1990s than over the 2000s.
  • A default on a loan does not necessarily mean it will never be repaid. Among bachelor’s graduates, over half of those in default on student loans five years after graduation are either in repayment or have fully paid by ten years after graduation.
  • While debt from graduate school makes up less than half of all U.S student debt (40 percent of the roughly $1 trillion now currently outstanding), individual students borrow much more heavily for graduate school than for undergraduate education.

The researchers generally agreed that repayment was a bigger concern than debt itself, especially for certain groups of students. As Sandy Baum observed in her paper, the students in greatest danger of taking on unmanageable debt burdens are independent students, students in for-profit higher education, and African-American students. Susan Dynarski and Daniel Kreisman view the central problem as asking borrowers to make repayments at the start of their careers, when earnings are low. They propose a streamlined, income-based repayment solution.

While policymakers have recently expanded the idea of income-based repayment, the research team of Jason Delisle, Alex Holt, and Kristin Blagg demonstrated the need for caution in implementation of such policies. They point to a widely-discussed loophole in the recently revised federal Income-Based Repayment program that allows graduate students to borrow amounts beyond the total they would eventually need to repay, due to loan forgiveness, especially for those entering public service, broadly defined. To eliminate this unintended subsidy, the team recommends either capping the amount of loans that can be forgiven or extending the repayment period before forgiveness kicks in.



Brad J. Hershbein headshot

Brad J. Hershbein

Senior Economist and Deputy Director of Research
Kevin M. Hollenbeck headshot

Kevin M. Hollenbeck

Economist Consultant