Why student loan debt has grown

The media continue to be obsessed with stories about indebtedness on student loans.  But I had yet to see any tough analysis of microdata on where the growing debt burden has been coming from until a few days ago when a NYT blogger reported on a new study by a Stanford PhD student and a Treasury Department economist.  The study matched student loan records from colleges with earnings profiles from 1040s over the last 20 years, with all other identifying information removed of course.

Here are the main findings (direct quotes from the study's abstract):

• Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. 
• In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers—borrowers who represent the vast majority of the federal loan portfolio—have remained low, despite the severe recession and their relatively high loan balances. 

A couple of anecdotes from the study: (1) In 2000 the school whose graduates and former students had accumulated the greatest collective debt burden was New York University and they had piled up $2.2b.  In 2014 the school with the greatest debt burden was The University of Phoenix with $35.5b.   (2) Borrowers from for-profit and two-year institutions account for 70 percent of student loan defaults.  

Bottom line: despite all of the stories we read in the media about students who left Stanford with $100k in debt, the focus of future research needs to be on for-profits, 2-year schools and non-selective institutions.  Completion rates at these institutions are low and earnings opportunities after school attendance are often quite limited.  Loan applicants need to know that before paying their first tuition check.  

The new federal College Scorecard is a step in the right direction.  Prospective students can now get solid data on completion rates, indebtedness and earnings after attendance.  NC State fared very well on all measures, by the way.