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News Release

FOR IMMEDIATE RELEASE
June 12, 2001

New study reveals loan debt not a key factor in students’ decisions after graduation

INDIANAPOLIS — Over the past two decades the average annual student loan debt has more than doubled, while the average financial aid per student increased only 26 percent during the same period. Even with these noteworthy increases, a report released today by Lumina Foundation for Education reveals that undergraduate borrowing had little impact on students’ career and graduate school decisions after college when compared to other factors.

The Indianapolis-based private foundation commissioned the study, Debts and Decisions: Student loans and their relationship to graduate school and career choice. The lead investigator, Donald E. Heller, an assistant professor of education in the Center for Study of Higher and Postsecondary Education at the University of Michigan, analyzed data from the U.S. Department of Education’s “Baccalaureate and Beyond” survey of approximately 11,000 students who completed their baccalaureate education in the 1992-93 academic year.

Heller examined how a number of factors, including undergraduate loan volume, jointly influenced whether students enrolled in graduate school. “Undergraduate borrowing appears to have had little impact on whether students attend graduate school,” he concluded. “Students’ academic characteristics — in particular, their degree expectations, choice of major and grade point average — were the most influential factors in predicting graduate school enrollment.”

Student loans have become a significant source of student financial assistance in the United States. According to the College Board, approximately 41 percent of all financial aid came in the form of loans 20 years ago. By the 1999-2000 academic year, loans accounted for 59 percent of $64 billion in financial aid awarded from state, federal, institutional and private sources.

About half of all 1992-93 graduates borrowed to finance their undergraduate education, and they accumulated an average loan balance of approximately $10,100 to complete their undergraduate degree. The study reveals several factors that influence loan debt:

• African-American, Hispanic and Native American students were more likely to have borrowed as undergraduates, as were students from lower-income families and students who were independent of their parents or guardians.


• Students who attended proprietary schools were most likely to borrow, and students who attended private nonprofit institutions were more likely to borrow than were students who attended public institutions.
• While the cost of tuition did not influence whether students borrowed for college, cost was related to how much students borrowed, with the amount borrowed increasing as the school’s tuition increased.

According to Heller’s research on 1993 graduates, students may struggle with their college debt during the first year after graduation, but within a few years students begin to better manage their debt-to-income ratio. Those in the student loan industry frequently recommend that student loan payments should not exceed 8 percent of a student’s monthly income after graduation. Most students had student loan repayment ratios that exceeded the 8 percent benchmark one year after graduation. Three years later, however, the average loan burden ratio had dropped below 8 percent for individual students. Using total household income, which includes the incomes of others living in the house, as well as unearned income, most students had repayment ratios below the 8 percent guideline for both one and four years after graduation.

For those who did not enroll in graduate school, the average student loan borrower owed 80 percent of his or her loan balance approximately one year after graduation. Three years later, only 38 percent of the loan balance was outstanding. About 30 percent of the class of 1993 enrolled in graduate school by 1997. Borrowing for graduate school tended to greatly increase student loan balances. Four years after graduation, the average loan balance for individuals who had borrowed both for undergraduate and graduate school increased to almost $25,000, with the average balance reaching $57,000 for those students enrolled in a professional graduate degree program, such as medicine or law.

While this study is an important examination of the role of student loan debt on influencing graduate school enrollment, Heller warns that policy-makers need to be cautious in applying the findings to today’s students.

“This report, which uses the most recent national-level data available from the federal government, examines a cohort of graduates who were in college before the large increase in loan limits authorized under the 1992 amendments to the Higher Education Act,” said Heller. “Undergraduate borrowing has continued to grow since these changes. Whether this increased borrowing currently is affecting decisions regarding graduate enrollment is a topic that bears further examination.”

Lumina Foundation for Education, a private, independent foundation, strives to help people achieve their potential by expanding access to an education beyond high school. Through research, grants for innovative programs and communications initiatives, Lumina Foundation (formerly the USA Group Foundation) addresses issues surrounding financial access, educational retention and degree or certificate attainment, and opportunities for nontraditional learners. The Foundation bases its mission on the belief that postsecondary education remains one of the most beneficial investments that individuals can make in themselves and that society can make in its people.

For more information, contact Sara Murray-Plumer, director of communications, at 317-951-5493 or splumer@luminafoundation.org