Debt-for-Diploma but No Degree

As the rising cost of college puts a financial squeeze on students and their families, young people are encouraged to see student loans as an investment that leverages the mounting costs of attendance against a shot at greater lifetime earnings. But a new analysis from the National Center for Education Statistics (NCES) shows how student loans can be a burden without benefits. The brief focuses on the growing debt loads of students who do not complete their studies, showing how increasing costs can create a lifetime of financial strain when the debt-for-diploma system does not lead to a degree.  

The top two reasons cited by community college students for not reaching a diploma are both financial pressures – the need to earn household income or the inability to cover tuition and fees. These pressures can create significant obstacles on the path to degree completion, drive students to take on federal and private loans, and lead to disparate graduation rates by race and class.  

The new statistics from NCES reveal how financial instability during college can be prolonged after leaving, as borrowing compounds with higher rates of unemployment and underemployment, and lower pay. Because not only does this group take on federal loans at the same rates as other students, they do not reap the economic gains of holding a degree.

Students who did not complete a degree are more likely to be unemployed.  

Students’ ability to repay student loans is dependent in large part on their employment status after leaving postsecondary education.  Noncompleters in 2009 had lower rates of employment when they left post-secondary education than did completers at all four institution sectors analyzed in the study.  

The typical student who did not complete a degree owes a student loan debt equal to 35 percent of their annual income.  

The median ratio of cumulative federal student debt to annual income was 35 percent for all noncompleters, and ranged from 26 percent for those who started in public 2-year colleges to 51 percent for those who started in private nonprofit 4-year institutions.  

Students who did not complete a degree borrowed more per credit earned than those who graduated.  

For students who started in for-profit institutions, noncompleters had borrowed an average of $350 per credit earned, compared with $220 per credit earned by completers.  Comparable figures for those who began at 4-year colleges and universities were $190 versus $120 per credit earned in private nonprofit insittutions and $130 versus $90 per credit in public institutions.   

More students who started at for-profit institutions carry debt burdens equal to or exceeding 100 percent of their annual income.  

Among noncompleters who started in for-profit institutions nearly one-third (31 percent) carried such a high debt burden in 2009, compared with 7 percent to 21 percent among those who first attended other types of institutions.