This report examines the amount of debt than an average student incurs to attend a four-year college, historical precedents of debt, and the implications for working students and families.

Heather Boushey

English

Research Papers in Economics

 
 
 
 
 
cepr         Briefing Paper 
CENTER FOR ECONOMIC AND POLICY RESEARCH    
 
 
 
 
 
 
 
Student Debt: Bigger and Bigger 
 
 
By Heather Boushey 
 
September 2005 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CENTER FOR ECONOMIC AND POLICY RESEARCH • 1611 CONNECTICUT AVE., NW, SUITE 400  
WASHINGTON, D.C. 20009 •  (202) 293-5380 • <WWW.CEPR.NET> • EMAIL: CEPR@CEPR.NET 
This project was made possible by support from the Rockefeller Foundation. David Rosnick provided 
valuable research assistance and Dean Baker and John Schmitt gave helpful comments. 
 Student Debt: Bigger and Bigger y 2 
 
Executive Summary 
 
Nearly two-thirds of students attending a four-year public college or university take on student 
loans while they are in school. As of last year, the average indebted graduating senior was 
$17,600 in debt on graduation day.  
 
Our analysis of the National Center for Education Statistics’ National Postsecondary Student Aid 
Survey finds that students from lower-income families who attend public schools are one-third 
more likely to take on debt than are students from high-income families. Over the past decade 
and a half, however, more students from higher-income families took out loans, shrinking the 
gap in the percentage of students borrowing money between richer and poorer students. 
 
Among students who took on loans, the average debt owed by students from lower-income 
families was slightly higher than by students from higher-income families. For public-school 
students graduating in 2003-04 from families in the bottom quartile, the average cumulative 
amount of loans was $16,438, compared to $15,253 for students from families in the highest 
income quartile. Compared to students who graduated in 1989-90, this is an increase of 116 
percent for students from the bottom quartile and 28 percent for students from the top quartile, 
after inflation.  
 
Students who take out student loans are more likely to hold a job while in school, compared to 
students who did not take on loans. Among students who took on loans in 2003-04 and who 
attended public, four-year institutions, 83.6 percent held a job during the school, working an 
average of 22.8 hours per week. Among similar students who did not take on loans, 78.2 percent 
held a job, working an average of 21.5 hours per week. 
 
High levels of student debt are the result of rapidly increasing college costs and policy choices 
that have made more loans, but not grant aid, available to students. College costs have risen by 
over 50 percent (adjusted for inflation) since 1990 and loans now comprise over half of financial 
aid packages, up from about one-fifth in the 1970s.  
 
To put this in perspective, back in 1981, a student could work full-time all summer at a minimum 
wage job and earn about two-thirds of their annual college costs, leaving less than $2,000 (in 
inflation-adjusted 2004 dollars) that they needed to pull together from grants, loans, working 
during the school year, or their parents. Today, however, a student earning the minimum wage 
would have to work full-time, full-year to afford one year of education at a four-year public 
college or university.  
 
Higher levels of debt upon graduation have implications for how students think about post-
college jobs and life-choices. Highly indebted graduates may have little flexibility in the kinds of 
jobs that they must take in order to afford their debts and may choose to postpone marriage, 
buying a house, or starting a family while they pay off their loans. 
 
 
 Student Debt: Bigger and Bigger y 3 
 
Students Take on More Debt 
 
U.S. students are taking on record levels of student loans in order to finance their college 
education. Rapid increases in college costs, far outpacing inflation, have created a need for more 
debt or more aid from other sources. For the most part, students cannot reasonably work more, as 
most students already are employed during the school year, at an average of over 20 hours per 
week. 
 
Analysis of the National Center for Education Statistics’ National Postsecondary Student Aid 
Survey finds that students from lower-income families are more likely to take on debt than are 
students from higher-income families.
1 Students graduating from public, four-year institutions in 
2003-04 from families in the bottom quartile of family incomes were a third more likely to take 
on student loans during their college career than are students from families in the top quartile. 
Even so, over the past decade and a half, students from higher-income families started taking on 
more loans, shrinking the gap in loans by family income background. 
 
Among students who took on loans, the average amount borrowed by students from lower-
income families was slightly higher than by students from higher-income families, a reversal of 
the prior trend. For public-school students graduating in 2003-04 from families in the bottom 
quartile, the average cumulative amount of loans was $16,438 compared to $15,253 for students 
from families in the highest income quartile. 
 
Getting a college degree is a good investment if the student can find a well-paid job after 
graduation. This investment has paid off for many graduates. Recent college graduates currently 
receive about 80 percent more in pay than recent high-school graduates. This is up from about 40 
percent more in pay in the late 1970s (Mishel, Bernstein, and Allegretto 2005).  
 
Because of the historically low interest rates over the past few years and a strong labor market 
for new graduates prior to the recession of the early 2000s, many recent graduates do not have 
higher monthly debt burdens than those graduating a few years ago, even though the value of 
loans have risen (Choy and Li 2005). Further, there are now more options for extended 
repayment options, further decreasing the monthly burden of student loans. However, it remains 
the case that students will have to pay these loans for many years into the future, making it 
harder to afford their first house, save for their retirement, or start their own family.  
 
 
                                                 
1 For this report, we analyzed online data available from the National Center for Education Statistics’ Data Analysis 
System (National Center for Education Statistics 2005). Our sample included fourth and fifth years students 
graduating with a bachelor’s degree, who were “dependents” in terms of their financial aid (that is, they were seen as 
reliant on their parent’s for financial support), and for all years, the sample was comparable to the 1987 survey and 
included only students living in the 50 states or the District of Columbia. 
 Student Debt: Bigger and Bigger y 4 
 
Policymakers Responded to Rising College Costs by Offering Students More 
Loans 
 
The explosion in student debt has been propelled by rapid increases in college costs, far 
outpacing the rate of inflation, and by the increased availability of loans due to the 1992 
Reauthorization of the Higher Education Act.  
 
Over the past few decades, the average tuition, fees, room, and board charges at public and 
private four-year institutions have risen far faster than the rate of inflation. At private, four-year 
colleges and universities, expenses have risen by 51.1 percent since 1990, after taking into 
account inflation (Figure 1). At public, four-year colleges and universities, expenses have risen 
even more, by 59.4 percent. Looking over the past 23 years, since the 1978-79 school year, 
costs—after inflation—doubled at public schools and more than doubled at private schools, 
increasing by 134.2 percent. 
 
s college costs have risen, students have been taking on more loans from both federal and state 
sector 
 
A
governments, as well as private lenders, to cover the higher costs. Figure 2 shows how loans, and 
specifically unsubsidized loans, have become an increasing share of the total aid package that 
students receive from their school. Another recent development has been the increase in 
nonfederal loans, of which the overwhelming majority (94.0 percent in 2004) are private 
loans, and the remainder are state loans.  
 
 Student Debt: Bigger and Bigger y 5 
 
Students are receiving more loans, compared to grant aid, because of policy changes during the 
1990s. In 1992, Congress passed the Reauthorization of the Higher Education Act. This 
legislation increased the amount of money students could borrow under the student loan 
program, changed the definition of need so that it was easier for dependent students to qualify, 
and made unsubsidized loans available to dependent students for the first time (Ellwood and 
Kane 2000). Two of the most dramatic consequences of the 1992 legislation were the rapid 
increase in the share of students from higher-income families who took out student loans and the 
significant increase in the share of loans that are unsubsidized rather than subsidized.
2 
 
Even though students are graduating with more debt, due to historically low interest rates over 
the past few years, their monthly debt payments have not risen, compared to those graduating a 
few years ago. Also, there are now more options for extended repayment, further decreasing the 
monthly burden of student loans. This could change, however, in the near future as interest rates 
begin to rise. Further, Congress may act to increase the cost of repaying student loans. 
Legislation currently being debated, H.R. 609, would cut nearly $9 billion dollars from the 
student aid budget. About half of this would come from an increase in the interest rate cap from 
6.8 percent to 8.25 percent in 2006, leading to higher future repayments, and an increase in loan 
origination fees. 
                                                 
2 Subsidized loans do not accrue interest while the student is in school or in a grace period, whereas unsubsidized 
loans begin to accrue interest from the date of disbursement. Subsidized loans are a part of a student’s aid package, 
and a student must meet need qualifications in order to receive them. Some unsubsidized loans also require that the 
student be financially needy under student aid guidelines, but some, such as Parent Loans for Undergraduate 
Students (PLUS), are available regardless of need, up to the total cost of attendance (minus any aid received). 
 Student Debt: Bigger and Bigger y 6 
 
At the same time, students have unprecedented access to credit cards. Analysis of the National 
Center for Education Statistics’ National Postsecondary Student Aid Survey, finds that 11.5 
percent of students in school in 2003-04 carried a credit card balance, and the average balance 
was $2,044 at the time of the survey. Among these students, 25.0 percent used a credit card to 
pay some or all of their tuition; among all students, 5.3 percent used a credit card to pay some or 
all of their tuition.  
 
 
Students Taking on a Long-term Burden as Debt Loads Rise 
 
The result of loans being a larger share of student aid packages is that students are graduating 
with increasingly high levels of debt.  Among fourth or fifth year graduates at public, four-year 
institutions in 2003-04, nearly two out of every three students (61.7 percent) took out loans at 
some point during their college career. The average amount owed by these students upon 
graduation was $15,662, in 2004 dollars. Both the share of students taking on loans and the 
amount of loans are significantly larger than a decade and a half ago. Among students graduating 
in 1990, less than half (46.2 percent) took on student loans and, at $9,798 in 2004 inflation-
adjusted dollars, the average total debt was only about two-thirds of what students take on today. 
 
Students at private, four-year institutions have seen their debt levels rise even more. Among 
students graduating in 2004, three-quarters (73.2 percent) will have some student debt and the 
average amount of loans totaled $22,581, nearly a third more than the total debt of students 
graduating in 1990, in inflation-adjusted dollars. 
 
Figure 3 shows the share of graduating students who have student debt by the income quartile of 
their families, at both public and private four-year institutions. Families in the bottom income 
quartile have less income than 75 percent of families, while families in the top quartile have 
more income than 75 percent of families. The share of students from families in the bottom 
quartile taking out student loans grew slightly; however, there was an even larger increase in the 
share of students from higher income families who have taken on loans. The increase in loans 
among higher-income students is a direct result of the 1992 Reauthorization of the Higher 
Education Act. It remains the case, however, that lower-income students are more likely to take 
out student loans.  
 
Among students graduating in 1989-90 from either public or private schools, those from higher 
income families ended up with a higher average amount of debt. However, among students 
graduating in 2003-04, this was not the case. The distribution of total debt flattened, with those 
from lower-income families taking on slightly higher debt loads (Figure 4). The average total 
debt for students from the bottom quartile of families who graduated from public, four-year 
institutions in 2003-04 was $16,438, compared to $15,253 among students from the top quartile.  
 
 Student Debt: Bigger and Bigger y 7 
 
 
 Student Debt: Bigger and Bigger y 8 
 
Students Hard at Work 
 
Because of the rising costs of higher education, even students who take out loans are working a 
significant number of hours while in school (Table 1). Since the average number of hours 
worked is already above 20 hours per week, there is not a great deal of room for students to work 
more and stay in school full-time.  
 
Among students at public, four-year institutions who took out loans in 2003-04, most (83.6 
percent) reported working during the school year, putting in an average of 22.8 hours per week.
3 
The share of students without loans who had jobs was slightly lower, at 78.2 percent in 2003-04. 
Students at private schools who had loans worked just as much as their counterparts at public 
schools. However, private schools students without loans worked slightly less than other 
students. In 2003-04, students worked slightly fewer hours on average than they did in the 1989-
90 school year. In 1989-90, working students at public, four-year institutions put in an average of 
26.7 hours per week, compared to 22.8 in 2003-04.  
 
Table 1. Work experience of students 
       
 
Private, not-for-profit four-
year institutions  Public four-year institutions 
 1989-90  2003-04    1989-90  2003-04 
Share of students working during school 
year        
No student loans  66.6% 67.9%  77.5%  78.2% 
Has student loans  86.1  83.8  84.5  83.6 
        
Average hours spent working among student workers     
No student loans  23.9  19.5  26.5  21.5 
Has student loans  25.5  22.4  26.7  22.8 
       
Source: Author's analysis of National Center for Education Statistics, 2005.    
 
                                                 
3 Most students held regular jobs, but about one-in-ten held a work-study job. These rates of employment are higher 
than reported by the Bureau of Labor Statistics. This may be because students are reporting work over the entire 
school year, rather than only during one month. Further, the sample is only graduating seniors, who may be more 
likely to hold a job, compared to other students. 
 Student Debt: Bigger and Bigger y 9 
Conclusions 
 
The relatively high work hours put in by college students, combined with the high level of loans, 
shows just have much of the burden of college costs students are taking on. College is beneficial 
for worker’s wages: in 2003, the ratio of entry-level wages of recent college graduates to recent 
high-school graduates was 177 percent for men and 162 for women (Mishel, Bernstein, and 
Allegretto 2005, p. 158).  
 
However, the question of equity remains. Students from low-income backgrounds take on more 
debt than their peers from higher-income families. These students’ families are also less likely to 
help them to pay off that debt later on. One out of every five students from the top quartile 
receives help paying off their loans from their parents, compared to only one-in-ten from the 
bottom quartile (Choy and Li 2005). 
 
Students with high debt levels may forgo or postpone other personal decisions until they can 
address their debt. We have been seeing higher debt burdens for over a decade, which has 
occurred alongside the continuing rise in age of first marriage and women delaying motherhood. 
While their parents benefited from more generous federal and institutional support, today’s 
students can only depend on their potential future earnings to afford college.  
 
To put this in perspective, in 1981, a student could work the entire summer at a minimum wage 
job, save all their money, and pay two-thirds of their school expenses at a public, four-year 
institution. They would need to find another $2,000 (in 2004 dollars) from working during the 
school year, or from grants or aid from their parents. Today, a student would have to work full-
time at a minimum wage job for an entire year, saving every penny, and would still be a couple 
hundred dollars short of being able to pay one full year of her expenses. 
 
One common sense way for the government to reduce the burden of student loans is to make 
loans directly to students rather than funneling those loans through a private company. The 
Direct Loan Program already does this for about 25 percent of student loans, but Congress has 
resisted efforts to expand the program. According to the data reported in the 2005 budget, 
administrative costs for loans issued through private lenders are 13 times higher than loans 
issued under the Direct Loan Program. While these excess fees provide income for the financial 
industry, they come directly out of student’s pockets. Reducing the administrative costs of 
student loans is a simple way of alleviating some of the debt burden they currently face.  
 
 
(College Board 2003; College Board 2004) 
 Student Debt: Bigger and Bigger y 10 
 
 
References 
Choy, Susan P., and Xiaojie Li. 2005. Debt Burden: A Comparison of 1992-93 and 1999-2000 
Bachelor's Degree Recipients a Year After Graduating. Washington, DC: U.S. 
Department of Education, National Center for Education Statistics, U.S. Government 
Printing Office. No. NCES 2005–170.  
College Board. 2003. Trends in College Pricing. Washington, DC.  
College Board. 2004. Trends in Student Aid. Washington, DC.  
Ellwood, David, and Thomas Kane. 2000. Who is Getting a College Education? Family 
Background and the Growing Gaps in Enrollment. In Securing the Future: Investing in 
Children from Birth to College, edited by S. Danziger and J. Waldfogel. New York: The 
Russell Sage Foundation. 
Mishel, Lawrence, Jared Bernstein, and Sylvia Allegretto. 2005. The State of Working America 
2004-5. Ithaca, NY: Cornell University Press. 
National Center for Education Statistics, Institute of Education Sciences, U.S. Department of 
Education. Accessed August, 2005. National Postsecondary Student Aid Survey. 
<http://nces.ed.gov/das/> 
 

Debt Burden: A Comparison of 1992-93 and 1999-2000 Bachelor's Degree Recipients a Year After Graduating.

Trends in College Pricing.

Trends in Student Aid.

Who is Getting a College Education? Family Background and the Growing Gaps in Enrollment.

Student Debt: Bigger and Bigger

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Student Debt: Bigger and Bigger

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