Borrowing is one way to finance student responsibilities. Students use savings, current income and borrowing to pay their assigned student responsibilities. If their parents are unable or unwilling pay the full amount of the expected parent contribution, some students use loans to substitute. Borrowing is here to stay. If the federal government shut down its student loan programs, private lenders would move into the market, and students would pay higher interest rates on their loans.
Students who borrow are more likely than non-borrowers to attend full-time for an entire year, limit their hours of work during the school year or attend higher priced colleges. Although the percentage of students who borrow decreases as family income rises, students from all income groups take out student loans. Students who attended institutions with a higher price of attendance were more likely to borrow than those who attended institutions with lower prices of attendance.
Of students who received bachelor's degrees from Minnesota colleges in 2010:
- 71 percent had student loans, and the average amount they borrowed was $29,100,
- In 2008, 10 percent of graduating seniors borrowed less than $8,200 and 10 percent borrowed more than $46,000
Minnesota undergraduates borrowed $1.7 billion in student loans in Fiscal Year 2011. From 2001 to 2011, borrowing increased faster than tuition or personal income.
Even small amounts of debt were a problem if the borrower had little income after leaving school, but different levels of debt appear appropriate to different borrowers. One borrower may find payments of eight percent of income to be too much of a sacrifice. Another may find payments of 15 percent of income to be worthwhile. Even if debt burdens are manageable for most borrowers, they may look unmanageable in advance and deter some people from pursuing postsecondary education.
In national studies, failure to complete a postsecondary program and low income after leaving school are most associated with high defaults. Contrary to conventional wisdom, students who borrow larger amounts have lower default rates than students who take out smaller loans, probably because they have completed longer programs that lead to higher incomes.
Most U.S. borrowers (70 percent) said that student loans were important in allowing them to continue education after high school. Seventy-two percent said "the education I invested in with my student loan(s) was worth the investment for personal growth." (College on Credit: How Borrowers PerceiveTheir Education Debt [.pdf], 2003)
Many borrowers had increased earnings because of postsecondary education. In 2009, the typical full-time year-round worker in the United States with a bachelor's degree earned $58,600, 87 percent more than those with a high school diploma, who averaged $31,300. (U.S. Census Bureau, Current Population Survey, 2009 Annual Social and Economic Supplement)
Fifty-three percent of undergraduates attending Minnesota colleges had credit cards in 2008, and 38 percent of those undergraduates carry a credit card balance from month to month. (National Postsecondary Student Aid Study: 2008, National Center for Education Statistics).
Debt counseling tools include letters to borrowers, video tapes, brochures, toll-free customer hotlines, Internet loan counseling information, interactive repayment calculators, interviews before students take out their first loans, and interviews before students leave school.