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Facts About Undergraduate Borrowing


Why do students borrow money to pay for college?

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.

Which students are most likely to take out 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.

More information on how much undergraduates borrow.

What percentage of students take out loans to pay for postsecondary education?

  • Of students who received bachelor's degrees from Minnesota postsecondary institutions in 2013, 70 percent had student loans and the median amount borrowed by those with loans was $27,300.
  • Nationally in 2012, 31 percent of graduating seniors had no student loans. Of those with loans, 10 percent borrowed less than $7,300 and 10 percent borrowed more than $55,000.

More information on how much undergraduates borrow. [ Appendix ]

How much do students borrow, in total, over time?

Minnesota undergraduates borrowed $1.6 billion in student loans in Fiscal Year 2013. From 2003 to 2013, borrowing increased faster than tuition or personal income.

More information on financial aid awarded in Minnesota.

What was the impact of borrowing on borrowers?

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.

What types of borrowers are most likely to have difficulty repaying their student loans?

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.

Are student loans worth borrowing?

Evidence shows that increases in the average lifetime incomes of college-educated Americans have kept pace with increases in debt loads. Between 1992 and 2010, the average household with student debt saw an increase of $7,400 in annual income and $18,000 in total student loan debt. In other words, the increase in earnings received over the course of 3 years would pay for the increase in debt. (Is a Student Loan Crisis on the Horizon? Beth Akers and Matthew M. Chingos, The Brookings Institution, June 2014.)

What percentage of undergraduates have credit cards?

Forty-eight percent of undergraduates had credit cards in their own name in 2012, and 25 percent of those with credit cards carry a balance from month to month. (National Postsecondary Student Aid Study: 2012).

What types of debt counseling tools are used to help students make informed decisions?

Debt counseling tools include letters and Email messages to borrowers, videos, 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.

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