The link between college completion and student loan repayment

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Many students who leave college in debt feel the burden of paying off their student loans long after their last class or visit to campus. But students who never get a post-secondary diploma or certificate carry that burden much longer.

A report released Wednesday by Third Way, a center-left think tank, finds that students who graduate with a degree or certificate are 20 percentage points more likely to start paying off their loan principal than non-graduates each year. year after leaving campus.

More than half of the students who enter a post-secondary institution leave without a diploma or diploma. The findings of the report show great consequences for the ability of these students to repay their loans. The report also says that students who have participated in for-profit programs are likely to struggle to reduce their loans whether or not they graduate.

Across all higher education institutions, Third Way has found that graduates one year after leaving university are more likely to start repaying their loan principal than dropouts in the seventh year after leaving a program. post-secondary.

According to the report, loan repayment rates are also dictated to a large extent by the type of program a student borrower has participated in. Students who have taken and obtained a four-year degree are 18% more likely to start repaying their loan principal than graduates of two-year programs one year after completing it, and 28% more likely than students who have completed a certificate program. This is despite holding on average a significantly higher amount of student loan debt.

Community colleges and two-year institutions have some of the lowest graduation rates. But getting a degree pays big dividends for students at these colleges. More than two-thirds of graduates from two-year institutions began repaying their loan principal in the seventh year after graduation. But more than half of borrowers who give up will eventually accumulate interest on their debt and end up owing more than their original loan balance over the same period.

Michael Itzkowitz, author of the report and senior researcher at Third Way, said college completion should be one of the main goals of accountability provisions in a future reauthorization of the higher education law.

“This data clearly shows that this is one of the main drivers for students to start the process of paying off their loans over time,” he said. “This not only serves students well, but also helps protect the massive taxpayer investment that is spent in higher education each year.”

Itzkowitz said institutions meet the benchmarks against which they are measured. And right now, they face no real liability beyond a largely inefficient cohort default rate benchmark.

“In fact, we have dozens of institutions with graduation rates below 10 percent,” he said. “However, they continue to remain fully accredited and funded by the federal government.”

The report finds disturbing results even for graduates of certificate programs. Less than half of borrowers who complete a certificate program began paying off their loan balances seven years after graduation, indicating that these students did not earn a salary high enough to justify their investment. .

These programs are concentrated in the for-profit college sector, which has similar overall results. At for-profit institutions, 48% of graduates owe more than they initially took out in student loans seven years after graduation.

“We can see that a number of institutions leave their graduates in horrible condition even years after completing their degree program,” Itzkowitz said.

Researchers studying higher education outcomes said the report supported other recent research finding similar correlations between completing college and repaying loans.

“These findings speak to the importance of a continued focus on student success and graduation from our country’s colleges,” said Angela Boatman, assistant professor of public policy and higher education at Vanderbilt University. “Policy makers must continue to support institutional and national efforts to reduce financial, academic and informational barriers for students, thereby increasing graduation and reducing default rates. “

Douglas Webber, an associate professor of economics who studies higher education at Temple University, said the report’s findings, unsurprisingly, underscore the enormous importance of completing college.

“What I am telling students today is that I would much rather be a college graduate with $ 50,000 in debt than a dropout with $ 10,000 in debt,” he said.

Webber said the biggest unanswered questions about loan completion and repayment were about differences between sectors of higher education as well as the impact of institutional factors on students – for example, what’s the difference reimbursement due to the quality of an education and resources available to students in relation to factors such as family background.

“Recent work has shown quite convincingly in my opinion that there are causal differences between schools in terms of the number of student outcomes such as income,” he said. “While these likely translate into repayment rates to some extent, much of the difference is undoubtedly due to factors such as family resources. “

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