Borrowing More, Earning More

Changes in federal policy in the 1990s led students to take on more debt, but higher post-graduation salaries helped them start repaying the funds.
March 28, 2005

The 1990s saw a significant increase in borrowing by students to finance their college educations. But many students were protected -- last least during the last decade -- from large debt burdens because starting salaries for college graduates were also increasing at a large rate.

Those are the findings of a report released Friday by the National Center for Education Statistics.

The report compared borrowing by students who graduated from college in the 1992-3 and 1999-2000 academic years, and also the financial status of those starting to repay loans the year after graduation. During the period between the time the two cohorts in the study graduated, the report noted, the cost of college rose faster than inflation and Congress moved to increase the limits on how much students could borrow.

Not surprisingly, those shifts resulted in significant increases in the percentage of graduates who had borrowed. In 1992-3, 49 percent of graduates had student loans, and the average debt for those who borrowed was $12,100 (in 1999 constant dollars). In 1999-2000, 66 percent of graduates had student loans and the average debt for those who borrowed was $19,400.

The researchers then looked at the debt burden that this borrowing placed on the new graduates -- a year after graduation. Debt burden was defined as the monthly loan repayment as a percentage of monthly income. And despite the significant increase in borrowing, the debt burden increased only marginally. Using 2001 constant dollars, the researchers found that the first cohort, a year after graduation was making monthly payments that averaged $170, or 6.7 percent of their monthly income. The second cohort was making monthly payments that averaged $210, or 6.9 percent of their monthly income.

The report said that increases in starting salaries protected the second cohort of students. But the report warned that the debt burden could pose a much more serious problem to students who take jobs with lower than average salaries, or in periods in which new graduates have more difficulty finding jobs that pay well.

The report also compared borrowing trends by students' race and ethnicity. Among the findings: in the first cohort, the average debt of white graduates exceeded that of black graduates. But that had reversed by the time of the second cohort.

Debt Burdens of College Graduates, by Race

Group % Who Borrowed,1992-3 Percent Who Borrowed, 1999-2000 Average Debt, 1992-3 Average Debt, 1999-2000
American Indian 66.2 78.4 $13,300 $16,800
Asian 42.7 60.5 $13,500 $17,900
Black 64.1 79.8 $11,400 $19,800
White 47.8 63.7 $12,300 $19,700
Hispanic 60.7 70.6 $ 9,500 $17,000


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