The Link Between Completion and Loan Repayment

Many students who leave college with debt feel the burden of paying back their student loans long after their last class or visit to campus. But students who never actually complete a degree or postsecondary certificate bear that burden for much longer.

A report released Wednesday by Third Way, a center-left think tank, finds that students who complete a degree or certificate are 20 percentage points more likely to begin paying down their loan principal than noncompleters in each year after leaving campus.

More than half of students who enter a postsecondary institution leave without any sort of degree or credential. The findings from the report show big consequences for the ability of those students to repay their loans. The report also indicates that students who attended for-profit programs are likely to struggle putting a dent in their loans whether they graduated or not.

Across all higher ed institutions, Third Way found completers one year after leaving college are more likely to start paying off their loan principal than noncompleters are in year seven after leaving a postsecondary program.

Loan repayment rates are also dictated to a large degree by the type of program that a student borrower attended, the report finds. Students who attended and completed a four-year degree are 18 percent more likely to begin paying down their loan principal than are graduates of two-year programs one year after finishing and 28 percent more likely than students who completed a certificate program. That's 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 completing a degree pays big dividends for students at those colleges. More than two-thirds of graduates of two-year institutions have begun paying down their loan principal in year seven after graduating. But more than half of borrowers who drop out will eventually accrue interest on their debt and end up owing more than their original loan balance over the same time period.

Michael Itzkowitz, the author of the report and a senior fellow at Third Way, said college completion should be a main focus of accountability provisions in a future reauthorization of the Higher Education Act.

"These data make clear that it's a main driver of students being able to begin the process of paying down their loans over time," he said. "That not only serves students well but also helps protect the massive taxpayer investment that goes into higher education every single year."

Itzkowitz said institutions respond to the benchmarks they're measured on. And right now they face no real accountability beyond a largely ineffective cohort default rate benchmark.

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

The report finds troubling outcomes, though, even for graduates of certificate programs. Less than half of borrowers who complete a certificate program have begun paying down their loan balance seven years after graduating -- indicating that those students didn't land a salary high enough to justify their investment.

Those programs are concentrated in the for-profit college sector, which has similar overall outcomes. At for-profit institutions, 48 percent of graduates owe more than they originally took out in student loans seven years after graduating.

"We can see there are a number of institutions that leave their graduates in horrible shape even years after they've completed their program of study," Itzkowitz said.

Researchers who study higher education outcomes said the report supports other recent research finding similar correlations between college completion and loan repayment.

“These findings speak to the importance of a continued focus on student success and degree completion within our nation's colleges,” said Angela Boatman, an assistant professor of public policy and higher education at Vanderbilt University. “Policy makers must continue to provide support for institutional and statewide efforts aimed at reducing financial, academic and informational barriers for college students, thereby increasing degree completion and lowering loan default rates.”

Douglas Webber, an associate professor of economics who studies higher education at Temple University, said the findings of the report, while not surprising, highlight the enormous importance of finishing college.

“What I tell 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 remaining unanswered questions on completion and loan repayment have to do with differences between higher ed sectors as well as the impact of institutional versus student factors -- for example, how much are differences in repayment due to the quality of an education and resources available to students versus factors like family background.

“Recent work has shown pretty convincingly in my opinion that there are causal differences across schools in terms of a number of student outcomes such as earnings,” he said. “While these likely translate into repayment rates to some degree, a large part of the differences are undoubtedly due to factors like family resources.”