The Student Debt Dilemma

Debt Aversion as a Barrier to College Access

Quick Summary

When student loans are the only way to pay for college, who decides how much debt a degree is worth? This paper explores how debt aversion and conflicting views about the role of student loans affect young people, their families, and those who advise them.

The stories can be startling: the Johns Hopkins University valedictorian who borrowed $101,000 to get his degree, the Boston resident with an $80,000 debt load and a $26,000-a-year job, the student with $25,000 in federal loans who was forced to drop out of school because she was $5,000 behind on her college bills.1 A succession of news articles, research reports, and surveys highlighting the hardships confronted by students who borrow to finance their education has alerted us to an explosion in college student debt. Though loans enable millions of students to get through college, and many pay off their debt with little problem, some feel the debt itself impedes their future plans. They report waiting to buy cars, purchase homes, or have children. Others, we are told, give up their hopes of pursuing careers in public service or attending graduate school.2

Though the debt explosion has often been blamed on rising tuition, a radical makeover in financial aid has been equally important: Since the early 1980s, student financial aid has quietly transformed from a system relying primarily on need-based grants to one dominated by loans.3 As grant programs fail to match tuition increases, more students are borrowing, and they are borrowing more. Fifty-six percent more of today's students have federal subsidized loans than students 10 years ago.4 Graduates with loans borrowed an average of $19,300 in 2000, 60 percent more than they did in 1993 after adjusting for inflation.5 

If indebted students are the visible face of the debt crisis, the invisible faces are those who may have been lost to higher education altogether, even if they could have succeeded academically.The outcry over rising student debt may have overshadowed an equally pressing problem affecting students who do not borrow.Though the cost of not going to college is high—Americans without college degrees earn on average a million dollars less in their lifetimes than those with degrees—that cost can be less apparent to a young adult than the prospect of crushing debt.

Students who fear borrowing may not seriously consider the benefits of higher education, relegating themselves to lower-paying jobs and fewer opportunities. If they do enroll, they may pursue money-saving strategies—attending part-time, working more than 20 hours a week, and attending two-year instead of four-year institutions. While some students stand by such choices, valuing their post-graduation freedom and the job experience garnered along the way,6 for others such strategies can decrease their chances of finishing an academic program, at a cost to themselves and society generally.

Therein lies the real dilemma of student debt: for some students, the availability of low-interest loans widens opportunities; for others, the increasing prominence of loans could actually narrow their options and decrease their chances of attending and completing college. Given the critically important role of student loans in the current financial aid equation, some students' and families' perceptions about debt could interfere with loan programs' ability to equalize opportunity for students at all income levels.

The dilemma is worth examining precisely because loans have been an effective means of leveraging federal dollars to ensure access to college for many students, and therefore are likely to remain a mainstay of federal financial aid programs. As interest rates begin to rise for the first time in years, foreshadowing higher future payments, the problems faced by students who borrow as well as the barriers confronted by those who are averse to borrowing are only liable to increase.

Though the solutions may not be immediately obvious, they clearly will rest on careful analysis of how perceptions about loans expand or narrow opportunities in a debt-dominant environment. Because much has been written about the problem of excess debt, this inquiry focuses on the less-studied problem of debt aversion and its influence on college access and success. As an initial gauge of the contours of the debt dilemma, we interviewed students, counselors, outreach workers, and aid professionals in several states and at several types of institutions.7 While policy responses to the debt dilemma should be informed by empirical research, it is hoped that this review will call attention to the issue and stimulate additional research and policy explorations.


1 Christian Science Monitor, March 9, 2004, Village Voice, August 31, 2004, Boston Globe, October 11, 2004.
2 Sandy Baum and Marie O'Malley, College on Credit: How Borrowers Perceive their Education Debt, Results of the 2002 National Student Loan Survey, February 6, 2003.
3 Losing Ground: A National Status Report on the Affordability of American Higher Education, National Center for Public Policy and Higher Education, 2002.
4 Trends in Student Aid 2004, College Board, 2004.
5 Susan P. Choy and C. Dennis Carroll, Debt Burden: A Comparison of 1992-93 and 1999-2000 Bachelor's Degree Recipients a Year After Graduating, National Center for Education Statistics, U.S. Department of Education, NCES 2005-170, March 2005.
6 Eighteen percent of Pell recipient borrowers, in a Nellie Mae survey, said that "the benefits of education loans are not worth the unpleasantness of repayment." See Baum and O'Malley, p. 24.
7 Interviews were conducted primarily by telephone, with the exception of in-person interviews in Northern California, New York City, and Washington, D.C.
8 Tom Mortenson, "Attitudes of Americans Toward Borrowing to Finance Educational Expenses 1959-1983, ACT Student Financial Aid Research Report Series. In the study,women were also found to be loanaverse,
but that may reflect the age of the data.
9 Other relevant research and reports include the following: Susan M. Dynarski, "Does Aid Matter: Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, March 2003; Gregory Jackson, "Financial Aid, College Entry, and Affirmative Action," American Journal of Education,August 1990, p. 523-550; David M. Linsenmeier, Harvey S. Rosen, and Cecilia Elena Rouse, "Financial Aid Packages and College Enrollment Decisions: An Econometric Case Study," Working Paper #459, Princeton University, Industrial Relations Section, November 2001; and Cornelia M. Blanchette, "Challenges in Promoting Access and Excellence in Education," U.S. General Accounting Office, Testimony Before the Subcommittee on Human Resources, Committee on Government Reform and Oversight, U.S. House of Representatives, March 20, 1997.
10 Susan P. Choy, Larry Bobbitt, Low-Income Students:Who They Are and How They Pay for Their Education, National Center for Education Statistics, U.S. Department of Education, NCES 2001-169, March 2000, p. vi.
11 Baum and O'Malley, p. 22. The survey also found that Black, Hispanic, and Asian-American debtors were more likely than white students to feel burdened by debt, even when controlling for factors such as income.
12 Susan P. Choy, Paying for Colleges: Changes Between 1990 and 2000 for Full-Time Dependent Undergraduates, Findings from the Condition of Education 2004, National Center for Education Statistics, U.S.
Department of Education, NCES 2004-075, June 2004, p. 30.
13 Baum and O'Malley, p. 24.
14 American Council on Education press release, October 11, 2004.
15 Lutz Berkner et. al., 2003-04 National Postsecondary Student Aid Study (NPSAS:04) Student Financial Aid Estimates for 2003-04, E.D. TAB, National Center for Education Statistics, U.S. Department of
Education, NCES 2005-158, February 2005,Table 1.
16 Missed Opportunities: Students Who Do Not Apply for Financial Aid, American Council on Education, 2003.
17 Choy et. al, Low and Middle Income Undergraduates, pp. 55-56.
18 Jacqueline E. King, Crucial Choices: Student Behavior and Persistence in the United States, International Higher Education, Boston College, Fall 2002.
19 While 12.59 percent of students whose parents did not complete high school worked full-time and did not borrow, only 5.74 percent of those whose parents had graduate degrees fell into this category in 1999-2000. National Postsecondary Student Aid Study 1999-2000, National Center for Education Statistics,U.S. Department of Education.
20 "College Costs Too High Even for Some Families Who Save," All Things Considered, National Public Radio, May 23, 2005
21 Christopher Avery and Caroline M.Hoxby, "Do and Should Financial Aid Packages Affect Students' College Choices," in Caroline M.Hoxby, ed. College Choice: The Economics of Where to Go,When to Go, and How to Pay for It, Chicago: University of Chicago Press, 2004.
22 Ekstrom, R. "Attitudes toward borrowing and participation in postsecondary education." Paper presented at the annual meeting of the Association for the Study of Higher Education, 1991, as cited by Laura W. Perna in "Impact of Student Aid Program Design, Operations, and Marketing on the Formation of Family College-Going Plans and Resulting College-Going Behaviors of Potential Students." (See note 24.)
23 Caught in the Financial Aid Information Divide, survey conducted for The Sallie Mae Fund by the Tomás Rivera Policy Institute at the University of Southern California.
24 Laura W. Perna, "Impact of Student Aid Program Design, Operations, and Marketing on the Formation of Family College-Going Plans and the Resulting College-Going Behaviors of Potential Student," The
Education Resources Institute, 2004.
25 Patricia M. McDonough, "The Price of Advice: Counselors' College and Financial Aid Knowledge," 2004.
26 Patricia Gándara et. al. Final Report of High School Puente 1994-1998
27 William G.Tierney and Kristan Venegas, "Addressing financial aid in college preparation programs," unpublished paper.
28 As quoted in Kathy Witkowsky, "Debating Student Debt: Are college students living beyond their means?" National Crosstalk, Fall 2002.
29 2003-04 Undergraduate Financial Aid Report to the Priorities Committee, Faculty and Student Committee on Undergraduate Admission and Financial Aid, November 26, 2002.