Paying for college may be expensive, but for those who graduate, we know that the return on investment is a good one.
That’s why the alternative (students who begin paying for college but don’t complete their degree programs) is another story altogether. Students who don’t earn their credentials will continue to find themselves locked out of job opportunities as a result.
The real tragedy is when the students who do not complete also borrow to pay for their unfinished degree. Realizing a return on debt to finance college only works when the resulting degree leads to higher wages that help pay the loan back.
Private scholarships make a massive impact
Consider internal and external private scholarship availability: These are free dollars that boost affordability and reduce borrowing, yet students routinely struggle to identify opportunities for which they are likely to be most competitive. Helping students understand the availability of this aid— and helping them try to secure it — should be a priority as it will drive better financial outcomes.
We know that this aid helps. My analysis shows that the percent of student borrowers who leave with debt but no degree is anywhere between 14% and 33% lower for students who receive up to $1,000 in private scholarship aid their first year, depending on how much debt they leave with. It seems to have the most impact on students who drop out with less than $5,000 in loan debt; $1,000 in private scholarship money for these borrowers reduces the percent who leave without a degree from 58% to 38%. Surprisingly, the smallest impact is not among those leaving with the most debt, but those leaving with anywhere between $5,000 to $10,000 in debt (44% to 39%).
Results like these help confirm suspicions that a sizeable fraction of collegegoers who leave do so for affordability reasons. On the other hand, earning a few hundred dollars in scholarships doesn’t put much of a dent in price tags that can reach $50,000 at even a public, regional university.
Questions like this are just one more reason why the scholarly community needs to allocate more time to dedicated research on students with debt but no degree.
If we had to guess
My sense is that several things are simultaneously going on. From an analysis standpoint, I look only at scholarship aid in the first year and higher borrowing is probably related to more years enrolled. Also, since people must be intrinsically motivated to apply for private scholarships, there is also likely some selection bias here. It may just be that students for whom the cost-benefit analysis needs to make sense are more apt to complete because they find and secure resources to make their college experience less expensive.
For the practitioners in the room, this means that simplifying the search for scholarships and auto-populating applications could have a direct and significant impact on schools’ completion rates.
Another thing likely being captured here is a “grazing” effect among students who are unsure about the college commitment. We know that student borrowers who leave college with the lowest balances tend to be the most likely to eventually default on those loans. The struggle to repay may come from insufficient earnings, but the reason they are there to begin with was a financing choice that could have been made better with smarter, simpler communications.
How Debt Without Degree factors into the conversation
Debt without degree continues to operate as a shadow villain in contemporary college affordability debates. Beyond making college free, if some people finance part of their education, there will continue to be those who will make choices (or face life events) that invariably lead to loan debt without a credential to show for their effort.
That’s why addressing this means acknowledging that we’ve got more of an engineering problem to solve than a policy problem to debate. The more we research this problem, the more evidence we find that the real financing friction students face can be smoothed by everything from providing them with better data for decision-making, to improving school-student communication. Where this happens today, we increasingly see more graduates and less debt.
The struggle with paying for college is not one likely to end anytime soon. Understanding who struggles and why is the first step that schools and policymakers can take towards developing solutions that will drive the 21st-century economy.
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