Debt Without Degree: A crisis within a crisis

Carlo Salerno

Ask any economist and they’ll tell you a college education is one of the best investments someone can make. Indeed, most have heard the stat that over an entire working career, a bachelor’s degree holder will earn roughly $1 million more than a high school graduate.  

That statistic, of course, hinges on whether that person actually graduates college. 

 If you look at the data, a surprising percentage of bachelor’s-seeking students have no degree and are not enrolled six years after they first begin their higher ed journey. 

On its own, that’s bad: But the problem is compounded by the fact that a majority of students end up financing a large part of their own college training. That means these students not only leave school without a degree, but they leave with, in some cases, tens of thousands of dollars in loan debt that may take years to pay off—all without the prospects of a better job and higher earnings. 

Borrowing isn’t always bad, but not finishing after borrowing? Not good.

How big an issue is debt without degree? We’ve been digging into the U.S. Department of Education’s longitudinal surveys to uncover the extent of the problem, and there’s really no way to sugar-coat the fact that the numbers are just…bad. Really, really bad. Approximately one in six college students end up with debt but no degree, and a whopping 40 percent of all borrowers do. 

Stats like these range from unsurprising to utterly deflating, and in the next few months, we’ll be releasing a more detailed report on who is truly impacted by debt without a degree (and to what extent.) 

The relationship between debt and race:

One sobering statistic we know from the data is that Black students who do not complete their degrees are disproportionately more likely to have debt when compared to other populations. Roughly 66 percent of Black student borrowers who start but never finish leave school with loan debt, but only about 47 percent of white students (and just 35 percent of Asian students) end up in the same situation. 

Another frustrating insight? White students leave school, on average, with about $1,100 more in loan debt than Black students and nearly $3,000 more than Hispanic students, but the median balance of Black, Hispanic and mixed-race borrowers is higher than that of white students. In other words, white borrowers may drop out with higher balances, but larger percentages of minority borrowers leave with higher balances. 

What is going on here isn’t clearly obvious, but like most analysis that focuses on race, chances are good that what we’re looking at are patterns associated with other issues correlated to race – like uneven income or tax wealth distribution – that create hurdles to student financial success and academic success. Getting into and through college is hard enough under the best of circumstances, but, for example, when students start the education journey in K-12 districts that have few or no AP courses or in households that may have reliable Internet access, it gets much harder, much faster. 

It is also important to remember that ‘expensive’ and ‘burdensome’ are both relative. While $20,000 in student loan debt may feel like a bargain compared to a new car, it can feel like an insurmountable cost to a family of four living on $50,000 a year. And while there are folks for whom a $1,500 car repair bill is a manageable hassle, for other families, $1,500 is enough to send an already precarious financial situation into an outright tailspin.  

Racial and ethnic disparities are far more complex than patterns of wealth. 

The examples work to serve the point that the solutions to the problems we see may be hidden below the surface. Debt without a degree clearly impacts everyone. There is no legitimate reason to believe skin color or heritage should ever preclude, or limit, educational achievement, but there is good reason to believe that folks who for one reason or another may be over-represented in under-resourced communities would benefit from policies that level the social playing field. 

For policymakers, developing solutions that use tax dollars most efficiently, the process begins by identifying who needs support and assistance the most. If we can agree that at the most basic level debt without degree is a measure of inefficient social investment, then identifying who is disproportionately affected by this loss is how we create more targeted solutions that better direct scarce taxpayer resources toward those who need (and can benefit) help. 

About the Author

Carlo Salerno

Carlo is the Vice President for Research at CampusLogic. Over a 20-year career, he has done higher education research for the federal government, co-founded an education analytics company, and conducted a wide range of analyses for national advocacy groups and the student lending industry. He writes and frequently speaks on the economics of higher education.

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