Linking Student Debt and Student Success

Student debt is a major topic of public concern across our country—from anxiety over the sheer scale of the amount owed by borrowers to the debate over federal debt relief initiatives. Whether at the kitchen tables of students and their families or on the front page of the New York Times, the student debt crisis seems ever present. What’s more, the issues surrounding college affordability and the student debt burden have helped spur growing concerns about the value of a college education and whether completing a college degree is even worth it.

In response, the Council on Student Success (CfSS) invited Karen McCarthy, vice president of public policy at the National Association of Student Financial Aid Administrators (NASFAA), to discuss current trends in student debt and, most important, what governing boards need to know about its relationship with student success. This post will share what we learned from that discussion.

For starters, boards should have an accurate understanding of what the student debt picture in the United States truly looks like and be able to separate fact from fiction. We hear a great deal about large debt balances and high default rates, but the reality is that less than half of students enrolled in post-secondary institutions borrow funds to pay for their education. In fact, the federal student loan volume has been shrinking over the last few years. Moreover, the average debt by degree varies greatly; for bachelor’s degree holders, it’s a relatively modest $28,400. The six-figure balances that make news headlines are most often associated with the pursuit of advanced or professional degrees, and those borrowers typically have low default rates.

Nonetheless, the higher education sector still needs to address certain problem areas. One is the growth of parent borrowing. A 2022 Century Foundation Report provided new analyses of how Parent PLUS loans have morphed from a program that primarily helped middle-class families cover expected family contributions into an access program for low-income families, especially Black and Latinx parents, who now are having difficulty repaying those loans. A few statistics:

• Black Parent PLUS borrowers with an effective family contribution (EFC) of zero was 42 percent in 2018.
• Latinx Parent PLUS borrower rates are also high, exceeding 25 percent.
• While just 13 percent of White parents who hold student loans for their children’s education also hold student loans for their own, as many as 33 percent of Black parents and 29 percent of Latinx parents do.
• Low-income families, and especially Black and Latinx parents, are disproportionately taking out Parent PLUS loans, exacerbating the racial wealth gap.
• More than triple the number of Parent PLUS recipients lived below the poverty line in 2018 than in 1996.

A second problem area concerns students with low-balance loans that don’t ultimately get their degrees.

• Federal student loan default rates are highest for borrowers with low balances. As of March 2022, 33 percent of borrowers owed less than $10,000.
• In the households where the only person attending college did not receive a degree, $1,000 in outstanding college debt has raised the probability of experiencing bankruptcy by almost 4 percentage points over the last 10 years.
• Two years after attending college, 60 percent of undergraduate non-completers do not make loan payments.
• Non-completers that incurred student loan debt are nearly 7.8 percentage points less likely to own a home than otherwise similar bachelor’s degree holders.

Parent borrowing and the default status of non-completers can seem like topics beyond the control of institutions and their boards. But these issues are, in fact, symptoms of larger student success challenges that are well within the scope of their responsibilities.

Considering Aid Differently
We tend to think about standard forms of aid—such as Pell and state grants, work study, institutional scholarships, and loans—as the only resources available to help students in pay for college. But additional resources at the federal, state, and community levels may be available to students to fund the non-tuition components of their total cost of completion. Working with students to access those resources can limit the need to borrow additional funds.

The federal government is examining ways that different public benefits programs might work together. For example, students who are eligible for the Supplemental Nutrition Assistance Program (SNAP) have a more streamlined process for completing the FAFSA. Policymakers are asking: Could students who are receiving the maximum Pell grant be automatically eligible for SNAP? Could institutions more effectively partner with state and community-level aid programs to make those programs more easily available to their students? Better coordination and assisting students in accessing the support for which they are already eligible would go a long way toward both keeping them enrolled and reducing their dependency on borrowing to fund their education.

Emergency aid is another source of funds. Before COVID, a few innovative institutions were experimenting with providing small grants to address unanticipated challenges that threatened students’ ability to persist. Higher Education Emergency Relief Funds support during the pandemic expanded the practice to more institutions and many more students, providing direct evidence that small, targeted grants can have a big impact. Looking ahead, as part of the FAFSA Simplification Act, emergency aid will no longer count toward a student’s financial aid package, providing much greater flexibility for institutions to respond to demonstrated student need. While such changes won’t go into effect until the 2024–2025 academic year, they will provide powerful new tools for institutions to support students in need.

Questions for Boards: Is our institution taking a more holistic look at potential student aid and considering a variety of resources and approaches? What is the repayment status of all borrowers, including parents and non-completers. How long is it taking for them to repay their loans?

Decreasing Time to Degree
An important way for institutions to address student debt is to reduce costs by improving efficiencies and decreasing the time to degree for more students. At one CfSS institution, innovations in curriculum design and advising—including getting students into the right major early and making sure they are in the right classes needed to progress—have not only raised graduation rates but also reduced time to degree, saving each graduating class about $20 million in tuition and fees.

Questions for Boards: How can we innovate and control costs to save student money and reduce their need for additional borrowing? What efficiencies might the institution introduce to shorten time to degree and increase completion rates? What metrics should we establish and track to gauge improvement?

Empowering Students with Information
One CfSS institution creates an individualized report that walks each student through the total cost of their education, the amount of debt required to complete their degree, and some specific resources to help them pay for it. Engaging students one-on-one so they have a clear understanding of their choices takes time, but the institution is starting to see a real impact on student success.

Another institution asks student leaders to participate in trustee meetings to help board members better understand student debt and the investment students are making. It also advises students on emerging industries and potential careers, so they can make informed decisions about career choices that provide a solid return on their investment.

Questions for Boards: How is our institution empowering students to make informed borrowing decisions that support both persistence and degree completion—and at levels they are able to repay after graduation? Could broadening the scope of aid advising help reduce our students’ borrowing? Is our institution resourced enough to do adequate counseling?

Focusing on Value
In the past, the public generally believed in the value of a college education and simply trusted that an investment in higher education was a smart choice for them and their families. Now, however, they are less sure. Borrowing to pay for a college education that pays off in higher earnings and a lifetime of economic stability is not controversial. Borrowing to complete degrees and credentials that don’t result, at minimum, in enough increased earnings to pay off the loans is what has evoked concern among the public and policymakers.

In response, the U.S. Department of Education is proposing a Financial Value Transparency Initiative that would require each higher education institution to release information about information on debt-to-earnings ratios and wage premiums for all the degrees it confers—not just nondegree programs, as with Gainful Employment rules now. The goal is to provide students with transparent information about the return on investment of their chosen degree so they can make informed decisions about borrowing to finance it.

Boards have a consequential governance responsibility to help rebuild public trust by ensuring that the degrees their institution confers warrant the investments their students are making. That means providing the type of economic security and social mobility that are the foundation of higher education’s value proposition.

Questions for Boards: What is the financial value of different types of our institution’s degree programs? What are other types of value do these programs offer, and how do we measure them?

Lisa Foss, PhD, is the ambassador to AGB’s Council for Student Success and a senior consultant for AGB.

With thanks to AGB Mission Partner, AT&T for its support of the Council for Student Success.