Loans are worth the cost for some community college students, study finds
- Community colleges often discourage their students from taking out loans to cover their education, but new research suggests students who receive some forms of loan aid perform better and have higher earnings when they graduate, according to a new report in EducationNext.
- Because student borrowing has been called a crisis, many colleges are trying to reduce students' debt by offering less loan aid. To gauge the impact on students of colleges' efforts to reduce borrowing, a pair of researchers looked at outcomes for two groups of 10,000 students at a single large community college who received zero or nonzero loan awards.
- They found that students who accepted nonzero loan offers ($3,500 or $4,500) earned on average nearly four more credits, obtained a GPA nearly a half grade-point higher, and were more likely to transfer to a four-year college. They also earned an average of $370 more per year upon graduation.
A report pointing to the positive effects of student borrowing is uncommon. Some students and colleges have shied away from loans because of negative media attention that some experts contend has misstated or exaggerated student debt.
"However well intended, efforts to discourage student borrowing may be hindering students' progress rather than protecting their future," the report's authors write, noting "the resources provided by student loans could mean the difference between working longer hours and having additional time to spend in class or on coursework."
An October article from the Wharton School at the University of Pennsylvania called student debt "one of the creeping threats of our time," noting its levels have more than tripled since 2004, leaving graduates "holding promissory notes worth an average of $37,000." It suggested debt could limit student borrowers' ability to buy a house, get married, have children and save for retirement.
Yet, the report notes, less than 5% of graduates have the burdensome $100,000 in debt that has been described in the media. It points out such high levels are generally accumulated by students who seek advanced degrees and that about 40% of students with debt owed $10,000 or less. Debt can be especially problematic for students who don't finish their degree and therefore lack the credentials deemed valuable enough to have made the borrowing worthwhile.
Colleges are also concerned poor loan repayment rates would cause them to lose their eligibility to offer federal student loans and grants. Various options for handling student debt are coming up in discussions over a possible reauthorization of the Higher Education Act.
Retiring Sen. Lamar Alexander (R-Tenn.), who chairs the Senate education committee and has for years sought to reform student borrowing, wants to change rules sanctioning colleges whose students excessively default on loans, noting they are rarely enforced. Congressional Democrats, meanwhile, are focusing on strengthening gainful employment regulations. If reauthorization does happen this session, it's not likely to take the form of sweeping legislation as both sides work to merge their disparate visions of a rewrite.
- Education Next The Benefits of Borrowing