Wealthier students borrow more for college. Here's why.
- Students from high-income families tend to attend pricier colleges and take on more debt, according to a new Manhattan Institute report that found borrowing for bachelor's and associate degrees rose by about $4,500 for families making over $120,000 a year and about $1,400 for low-income students from 2011-12 to 2015-16.
- Net costs for bachelor's degree students were $85,000 in 2015-16, up $6,000 from 2011-12, while costs for students seeking associate degrees were relatively unchanged for the period at $22,000 in 2015-16. As a result, the gap between what high- and low-income students borrowed on average rose from $7,500 to $10,500 over a four-year period.
- Those seeking associate degrees borrowed $992 less in 2015-16 than they did four years before, compared to $1,110 more for bachelor's degree borrowers. Although the cost of a two-year degree remained relatively stable, students were able to pay for more of their those expenses through a roughly $2,500 average earnings increase.
The research touches on two issues that have been at the center of the debate about spending on college over the last decade: student debt and affordability.
The study argues discussions around college affordability should consider the "long-run return" of students' tuition investments. Although students at high-priced institutions often pay more and have higher levels of debt, the findings suggest most expect to benefit from higher salaries in the long run.
To measure affordability, the researchers used the Rule of Ten, a calculation developed by the Lumina Foundation that suggests college is affordable if it doesn't cost more than what a family can save from the combination of 10% of their income over the decade before a student's enrollment and a student's earnings from 10 hours of work each week while enrolled.
Using that formula, the researchers found the percentage of students who were above the affordability threshold decreased slightly, from 75% to 72%, which they attribute to higher family incomes and earnings while in college.
Even with higher education becoming slightly more affordable, many low-income families are still priced out of college. For instance, families earning $30,000 or less would need to spend 77% of their income to cover the net price of a four-year college, according to a 2017 report from The Institute for College Access and Success.
In addition, the National College Access Network reported that 90% of flagship institutions were unaffordable to those receiving Pell Grants, according to their metrics.
Meanhile, a recent Bloomberg analysis found student debt hit a record $1.465 trillion in November, more than double the $675 billion nearly a decade ago. Borrowers who took out loans in 2012 have had a particularly hard time paying off their debt, the analysis found, having entered the workforce at a time when the unemployment rate was double what is it today.
- The Manhattan Institute College Affordability Update: Value, Price, and Choice in U.S. Higher Education