The qualified unqualified

The unqualified “qualified”

A Look at the Student Lending Market

Taft Dorman

________________________________

Jon Lowe

________________________________

Nina Winklerova

________________________________

The Unqualified “Qualified”: A Look at the Student Lending Market

Taft DormanJon Lowe

Nina Winklerova

Abstract

The American economy relies heavily on its direct and indirect methods of funding investment opportunities for economic growth. Private and federal student loans provide means for students to borrow and invest in their cognitive progress, and theoretically contribute to economic growth. The recent student debt crisis has raised questions as to whether the federal government should be involved in the student lending. We discuss the differences between the private and federal student lending markets. We suggest both systems may be inefficient. The federal lending system warrants higher student loan default rates, but increases post-secondary enrollment for lower income households. The private lending system may provide educational options for prospective college students, but places unnecessary risk on co-signers, provides limited repayment options, and may promote income inequality. Planning for college reduces demand for both federal and private loans.

Introduction

A healthy financial system transfers monies from those who save to those who may

contribute to economic growth through investment opportunities. This transfer may happen in

two ways: direct finance or indirect finance. Through direct finance, securities are sold directly

from entities connected to the financial markets to households looking to save or invest. Indirect

finance includes a financial intermediary (i.e. bank) that generally, for a small interest payment,

collects deposits from saving households and then lends, at a higher rate, these deposits to

borrowers with investment ideas to contribute to economic growth. Indirect finance and

financial intermediaries are typically the primary source of transferring funds from savers to

borrowers.

The student lending market is featured primarily through the indirect financing process.

Generally, there are two parties issuing loans to student borrowers: the federal government and

1 | The Unqualified “Qualified”

private lenders. Qualifying for a federal loan requires a high school diploma and getting

accepted into a post-secondary education institution1. Creditworthiness is associated with

qualifying for private student loans. In theory, student lending contributes to economic mobility

since it may boost the likelihood of households attending college and increasing lifelong income

(human capital theory). Educated households then contribute to economic growth.

Agency theory (Eisenhardt, 1989) is alive in the student lending market. Information

asymmetry, and the existence of adverse selection and moral hazard cause systems to be

inefficient. Cutler & Zeckhauser (2004) and Kunreuther & Pauly (2005) demonstrate through

the insurance markets that households who don’t need insurance purchase it, while households

that need it don’t. Similar effects are present in the student lending market. Who is more likely

to apply for a loan, a household with substantial assets and a sufficient amount of income or a

household with few assets and little income? Who is more likely to apply for a federal loan, and

who is more likely to apply for a private loan?

Adverse selection occurs when information asymmetry is present before a transaction

occurs between two parties. In the student lending market, student borrowers may have greater

information about their ability and plans to repay a student loan than the lender (either federal or

private). Thus, both the federal and private lending systems question which applicants to lend to,

and how much. The industry argues that federal loans are necessary because private lenders

speculate that less sophisticated and lower income households have greater default rates.

Adverse selection is reduced by lenders attempting to weed out the lemons (Akerlof,

1970) of student borrowers. Private lenders reduce adverse selection by screening prospective

borrowers of their ability to repay the debt. Similar to insurance companies requiring physical

exams, and possibly the review of prior medical records, in order to qualify for health insurance,

1 Students can fill out the FAFSA prior to being accepted to college.


private issuers of student loans require confirmation of trustworthiness to repay the loan through

examining a prospective borrower’s credit history. Insufficient or untrustworthy credit may

trigger the need for a co-signer. With federal loans, this behavior doesn't exist since the purpose

of federal lending is to provide economic mobility to lower income households. However,

federal loans have limits and the demand for federal funding by lower income households is

higher than the supply available, triggering an increase in demand for private loans by lower

income households when federal funds are insufficient for the intended educational outcome

(Dillon, 2009).

Moral hazard exists in the student lending market. Moral hazard deals with self-interest

and the decision each student borrower makes after receiving funds. In other words, student

borrowers may seek a human capital investment opportunity with greater risk than lenders would

prefer. For example, a student borrower may enter college with the intention of becoming a

neurosurgeon. Because of the high income potential of this profession, the lender sees the

student borrower as one with little difficulty repaying the loan. However, after embarking on the

path toward medical school the student may find they don't like the subject and change their

major to a less lucrative career, such as a high school teacher. Students may even fail to graduate

or choose to leave college voluntarily. Or a student borrower may invest the funds in the

financial markets and possibly lose it, rather than spend it on their tuition bill. The loss due to

market risk reduces the likelihood of the student borrower being able to repay the loan.

Moral hazard is reduced through restrictive covenants and collateral. Federal student

loans are unsecured loans which have few restrictive covenants, and require no collateral, thus

moral hazard is higher with these loans, compared to private student loans. If a federal student

borrower fails a course, they must return the money lent to them. On the other hand, private


loans, which are commonly secured loans, require a co-signer when a student borrower doesn’t

have trustworthy credit. The co-signers credit, net worth, or other assets, may be used as

collateral for the loan, thus reducing moral hazard. Both federal and private loans attempt to

reduce moral hazard through bankruptcy laws. Generally, student loan debt cannot be forgiven

in bankruptcy. This law pressures student borrowers to work on repaying the debt.

For four decades, the cost of a post-secondary education has risen, annually, at least twice

the rate of inflation. Research consistently demonstrates that households believe a college

education is a ticket to opportunity even with this continuous rise of overall college costs, thus

the use of student loans is attractive (S. Mae, 2014). Approximately 60% of federal financial aid

is through student loans. This significant reliance on federal student loan debt has contributed to

the increase of college graduates carrying post-graduation debt.

Lower-income households may be unreasonably impacted by increasing post-secondary

education costs. Less fortunate households with college aspirations are obligated to fit the

college bill with student loans, which may depress their college enrollment rates, and increase

student loan defaults (Mulleneaux, 1999). The tax deductibility of student loan interest makes

student loans attractive, and college savings less attractive for higher income households because

it may reduce the cost of financing an education (Hoxby, 1998).

Student loans may hinder future economic growth and student mobility. Total student

debt has surpassed total credit card debt, and is impeding graduates from purchasing homes,

getting small business loans, starting families, saving for retirement, and saving for their

children’s college education (Ambrose, Cordell, & Ma, 2014). However, research argues that

college students who go into debt and contemplate dropping out may better off taking on more


debt to complete their education rather than to leave with debt and no degree (Avery & Turner,

2012).

Literature Review

Studies debate predictors of college success. 60%-70% of high school graduates enroll in

post-secondary education programs (Bleemer & Zafar, 2015; Garneau, 2012) and 23% of high

school graduates are prepared for the rigors of completing a four year degree (Greene & Winters,

2005; Porter & Polikoff, 2011).

Multiple funding sources are used to cover expenses for a child’s post-secondary

education. 32% comes from parental income and savings, 30% from scholarships and grants,

16% from student borrowing, 11% from student income and savings, 6% from parental

borrowing, and 5% from relatives and friends (S. Mae, 2015a). Elliot & Beverly (2011) question

the effect of savings and assets on college progress towards graduation by looking at a sample of

1,003 students. They show that young adults who have parents with post-secondary education

savings set aside are twice as likely to be expected to graduate from college compared to those

whose parents don’t have college savings set aside. Additionally, they find that 68% of students

with college savings by their parents are expected to experience economic mobility and success.

Avery & Turner (2012) show that students who don't plan ahead take on more debt.

Studies analyze the use and impact of student loans. Elliot, Song, & Nam (2013)report

that student loans are negatively correlated with college graduation rates. Ambrose et al. (2014)

study the impact of student debt on small business formation. They find that between 2000 and

2010, student loans are creating a negative impact on economic growth with respect to business

with one to four employees. Feshbach et al. (2015) reports that 93% of outstanding student loans


are handled by the federal government, with remaining 7% being with private lenders.

Assistance (2013) reports that student loans cause households to delay important life events (i.e.

moving out of a parent’s home, buying a home, getting married, having children, etc.). Ionescu

(2009) investigates the federal student loan program in the U.S. and finds that offering multiple

repayment options to borrower’s increases college enrollment rates.

This paper questions the participation in private and federal student loans among

American households using data from the High School Longitudinal Survey 2009 (HSLS09),

collected by the National Center for Educational Statistics (NCES). More specifically, we

question which body (private or government) may be more suitable for the student lending

market. This question is investigated by demonstrating why student lending is considered a

crisis, showing how American households save and pay for college (based on secondary data),

discussing the levels by which private and government lending participate in this market by

reviewing the pros and cons of using each party, comparing the domestic student lending market

with that of a global perspective, and demonstrating who is using the two different loan markets

using the HSLS09.

Section 2: Why is Student Lending Considered a Crisis?

American’s who borrowed money before the previous financial crisis in 2008 are now

having problems repaying their debt. Because they cannot afford to make their entire monthly

payment borrowers are making partial payments and extending the life of their loan. After being

issued, student loans are bought and sold on the secondary market. This means the timeliness of

repayment affects the amount of interest it accrues by maturity, but more importantly it changes

the yield earned by the investors who purchased the debt on the secondary market.


Moody’s Investors Service and Fitch Ratings is considering devaluing the AAA rated

debt to below BBB. Intuitively, it makes sense that government backed debt should receive the

prime rating. However, because students aren’t defaulting the government isn’t paying off the

debt to the investor. Instead the investor is stuck waiting longer to receive their payments. The

result of the devaluation will ripple into the bond market. A decrease in credit rating this

significant, from investment grade to junk, will cause bond holders to rapidly sell off their

investments and prices will plummet.

The current rate of default in student lending is at 11.5% which is more than double the

current rate of residential lending of 5.45%. It’s important to note that during the real estate

financial crisis the default rate in home loans reached its peak at 11.26%. Even more

troublesome is the amount of students who are classified as “seriously delinquent”. Nearly one

third of the current student debt falls into this category of borrowers who are likely to convert

into defaulted debt.

Students are taking on debt to fund their education without any programs in place to

educate them about borrowing. This causes students to borrow for reasons they do not need and

extend their borrowing above what they require for their education. Without education students

who do not have all of their needs met by a federal loan are pushed towards private loans. The

negative aspect of this is that private loans charge a higher interest rate. The private loan sector

also sees an increase in their default rate from the increased demand.

Figure 1


Another strong reason for considering student lending a crisis is the rate at which

education is appreciating. Since 1978, the price of education has increased 1225% on average. In

contrast, the appreciation of the consumer price index is marked at 279% since 1978. More

importantly, the saving that was done to hopefully pay for this generation’s education was done

over this period. Because the general increase in salary most companies use is based on the

appreciation of the consumer price index there has become a giant mismatch between education

and the incomes that fund it. This has lead to an increase of borrowing required and financial

pressure on students that might not have existed. The scariest take away from this data is the

dramatic increase in slope for the price increase of tuition and fees in year 2000 and what that

implies for the future cost of education.

Figure 2


The price of education is increasing at an alarming rate. Alongside with this appreciation,

default rates are increasing as well. The current rate of default in student debt is already above

the peak in the real estate crisis. Investors are losing yield on the secondary market from

borrowers delaying payments. The final piece is Moody’s Investors Service and Fitch Ratings

considering devaluing the debt from prime credit-quality investment grade to junk grade. If these

problems continue to grow, they have the potential to crash the economy together.

Section 3: How America Saves and Pays for College, A View from Prior Research

The lack of saving for college may increase the demand for student loans. Saving for a

college education is an important financial goal for many households, second only to retirement

(Table 1). Less than a third of American households are saving adequately for their child’s

college education. The college savings indicator demonstrates how prepared households are in

paying for college. With only 27% of college saving households being prepared, this shows the

demand for lending services may rise (Figure 3).


Saving Goals Named #1 Priority

Retirement 26%

College 19%

Emergency Fund 16%

House/Mortgage 16%

Pay off credit card debt 15%

Future health care 4%

Pay off own student loans 4%

Table 1: Top Priority Saving Goals

Source: (Fidelity, 2015)

Figure 3: Household Preparedness to Pay for College



The ability to meet college savings goals has declined. Figure four shows that

households have declined in their ability to meet their college savings goal since 2009. This may

trigger an increase in demand for lending sources. Figure five shows that, on average, college

saving households have approximately $10,040, or only 10.16% of total household savings for

post-secondary education purposes.

Figure 4: How Close are Households to Meeting their College Savings Goals?

Source: (Fidelity, 2015)Figure 5: Average Amount Saved for College Compared to Total Household Savings



Figure six shows that low interest earning accounts dominate the education savings

market. Less than a third of American households are using more efficient saving vehicles such

as 529 plans (prepaid and savings), Education Savings Accounts (ESAs), Trusts, or general

investments. The lack of saving efficiency may increase in demand for student loans.

Figure 6: College Savings by Vehicle

Source: (Mae, 2013, 2014, 2015b)


Figures seven and eight show how American households pay for college. Parents take on

the majority of the responsibility, with student’s efforts to obtain grants & scholarships in

second. More loans are being taken out in the student’s name than the parents, but total

borrowing (parent & student) makes up about 25% of how family’s pay for college. If students

are more involved in the saving and investing efforts of their future education, they are more

likely to go to, and complete a college degree.

Figure 7: Parents' Intention to Pay for College Costs

Will Pay for All of College Will Pay for a Portion Will Not Pay for Any0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20%

74%

6%

26%

69%

4%

28%

67%

6%

35%

61%

4%

2012 2013 2014 2015



Figure 8: How the Average Family Pays for College

Source: (Mae, 2009, 2010, 2011, 2012, 2014, 2015a)

Section 4: Private vs. Federal Lending

Table two summarizes important differences between federal and private student loans.

With respect to the ease of access, federal loans are fairly easy to obtain, while private loans are

moderately difficult. Federal loans generally only require that a college student have a high

school diploma, where private loans are more likely to require some credit history,

demonstrating creditworthiness, which may be unlikely among high school graduates. This may

trigger an increase in co-signers with private loans. Federal loans do not have co-signing

requirements. Interest rates are important in the decision. Interest rates on federal loans are

fixed rates, while private student loans can be variable, which may be riskier for a young and

inexperienced debt borrower, especially in low interest rate environments.

Repayment options differ among private and federal loans. Federal loans provide

multiple repayment options to the borrower, which can make the ability to pay back the loan

more feasible (i.e. income based repayment plan). On the other hand, private loans, in their


current state, have fewer repayment options, making these loans less attractive. Additionally,

federal loans typically don’t require repayments to begin until six months after graduation, where

private loans can require repayments while the student is still in attendance.

Tax deductibility of interest is an attractive feature of student loans. Interest paid on a

federal student loans qualifies for tax deductibility treatment, where it is less common for such a

benefit with a private student loan. This tax benefit by federal loans may increase a household's

overall consumption and demand for a federal over a private loan.

Table 2: Summary Comparison of Federal vs. Private Student Loans

Loan consolidation is questioned by borrowers. Federal student loans permit loan

consolidation, but if consolidation takes place with a private lender, borrowers of federal loans


Loan Details Federal Private

Ease of Access Easy Moderate

Interest Rate Fixed Variable

Repayment options Multiple Few

Repayment While in School No Yes

Credit Check No Yes

Co-signer No Yes

Tax Deductible Interest Yes No

Can you consolidate Yes No

Repayment Penalty Fee No* Possibly

Loan Forgiveness Yes No

Life Insurance Yes No

may lose their flexible repayment options. Private student loans generally don’t allow for loan

consolidation. Loan consolidation may be discouraged by the fact that federal student loans

carry a form of life insurance with them, where private loans don’t. If a borrower of a federal

loan dies, the loan balance is forgiven. Thus, if borrowers are considering loan consolidation,

commonly a transaction sought for reducing the required monthly payment, consideration into

how much the life insurance equivalent would be may need be investigated.

Fee structures need be considered. Generally, if a borrower is seeking to repay the loan

early, there is no prepayment penalty fee with federal student loans, but they can be found in

private student loans. Thus, it is worthy to note the importance for student borrowers, especially

of private student loans, to investigate the details of the specific loan they are considering.

MeasureOne, a private research group on student loan data reports the current nature of

federal and student loans. As of the end of Q1 of 2015, 93% of outstanding student loan

balances were in federal loans, making up $1.2 trillion (Figure 9). 94% of undergraduate

students who take out private loans have a co-signer, compared to 55% of graduate students

(Figure 10). The gap in student loan default rates is increasing. Figure 11 demonstrates the

increasing default rate gap between federal and private student loans from 2008 to 2014. In

2014, approximately 11% of federal student loans were in default, compared to less than 5% of

private loans.


Figure 9: Outstanding Loan Balances

Source: (Feshbach et al., 2015)

Figure 10: Private Loans


Figure 11: Student Loan Default Rates



Section 5: An International Perspective

Before looking at the different types of student lending programs across countries, it is

important to point out that the United States had the highest postsecondary level expenditures per

student when compared with other OECD members. Figure 12 shows that in 2011 American

postsecondary level expenditure per full-time equivalent student amounted to $26,021, which

exceeded the OECD average of $13,619. This graph illustrates the relationship between

country’s GDP and higher education spending and one can see that US expenditure was far

above the trend line.

Figure 12: International Comparison of College Expenditures

Source: National Center for Education Statistics2

England

In England, college fees were first introduced in 1998 and have been increasing until the

imposition of a £9000 ($13,680) yearly cap in 2012 (Wilkins, Shams, & Huisman, 2013). Due to

the fees, new system of higher education funding had to be established. 2 http://nces.ed.gov/programs/coe/indicator_cmd.asp


Student loans in England are provided by Student Loans Company (SLC), which is a

non-profit, government-owned organization. It is funded by the Department for Business,

Innovation & Skills and the Department for Education. SLC provides tuition fee loans up to

£9,000 ($13,680) a year to cover the tuition and maintenance loans up to £8,000 ($12,160) a year

for covering living costs. Figure 13 shows that the amount lent in higher education has been

increasing between 2010 and 2015. This is caused by the increase of average fees each year

despite the maximum fee cap of £9,000 (Bolton, 2015). Additionally, according to the SLC

statistics the number of borrowers have been steadily increasing between these years.

Figure 13: Trend in Student Lending for English Households

Source: Student Loans Company (SLC)3

The easiest way to apply for student loans is online and it needs to be done nine months

after the start of the academic year. When applying, students have to prove their identity and

provide information about their household income.

3 http://www.slc.co.uk/


http://www.slc.co.uk/

Student loans by SLC are income contingent, which means that borrowers start repaying

them once they start getting salary. Also there is another condition that their income has to be

above £21,000 ($31,920) a year before they are required to make repayments. According to the

SLC, the interest rate on student loans equal the rate of inflation measured by the Retail Price

Index plus 3% and starts accumulating the moment the borrower receives their first student loan

payment. During the time between graduation and being employment with a salary above

£21,000 ($31,920), the interest amounts to only the rate of inflation. Repayments are calculated

by one’s employer and taken directly from the borrower’s salary. Furthermore, at the end of a tax

year the money is sent to Her Majesty's Revenue and Customs, which is the UK’s tax and

customs authority.

Besides the government-owned loan provider, there are also private lenders that

specialize in student lending such as Future Finance. Their loans range between £2,500 ($3,800)

and £40,000 ($60,800) and can cover both tuition cost and living expenses. Since students can

get better loan conditions with Student Loans Company, private lenders mainly aim to fill the

funding gap between government loans and the actual cost of attending university.

Germany

According to (Teichler, 2015), only 2% of students in Germany attend non-governmental

higher education institutions. The rest goes to public universities, which provide undergraduate

education for only small enrolment and confirmation fees in the majority of German states.

Additionally, six out of the sixteen states have recently started charging undergraduates a fee of

€800 ($856) a year. On the other hand, graduate studies are generally more expensive so students

have to find a way to finance them.


One option that they have is to apply for the federal loans within the federal financial

assistance scheme called Bundesausbildungsförderungsgesetz or simply BAföeG, which is

provided by the Ministry of Education. This program targets both high school pupils and

university students and the average monthly sum per student increased to €450 ($477) in 2011,

which can be seen in Figure 14. The amount that students can borrow depends on their and their

parents’ income and assets. One half of the amount is considered as a grant and the other half has

to be repaid five years after the loan has been received. There is no interest on the loan and

alumni with low income or outstanding grades can be granted a reduction of repayment

obligations.

Figure 14: Federal loans per student


Another option that students in Germany have is to apply for a loan from KfW

Bankengruppe, which is a government-owned development bank. Unlike the BAföeG, the loan

size does not depend on income and assets, but is determined by the borrower within the limits of

€100 ($106) and €650 ($689) per month. Furthermore, the interest rate is based on a reference

interest rate such as the 6-month EURIBOR and a contractually agreed binding margin. The

current effective interest rate on student loans from KfW is 3.81%. Students are required to repay

their loans within a maximum of 25 years after a grace period of 18 to 23 months.

Section 6: Who Uses What Type of Loan: A Perspective from the HSLS

Table three shows the descriptive statistics of student loan use among almost 9,500 high

school graduates entering college in 2014. Respondents were asked if they will be using a

federal loan, a private co-signed loan, or a private loan in the parent’s name to pay for college.

A large number of American households don’t know if they are going to use loans to finance

college. This agrees with prior research that the majority of households don’t have a plan on

how to fit the bill for college, and that the demand for student loans can be reduced by having a

plan. Results show that as households delay saving for college, the demand for federal loans

increases. However, this evidence is not found with private loans. More educated households

use fewer loans. Lower income households demand federal loans, but as income rises, the

demand for private loans increases. The private lending market is providing loans to more

sophisticated and wealthier households (who are more likely to afford a college education

anyways). Federal loans are being distributed to lower income and less sophisticated

households.


https://en.wikipedia.org/wiki/International_financial_institutions

https://en.wikipedia.org/wiki/Government-owned_corporation

Conclusion and Discussion

The student lending market is an indirect financing system by which monies from savers

(and taxpayers) is transferred into the hands of student borrowers investing in their future.

Theoretically, these students graduate from college and contribute to economic growth.

Research suggests that a college education, and the use of student loans to fund it, is considered a

good investment. However, less sophisticated households are financially illiterate and may make

sub-optimal debt management decisions (Campbell, 2006; Lusardi & Mitchell, 2014).

Student loans generally come in the form of federal or private loans. Federal loans have

fewer qualification requirements, while private loans require some form of evidence for payback,

such as creditworthiness. Federal loans have fewer measures than private loans to reduce the

problems of adverse selection and moral hazard.

Relaxed student loan eligibility requirements have little impact on college enrollment and

loan default rates, while government subsidies and multiple loan repayment options improve the

effectiveness of human capital investments for low income households (Ionescu, 2009).

Planning ahead and saving for a post-secondary education reduces the demand for student loans

(Avery & Turner, 2012).

The student debt crisis is a result of the principal agent problem. Students are borrowing

for their education without any programs in place to educate them about borrowing, resulting in

over borrowing behavior. The cost of college increases at a greater rate than inflation and

household income, feeding to this crisis.

Borrowing requires a sense of responsibility. This paper suggest that neither of the

current student lending systems are efficient. The private lending system lacks in reducing the

income inequality gap, while the federal lending system triggers high defaults. Thus, both


systems can improve against adverse selection and moral hazard. It is suggested that the federal

system considers three options. Further research is warranted for the effectiveness of these

options:

A) Require saving behavior of its borrowers, rewarding borrowers with matching funds

B) Eliminate the first come first serve rule to allow lower income households first priority

C) Consider implementing automatic student loan payments from paychecks

Options A and B are means by which adverse selection may be reduced. Requiring

future student borrowers to demonstrate saving behavior, the federal lending system can

implement borrower responsibility as a qualification requirement. This system could provide a

match. For example, for each $1,000 the student saves up for their future college education, the

federal government could match it with $5,000 of federal loans.

Eliminating the first come first serve provision on FAFSA applications allows lower

income households to take priority in the federal aid system. This may direct higher income

households to private lenders (the market private lenders focus on).

Implementing an automatic student loan repayment system directly from borrower

paychecks, similar to that of England, may decrease student loan default rates.

The private lending system manages adverse selection and moral hazard better than the

federal system, with its higher interest rates, non-forgiveness in bankruptcy, and requiring

restrictive covenants, but fails to address the income inequality gap. If the federal lending

system improves in forcing higher income households to seek private lenders, thus increasing

fund availability for lower income households, fewer low income households may demand

private loans. To discourage lower income households from seeking private loans, the private

lending market may consider implementing a down payment requirement. For example,


potential student borrowers could be required to have 10% of a first years’ worth of college, in

order to qualify for the private loan. This may make it more difficult for private student loan

borrowers to get a loan on top of what is already required (i.e. creditworthiness), but is a way to

promote better debt management behavior. Secondly, this paper suggests that private student

loans expand on repayment options of student borrowers. A positive relationship exists with the

demand for student loans and repayment options.

These suggestions could impact public policy in such a way to reduce adverse selection

and moral hazard, but ultimately to help avoid another student debt crisis.


Table 3: Descriptive Statistics of Student Loan Use (n = 9,477)Federal Loan Private Co-signed Loan Private Loan in Parent's Name

Saving for college? Total Yes No Don't Know Yes No Don't Know Yes No Don't Know

Before 1st grade 2371 (25%) 582 (25%) 864 (36%) 925 (39%) 368 (16%) 1023(43%

) 980(41%

) 408(17%

) 927 (39%) 1036 (44%)

Between the 1st and 6 2482 (26%) 754 (30%) 732 (29%) 996 (40%) 420 (17%) 971(39%

) 1091(44%

) 445(18%

) 924 (37%) 1113 (45%)

In the 7th, 8th, or 9 1737 (18%) 587 (34%) 457 (26%) 693 (40%) 321 (18%) 675(39%

) 741(43%

) 310(18%

) 662 (38%) 765 (44%)

Have not begun to save 2887 (30%) 1088 (38%) 703 (24%) 1096 (38%) 512 (18%) 1124(39%

) 1251(43%

) 467(16%

) 1158 (40%) 1262 (44%)

Household Income

≤ $15,000 461 (5%) 162 (35%) 123 (27%) 176 (38%) 81 (18%) 187(41%

) 193(42%

) 60(13%

) 215 (47%) 186 (40%)

$15,000 - $35,000 1287 (14%) 505 (39%) 320 (25%) 462 (36%) 219 (17%) 540(42%

) 528(41%

) 181(14%

) 575 (45%) 531 (41%)

$35,001 - $55,000 1402 (15%) 557 (40%) 305 (22%) 540 (39%) 246 (18%) 547(39%

) 609(43%

) 234(17%

) 546 (39%) 622 (44%)

$55,001 - $75,000 1511 (16%) 528 (35%) 377 (25%) 606 (40%) 278 (18%) 568(38%

) 665(44%

) 258(17%

) 559 (37%) 694 (46%)

$75,001 - $95,000 1199 (13%) 409 (34%) 299 (25%) 491 (41%) 229 (19%) 426(36%

) 544(45%

) 228(19%

) 426 (36%) 545 (45%)

$95,001 - $115,000 998 (11%) 285 (29%) 291 (29%) 422 (42%) 186 (19%) 361(36%

) 451(45%

) 191(19%

) 338 (34%) 469 (47%)

$115,001 - $135,000 702 (7%) 206 (29%) 202 (29%) 294 (42%) 122 (17%) 270(38%

) 310(44%

) 151(22%

) 221 (31%) 330 (47%)

$135,000 - $155,000 551 (6%) 137 (25%) 198 (36%) 216 (39%) 78 (14%) 235(43%

) 238(43%

) 109(20%

) 205 (37%) 237 (43%)

$155,000 - $195,000 443 (5%) 101 (23%) 170 (38%) 172 (39%) 66 (15%) 194(44%

) 183(41%

) 80(18%

) 168 (38%) 195 (44%)

$195,000 - $235,000 328 (3%) 47 (14%) 142 (43%) 139 (42%) 48 (15%) 152(46%

) 128(39%

) 52(16%

) 133 (41%) 143 (44%)

> $235,000 595 (6%) 74 (12%) 329 (55%) 192 (32%) 68 (11%) 313(53%

) 214(36%

) 86(14%

) 285 (48%) 224 (38%)Highest Level of Education

≤ High School3693 (39%) 1331 (36%) 990 (27%) 1372 (37%) 652 (18%) 1519

(41%) 1522

(41%) 609

(16%) 1569 (42%) 1515 (41%)

Associates Degree1516 (16%) 525 (35%) 382 (25%) 609 (40%) 276 (18%) 553

(36%) 687

(45%) 267

(18%) 548 (36%) 701 (46%)

Bachelor’s Degree2655 (28%) 770 (29%) 805 (30%) 1080 (41%) 443 (17%) 1051

(40%) 1161

(44%) 462

(17%) 970 (37%) 1223 (46%)

Graduate Degree1613 (17%) 385 (24%) 579 (36%) 649 (40%) 250 (15%) 670

(42%) 693

(43%) 292

(18%) 584 (36%) 737 (46%)

Parent/Guardian Age

< 35 716 (8%) 259 (36%) 197 (28%) 260 (36%) 126 (18%) 309(43%

) 281(39%

) 101(14%

) 330 (46%) 285 (40%)

35 - 40 1753 (18%) 617 (35%) 464 (26%) 672 (38%) 324 (18%) 655(37%

) 774(44%

) 302(17%

) 682 (39%) 769 (44%)

40 - 45 2644 (28%) 844 (32%) 758 (29%) 1042 (39%) 476 (18%) 1042(39%

) 1126(43%

) 475(18%

) 998 (38%) 1171 (44%)


45 - 50 2603 (27%) 764 (29%) 808 (31%) 1031 (40%) 428 (16%) 1041(40%

) 1134(44%

) 450(17%

) 975 (37%) 1178 (45%)

50 - 55 1294 (14%) 368 (28%) 399 (31%) 527 (41%) 197 (15%) 550(43%

) 547(42%

) 227(18%

) 492 (38%) 575 (44%)

> 55 467 (5%) 159 (34%) 130 (28%) 178 (38%) 70 (15%) 196(42%

) 201(43%

) 75(16%

) 194 (42%) 198 (42%)Household Race

White6423 (68%) 2012 (31%) 1906 (30%) 2505 (39%) 1101 (17%) 2600

(40%) 2722

(42%) 1101

(17%) 2507 (39%) 2815 (44%)

Asian695 (7%) 216 (31%) 196 (28%) 283 (41%) 115 (17%) 255

(37%) 325

(47%) 105

(15%) 254 (37%) 336 (48%)

Black925 (10%) 313 (34%) 262 (28%) 350 (38%) 160 (17%) 390

(42%) 375

(41%) 177

(19%) 358 (39%) 390 (42%)

Hispanic1013 (11%) 324 (32%) 282 (28%) 407 (40%) 175 (17%) 384

(38%) 454

(45%) 167

(16%) 385 (38%) 461 (46%)

Other race421 (4%) 146 (35%) 110 (26%) 165 (39%) 70 (17%) 164

(39%) 187

(44%) 80

(19%) 167 (40%) 174 (41%)

Marital Status

Married 7478 (79%) 2291 (31%) 2254 (30%) 2933 (39%) 1278 (17%) 2980(40%

) 3220(43%

) 1314(18%

) 2851 (38%) 3313 (44%)

Non-married 1527 (16%) 557 (36%) 371 (24%) 599 (39%) 271 (18%) 609(40%

) 647(42%

) 251(16%

) 609 (40%) 667 (44%)

Never married 472 (5%) 163 (35%) 131 (28%) 178 (38%) 72 (15%) 204(43%

) 196(42%

) 65(14%

) 211 (45%) 196 (42%)Discuss College Academics

No4862 (51%) 1531 (31%) 1380 (28%) 1951 (40%) 789 (16%) 1917

(39%) 2156

(44%) 798

(16%) 1866 (38%) 2198 (45%)

Yes4615 (49%) 1480 (32%) 1376 (30%) 1759 (38%) 832 (18%) 1876

(41%) 1907

(41%) 832

(18%) 1805 (39%) 1978 (43%)


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