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Determinants of student debt


The Project on Student Debt has just released a study, indicating that 71% of 2012 graduates of non-profit colleges and universities graduated with student debt, and that on average these students borrowed $29,400 over the course of their college attendance (This figure does not include accrued interest on debt. It is also an underestimate, since the methodology the study employed could not account for all private loans. Approximately 20% of the reported debt was in the form of private loans, although with the 2010 changes in higher ed financing this figure is probably declining going forward).

The Project’s web page allows you to look up debt totals for individual schools, and it enables the following striking comparison:

Colorado College

Average amount borrowed of 2012 graduates with debt: $19,970

Percentage of graduates with debt: 32%

Average amount borrowed of all 2012 graduates: $6,390

Current total nominal cost of attendance: $208,000

University of Colorado Law School

Average amount borrowed of 2012 graduates with debt: $100,813

Percentage of graduates with debt: 86%

Average amount borrowed of all 2012 graduates: $86,699

Current total nominal cost of attendance: $156,000

What accounts for such remarkable disparities? Possible explanations:

(1) Differences in socio-economic status of families of graduates. My semi-educated guess is that this is a factor, but a relatively minor one. While the student body at CC, like that at all elite liberal arts colleges, is dominated by people from rich and upper middle class families — with the emphasis on upper — this seems to be increasingly the case at CU Law, from my impressionistic sense of the marked change in the demographics of students over the past 20 years (during which time resident tuition went from $4,000 to $31,500 per year). In sum the average CC student probably comes from a wealthier background than the average CU Law student, but not drastically so.

(2) Differences in levels of financial aid. This is probably a big factor. The CU Law class of 2012 got about $4,000 per year, on average, knocked off the nominal price of attendance. I don’t know what the comparable number is for CC, but I would imagine it is much higher. (The respective endowments of the two schools in 2012 were $47 million and $573 million).

(3) Differences in the willingness — as opposed to the ability — of families to contribute to the cost of student attendance. I suspect this is by far the most salient factor. It seems to now be the cultural norm among the lower upper class/upper middle class in America that it’s expected families will pay for all or most of the cost of undergraduate degrees, but will contribute little or nothing to financing the cost of graduate and professional school. (A common arrangement seems to be that families will contribute toward the cost of living while their children are in the latter institutions, but will require students to pay for — or more accurately borrow from the federal government — all of the cost of tuition).

That certainly seems to be the case at CU Law, given that it appears the average undergraduate debt of our students is somewhere in the neighborhood of $10,000, with the median being zero. (This figure is of course relevant to interpreting (1) above).

This cultural norm is probably a product of, among other things, a semi-conscious assumption that the point of a college education is to provide one’s children with the benefits of general edification, i.e., the classic liberal arts ideal, while at the same time engaging in a powerful form of social signaling (It’s further assumed that this social signaling can to some extent be monetized). Meanwhile the function of graduate and professional education is to produce an enhancement in future earning potential that has a positive net present value in straightforward pecuniary terms, when measured against the cost of attendance.

To say these assumptions are becoming problematic would be something of an understatement.

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  • The cap on loans per year in undergrad is lower, isn’t it? Or is that just on subsidized loans?

    • Paul Campos

      There’s no cap on graduate and professional loans (other than total cost of attendance as determined by the school). I’m unclear how the caps function for undergraduate loans.

  • GFW

    On those last two cultural assumptions:
    The former: while undergrad may not be exactly the classic liberal arts ideal, it has become pretty much essential (whether due to credentialism or poor high schools doesn’t really matter for this observation) which provides a strong incentive for parents to pay for it.
    The latter: I think anyone paying attention would agree that law school is losing its positive net present value, but are all graduate and professional degrees in the same position?

    I guess what I’m saying is that the norm may be more simply explained by the apparent necessity of undergrad while viewing grad school as an option/extra.

    • Steph

      Those cultural assumptions seem right to me, even back when I was in school in the ’90s. My parents expected to pay what they could toward college–I had loans and financial aid, but my parents contributed significantly too. It never crossed my mind that my parents would contribute to law school, and I just borrowed the vast majority of the money for it.

      I think the age difference is related to this. If you’ve always grown up thinking that you need to go to college, that working full-time immediately after high school is not really possible, that of course no one gets married until they finish college, etc., it generally puts the age of real adulthood, of independence at the end of college. But by law school you are typically at least 21, some people have been out longer and working, your peers who aren’t going to grad school are all working or trying to find a job, some people are married or have friends who are, it’s much harder to think that your parents should be supporting you in some way.

      • Steph

        That is the cultural assumptions explanation seems right to me. I’m not opining on the value of the assumptions themselves vs. other ones.

        Another thing is that back in the day is was assumed that you could pay for year three with summer earnings and, if lucky, also year 2 or a good part of it. That one used to be able to do that could have affected the pattern.

  • ichininosan

    The economic irrationality of attending law school can be proven using publicly-available data. Colorado is a typical example:

    1. Average amount borrowed = $100,000 (plus whatever was borrowed for undergrad)

    2. Likelihood of landing a job outside Colorado = 22.2%

    3. Likelihood of landing a job in a large law firm or federal clerkship = 6.3%

    Point #2 illustrates the fact that the job market for Colorado graduates (like most state schools) is not national, but rather local. Point #3 is a proxy for high-paying legal jobs. Without securing one of these jobs upon graduation, the $100K in student debt (point #1) spent to obtain the credential is a millstone.

    Data: http://www.lstscorereports.com/?school=colorado&show=ABA

  • Hayden Arse

    I would be interested in seeing what the undergraduate debt load is for the other Colorado private colleges, and what it looks like for the state schools in Colorado. I would not be surprised if Colorado College is atypically low as a result of parents who are more affluent than your assumptions. CC has historically had generous financial aid for its less-affluent students and a very high percentage of trustafarians.

    • Denverite

      The problem with this is that the only other non-religious private school in Colorado is the University of Denver, which draws even more affluent students. (It has the reputation as attracting the rich kids who couldn’t get into CC, Mines or even CU.)

      • Hayden Arse

        Given the limited private schools in Colorado it would be interesting to compare Colorado to Minnesota, Wisconsin, Iowa, and other states with a broader range of private colleges and a dominant public law school.

  • Bloix

    As to clerkships: of the seven active (non-senior) federal district judges in Colorado, two attended law school in Colorado. The others are graduates of Harvard, Yale, and Chicago.

    I would think a U. Colorado grad would have effectively no chance at a federal clerkship in another state, and the competition for the Colorado positions must be fierce, with judges who studied out of state tending to favor their own alma maters or at least similarly elite schools.

    • Denverite

      In my experience with a couple of those judges (non-Colorado-schooled ones), they only hire from top schools. HOWEVER, I think that there is an interesting dynamic where there are a handful of judges at the 10th Circuit and Colorado Supreme Court (which is probably as or more competitive than D. Colo., but less competitive than the 10th Circuit) who reserve spots for the tip top CU students. In other words, they hire most/all of the students who otherwise would be competitive for a USDC clerkship.

      • Informant

        Babcock at D. Colo. also used to give DU Law grads first shot at a clerkship, but I don’t know if he still does or not.

  • Modest Proposal

    There also is another factor, perhaps too obvious: the ability of families to pay. CC is undergraduate, and CU Law is graduate and thus after CC. If mom & pop saved X dollars for education, you burn through X first at CC before you get to CU Law. In other words, you tend to eat better on the first few days of a long camping trip than you do on the last few days of a long camping trip.

    • justme

      ^This is absolutely a factor. Many middle class families burn though college savings for undergrad and have nothing to offer their kids for graduate education.

    • BoredJD

      This was my experience. There was only so much my parents could put away every month even for 18 years, and it was unfortunately mostly burned through after a few years at even a state college.

  • StatsGuy

    I think Ichinosan’s statistics are a bit off. You can assume the likelihood of getting a job outside of Colorado is 22.2% only if you assume that 100% of Colorado law grads wanted or attempted to get a job outside of Colorado. Otherwise, you need to divide the 22.2% by the percentage of out-of-state aspirants (which percentage I would guess is less than 50%, but that part is just a guess).

  • RPL

    You are right about the social norm but should consider that another factor affecting parents’ willingness/ability to pay is the sheer financial burden that elite education represents. In 1980 tuition, fees, room & board at an Ivy League or equivalent college was about $8500, which is about $24,000 in 2013 dollars. In 2013 it is about $52,000. (Figures are approximate and based of the University of Pennsylvania, which posts cost information back to 1900 on the web. Costs for elite colleges do not vary much one to another, so these figures will do for any Ivy, Ivy like, or elite liberal arts college.) A family making, say $200,000, might actually be able to pay $24K if it planned carefully and “saved for college” (which sound a little quaint). However $52,000 plus incidental expenses is about a third of the after tax earnings of a family making $250,000 and living in a high tax state like NY or NJ (where most such families live). Even a very affluent family cannot sustain this level of expenditure without borrowing against home equity, dipping deeply into savings, deferring retirement contributions or making other major financial sacrifices. And, of course, since upper middle class families tend to defer child bearing until their 30’s or later, law school costs tend to arrive when parents are thinking seriously about retirement. Thus, one reason the social norm has evolved is that the universities have raised their prices to a level that is unsustainable even for very affluent customers.

    • Burt Harbinson

      I think the millenials and younger Gen X kids, even those from upper middle class families who attended prestigious private schools, will be more price conscious than their boomer parents in determining where they send their kids to school (out of financial necessity and rational choice). The exponential rise in tuition will outpace the growth in bank accounts/home equity of the millenials and younger Gen X.

  • Anonymous


    Not saying I know the answer, but it seems philosophically inconsistent that Detroit can discharge its pension obligations, meanwhile student loans are still non-dischargeable, and taxpayers are required to bailout Wall St. banks’ credit default swaps, mortgaged backed securities, and collateralized debt obligations. Which of these is considered to be the greater moral hazard?

    • kindasorta

      The banks hold a gun to the head of the worldwide economy.

      If Detroit’s pensioners could pose a similar threat to the current governments of Detroit or the state of Michigan, they wouldn’t be in their current predicament.

      Morality doesn’t enter into it, except as a justification for one’s past or present actions. If the less affluent insist on being screwed through disunity, then the more affluent will oblige them.

  • Denverite

    I’m wondering if the increasing parental contribution for undergrad is related to the rise of two income families, especially in the upper middle class, and the concommitant rise in childcare expenditures. The prospect of paying tens of thousands of dollars a year for my kids’ college tuition is scary, until I remember that we’ve been doing that for years already for daycare/preschool.

  • Anonymous

    Determinants of student debt

    The borrower, ultimately, decides the amount of student debt. No one forces the borrower to sign for the loan.

  • DAS

    It seems to now be the cultural norm among the lower upper class/upper middle class in America that it’s expected families will pay for all or most of the cost of undergraduate degrees, but will contribute little or nothing to financing the cost of graduate and professional school.

    It’s not just a cultural norm but, at least if something has changed since I went to college, parents have to contribute whatever they can afford to contribute to undergraduate education if students want to see a lick of financial aid, unless you can prove that your parents are dead or are complete deadbeats. When you fill out financial aid forms, they require parental financial information, and the aid packages they give inevitably include loans to parents.

    OTOH, as far as I know, financial aid given for graduate/professional school (to the extent there is any aid given for professional school) is done independently of parental finances.

    • DAS

      oops … “at least if something has changed” should be “unless something has changed”.

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