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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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