Teens Gone Wild -- on Debt

More teens are borrowing money to go to college -- and they're borrowing more than ever.

That's well known. But recent studies show some interesting trends in student debt -- including which families are taking on more loans and which schools leave their graduates with the biggest debt burdens.

In its yearly Trends in Student Aid report, the College Board says what while the number of students borrowing money for college is soaring -- whether they're from rich or poor families -- the increase is fastest among students from families earning more than $100,000 a year. Between 1992 and 2003, the percentage of those families borrowing for college tripled to 36%, according to the nonprofit association. (Go to collegeboard.com, then search for the report by title.)

In 2003, the latest year reported by the College Board, borrowing among those kids was $6,140, or $500 more than among students from families earning less than $40,000.

Some of that increase is because even a $100,000 income is pinched when a year at a public university costs an average $13,589 and a private college costs $24,044. And little federal grant aid or university need-based aid is available for those upper-income kids.

But the Federal Reserve Bank of Minneapolis has another explanation. "Students are borrowing more simply because they can," it says in a report on college affordability (minneapolisfed.org/pubs/region/05-12/education.cfm).

Low interest rates on federal loans and the fairly recent availability of private student loans are prompting students to "pile up debt at a remarkable pace," the report says.

Debt Per Student

While borrowing is on the rise, it's not necessarily the priciest schools that end up being the most costly to students.

Students graduating with some of the lowest average debt in 2006 attended some of the priciest private colleges, while those with some of the highest average debt graduated from historically black colleges and universities. That seems backward, but Princeton University graduates leave school with the lowest average debt -- $4,965, according to a new report by the Project on Student Debt (at projectonstudentdebt.org/files/pub/State_by_State_report_FINAL.pdf).

Among colleges reporting their average student debt level -- and fewer than half do, the project says -- the private University of New England in Maine had the highest debt, at $39,000 per student. That's about equal to one year's attendance, according to the college's Web site.

Among public schools, historically black Lincoln University in Pennsylvania reported average debt of $28,858, or about the cost of two years of attendance. Historically black Virginia State and Alabama State universities weren't far behind.

What makes the difference, of course, is Princeton's $11.2 billion endowment, which supports a financial-aid program that meets student financial need with grants rather than loans.

The online report includes an interactive map showing average student debt by state. The highest: Washington D.C., New Hampshire, Vermont and Connecticut, where the higher proportion of private schools means higher tuition. But Minnesota, Iowa and Pennsylvania, with strong public-university systems, aren't far behind. The lowest: Hawaii.

Incentive to Stay

While debt for many students is onerous, it doesn't necessarily cause kids to drop out of college. Rather, it may encourage them to complete their degrees, according to the National Center for Public Policy and Higher Education (www.highereducation.org/reports/borrowing/index.shtml). The thought of leaving college with a heap of debt and limited ability to pay it off may actually encourage students to finish school.

About one-fifth of borrowers drop out, saddled with debts -- and without the earning power of a college degree to pay it off. The percentage is higher at for-profit institutions, including trade schools, where one-third drop out. But the center says factors other than debt caused the students to leave: They had low grades and poor high-school preparation, attended college part-time or came from families with low levels of education.

At four-year colleges, student borrowers and non-borrowers graduated at about the same rate -- 60%. At two-year colleges, almost twice as many borrowers earned their associate's degree as non-borrowers, and more than three times as many went on to earn a bachelor's degree. About one-quarter of borrowers dropped out of two-year colleges. Among those who didn't borrow, the dropout rate was 55%.

On the Job

Not all kids rely on loans to pay their way through college. About three-quarters of students work while in college, according to a report on student employment from the American Council on Education (www.acenet.edu).

Some 78% of all white, black and Hispanic students worked in the 2003-2004 school year, although a larger percentage of blacks worked at least 35 hours a week. Sixty-eight percent of Asian-Americans held jobs, and one-third of those jobs were for less than 21 hours a week. Seventy-five percent of students in families earning less than $30,000 held jobs, compared with 70% of those whose families earned $90,000 or more. About 75% of public- and private-school students worked.

If there's a big downside to juggling classes and a job, the ACE doesn't point it out. At public four-year colleges, students who don't hold a job had a 2.91 grade-point average compared with 2.94 for those working under 21 hours. At private colleges, students working under 21 hours had a 3.08 grade-point average while those who didn't work at all averaged 3.05.