As Trends in Student Aid 2015 goes to press, college financing and student aid issues are prominent on the national agenda. Notably, the president of the United States has gotten into the weeds, issuing an executive order requiring the use of earlier income information on applications for federal student aid. Many in the financial aid community have long advocated such a move, which will allow students to apply and know about their federal aid eligibility several months earlier than in the past.

Presidential candidates are making clear statements about the importance of college affordability, with proposals ranging from tuition-free public colleges to automatic enrollment of borrowers in income-driven loan repayment plans to increased accountability for institutions and support for cost-saving innovations.

Moreover, the issue of student debt and its impact on borrowers, as well as on the economy as a whole, is never far from the headlines. Many anecdotes and a few widely cited pieces of information provide the basis for most conclusions.

As it has for over 30 years, Trends in Student Aid provides detailed information about the aid that undergraduate and graduate students receive from federal and state governments, their institutions, and their employers and other private sources. Together with its companion publication, Trends in College Pricing, this report should inform the public discourse about how students pay for college.

The Varied Contexts of College Finance

The data in the 2014 Trends reports suggested that the recovering economy was modifying the paths of college prices and student aid. College prices grew slowly in 2013-14 and 2014-15, student borrowing declined slightly, both overall and on a per student basis, and the Pell Grant program, whose expenditures had skyrocketed during the recession, served fewer students and spent less overall as enrollment declined and fewer families were facing financial distress.

This year’s Trends reports document a continuation of the patterns associated with a return to a more stable economy. Several years of slow declines in the number of postsecondary students, particularly in the for-profit sector, have followed the rapid growth in postsecondary enrollment between 2007-08 and 2010-11.

Total education borrowing declined in 2014-15 for the fourth consecutive year, generating a 14% decline from the 2010-11 peak. Undergraduates borrowed 16% less in 2014-15 than four years earlier; graduate students borrowed 11% less. The Pell Grant program, which was a subject of concern among budget hawks during the recession, distributed 22% less in inflation adjusted dollars in 2014-15 than in 2010-11 — but still 83% more than in 2004-05.

In addition to documenting these trends, Trends in Student Aid 2015 focuses on the varying circumstances of students. With about 60% of postsecondary students age 24 or younger and 25% age 30 or older,1 it is clear that students have very different needs, opportunities, and educational paths. Over a third of all students enroll part time, requiring them to persist for a longer time if they are to earn degrees. Students who attend for-profit institutions have very different experiences before, during, and after college than those who attend public or private nonprofit four-year colleges and universities. Graduate students begin from the strong position of having completed a bachelor’s degree, but many borrow much more than typical undergraduates.

Students come to postsecondary education from very different backgrounds. Three-quarters of the 3.8 million dependent Pell Grant recipients in 2013-14 came from families with incomes under $40,000. In contrast, about a quarter of all dependent undergraduates, and 30% of those enrolled in public and private nonprofit four-year institutions, came from families earning more than $110,000.2

It is important that we know more about the variation in characteristics, goals, and outcomes across postsecondary students. The information in this report focuses on the question of differences in student debt patterns. We compare students who graduate to those who leave school without a credential, as well as students with different demographic characteristics and those who are enrolled in different postsecondary sectors. It quickly becomes clear that problems with student debt vary quite a bit across these different groups, and addressing the problems will require a more nuanced view than general statements about student debt can provide.

Student Borrowing and Student Debt

Perhaps the most dramatic figure in this report is Figure 14A, which shows that among federal student loan borrowers who entered repayment in 2011-12, 9% of those who completed their programs and 24% of those who did not graduate defaulted on their student loans within two years of entering repayment. For students who begin college but do not graduate, the issue is not high debt levels but the absence of the significant earnings premium associated with a college degree.

Although defaulters have lower average debt levels than borrowers who successfully repay their loans, high debt levels for certain groups of students can lead to difficulties, even among those who earn bachelor’s degrees. Among 2011-12 bachelor’s degree recipients, 11% of those age 23 or younger had borrowed $40,000 or more, compared to 33% of those who earned their degrees between the ages of 30 and 39 (Figure 16A). Not surprisingly, time to degree is highly correlated with debt levels. Among 2011-12 bachelor’s degree recipients who earned their degrees within four years of first enrolling, 10% had borrowed $40,000 or more. A significant number of students earned their degrees 10 years or more after first enrolling, and among this group 31% had borrowed $40,000 or more (Figure 17A).

Although only 9% of 2011-12 four-year college graduates earned their degrees in the for-profit sector, 48% of this group had borrowed $40,000 or more, compared to 12% of those who attended public four-year institutions (Figure 17B). The percentage of outstanding student debt attributable to students from the for-profit sector increased from 13% to 21% between 2003-04 and 2013-14 (Figure 14B).
While we do not have adequate information to determine what causes these differences, we also find that 32% of black graduates, compared to less than 20% of white and Hispanic graduates, had debt exceeding $40,000 (Figure 18).

High debt levels are less of a risk for borrowers — and more of a risk for taxpayers — than they were just a few years ago because 20% of borrowers in repayment participate in income-driven plans, which limit their payments to a manageable percentage of their current incomes and forgive remaining debt after 20 or 25 years (Figure 11B).

Trends in Student Aid 2015 also includes information on annual borrowing from federal and nonfederal sources and on the distribution of outstanding debt. As Figure 8B reveals, graduate students on average borrow much larger amounts than undergraduate students. This reality is consistent with the fact that borrowers currently in the top quartile of the income distribution hold almost half of the outstanding student debt, while those in the lowest income quartile hold only 11% (Figure 19A). It is students who stay in school to earn more advanced degrees who are the most likely to accumulate high levels of debt, and those years in school pay off in the labor market. The lower-income borrowers have less debt, but may struggle most to repay that debt.

Types of Student Aid

Trends in Student Aid reports on a complex array of grant, loan, tax-based, and work programs that support postsecondary students. Although the Federal Work-Study program gets quite a bit of attention and is highly valued by many students and institutions, only 638,000 students benefited from the $960 million federal allocation to this program in 2014-15. In contrast, federal subsidies to students through tax credits and deductions were projected to be almost 40% of the total amount of federal grant aid in 2014-15.

The Distribution of Student Aid

The effectiveness of student aid in increasing educational opportunities depends to a great extent on how the funds are distributed across students in different financial circumstances. For some students, aid is a pure subsidy, reducing the price of the educational paths they would take even without assistance. For other students, grant aid means the difference between a high-tuition private institution and a public university or between a public four-year institution and a community college. For still others, the amount of grant aid they receive determines whether or not they will enroll in postsecondary education at all.

The distribution of student aid across students with different characteristics and in different financial circumstances is most critical for understanding the effectiveness of the system. However, differences across sectors of postsecondary education are also important. Drawing clear lines between sectors has become more difficult, particularly as many community colleges have started awarding some bachelor’s degrees. Historically, we have relied on the NCES breakdown of institutions to examine these patterns. However, that breakdown categorizes all institutions awarding any bachelor’s degrees as four-year institutions. In Trends in Student Aid 2015 we have, where possible, included only institutions where more than half of the degrees awarded are bachelor’s degrees or higher in the four-year category. Notes on each indicator page clarify this issue.

As documented in Trends in College Pricing 2015, the net prices students pay after taking grant aid into consideration increase with family income levels. Federal Pell Grants, which are well targeted to low-income students, constituted 29% of the grant aid received by undergraduates in 2014-15 (Figure 2A).

The distribution of federal education tax credits and deductions is quite different. As Figure 31B reveals, 24% of tax credits and 55% of the benefits of the tuition tax deduction go to taxpayers with incomes of $100,000 or higher.

A significant portion of state grant dollars are allocated on the basis of academic qualifications or other personal characteristics, but patterns vary considerably across states, with 25 states considering students’ financial circumstances in allocating at least 95% of their state grant aid in 2013-14, while 15 states considered financial circumstances for less than half of their state grant aid (Figure 28B). The percentage of all state grant aid distributed on the basis of financial need declined from 77% in 2002-03 to 71% in 2010-11, but was 76% in 2013-14 (Figure 28A).

Both colleges and universities and employers and other private sources allocate larger proportions of their aid without regard to financial circumstances than state and federal governments. As Figure 20 shows, a very high percentage of the non-need-based aid nonetheless helps to meet the documented financial need of recipients. Still, 12% of full-time students in private nonprofit four-year institutions and 9% of those in public four-year institutions receive grant aid in excess of their federal need.

Monitoring the distribution of student aid is at least as important as monitoring its level in assessing how well these funds serve to help students overcome the financial barriers to postsecondary access and success.

The Student Aid System

Grant aid and tax benefits lower the overall price of education for students and families, making the net price of college less than the published price. Education loans do not lower the price, but they do make it possible to spread payments out over time. Work-study earnings frequently replace other earnings, but may increase the availability of employment for students.

Understanding what the components of the system are; how grants, loans, tax benefits, and work-study aid are distributed; and how they have changed over time is critical, but the growth in aid dollars has meaning only in the context of the growth in the price of college and in the number of students enrolling — information included in Trends in College Pricing 2015.

The information in both publications is a prerequisite for improving the student aid system, but it is also important to examine evidence about what makes aid programs effective in supporting college access and success. If successful, current efforts to simplify the array of programs, the application processes, and the eligibility criteria are promising improvements. It is also critical to focus on directing subsidies to students whose educational outcomes are most likely to be improved by the receipt of student aid.

The student aid system is a vital component of efforts to increase economic mobility, the quality of the labor force, and the long-run strength of the economy. The information in Trends in Student Aid provides valuable perspective on how that system is operating.

Please feel free to cite or reproduce the data in Trends for noncommercial purposes with proper attribution.

1. NCES, Digest of Education Statistics 2014, Table 303.40.
2. NCES, NPSAS 2012, calculations by the authors.