Education Sector recently published a report, Debt to Degrees, in which the authors reported average student debt per credential at various institutions of higher education, and described their depiction of the data as charts you can trust. While Education Sector generally does very good work, this report is a disappointment and the charts are not to be trusted. The methodology and data selected for use by the authors introduced significant bias and errors into the study, albeit in support of the ideological position they clearly hold, but probably not in a way that actually helps students or reflects reality.
In general, there are no shockers here—the report basically tells us what we already know, which is that if you are really poor or really rich, and lucky enough to get into Princeton, you will leave with little to no debt. That’s helpful information for a handful of students, but few students are in the position to “select” Princeton as their university since the student is clearly not in the decision-making driver’s seat when it comes to admission to highly selective schools. Sure, the study might tell you that you’ll graduate with less debt by attending Princeton over NYU, but I suspect there aren’t too many students who have the opportunity to make such a decision.
In truth, though, the reliance on averages to report debt per credential at selective, well-endowed schools like Princeton is extremely misleading, especially for the majority of middle- and upper-middle-class students who are likely to borrow money to attend. I’ve worked at Princeton, so perhaps some will say that I am biased, but the truth is that the averages at this university are skewed by the fact that a large number of wealthy students and a small number of poor students need not borrow a dime to pay for college. This then drives down the average. However, if Kevin Carey and Erin Dillon looked at how much is borrowed by those students and parents who actually need to borrow, the total would be substantially higher.
Yes, Princeton has a no loan policy, but that applies only to financial need as determined by the generous federal and less generous institutional methodologies. This policy does not apply to the Estimated Family Contribution, which for middle-class and upper-middle-class families can be equal to the total cost of attendance. Many of these families must borrow substantially just to meet the Estimated Family Contribution (EFC) since, although the government might determine that a family’s EFC is $60,000 a year, the family (and especially those who live in expensive parts of the country) might not have $200,000 of ready cash on hand to pay for four years of college.
Interestingly, the methodology chosen by the authors did not include Perkins loans, which account for a large proportion of the federally-funded borrowing that goes on at Princeton and certain other elite institutions. Princeton is the beneficiary of an older distribution formula that does not extend to newer institutions, so they are the big winner when it comes to Perkins funding, and none of this is included in the study.
Also, while it isn’t stated in the study, Dillon told the Chronicle that PLUS loans were included in the calculation. One would then think that the study would capture parent borrowing, except that middle- and upper-middle-class families tend to borrow against their home equity or against their retirement savings rather than taking a PLUS loan since PLUS loan interest rates of almost 9 percent are substantially higher than those offered by banks to parents with decent credit scores. Many middle-class families do not complete a FAFSA since they know their child won’t qualify for a Pell grant, and without completing a FAFSA, the parent may not even know about the PLUS loan program or their eligibility to borrow through it. Credit-card debt is also excluded from this study, which is a significant omission given what we know about the large amount of credit-card debt among students and parents who have access to unsecured credit.
Finally, Princeton undergraduates are primarily traditional students who attend full-time and are dependents of their parents, which means that many have parents who write the checks for tuition, room, board and books—and send extra money or provide an open credit card for living expenses. Many dependent students (and especially those at elite institutions) benefit from the generosity of their parents, and the federal government sets lower borrowing limits for these students under the assumption that their parents will cover at least a portion of the educational costs. Contrast this with the reality for independent students—the ones who dominate for-profit college enrollments—and one can see quite clearly how the methodology was biased against these students and the schools that serve them. While the authors admit that some for-profit institutions show up with artificially inflated debt averages due to the fact that rapid expansion may have increased total borrowing over the short term when students have not had time to graduate, this is but one potential explanation of the false conclusions of this study.
I now work for a proprietary higher education company, so I well understand the student demographics served by this sector, and they are vastly different from those served by Princeton, as well as most public four-year institutions. The main difference is that for-profit institutions serve a large number of older, independent students—many with families of their own—who not only have higher federal borrowing limits, but also tend to borrow a sum well above tuition and fees so that they can support their families while attending school. Many community colleges that allow their students to participate in the federal loan program see similar levels of over-borrowing among their students, despite the taxpayer subsidies that keep community college tuition relatively low. Often times these students don’t have home equity, or retirement savings or even a credit card, so they are completely dependent upon high-interest federal loans to support themselves while in school, as opposed to the parents of dependent students at selective institutions who have a variety of borrowing options on top of the possibility of saving for their child’s education.
Finally, the calculation used by the study authors to determine average debt has an inclusive numerator (the sum of Stafford and PLUS borrowing for all students), but an exclusive denominator (only those graduates reported to the IPEDS database are captured). Since the IPEDS database collects data only on first-time, full-time students, selective institutions are likely to have nearly all of their graduates included in the denominator, while for proprietary schools, the denominator might reflect only a fraction of the total number of graduates in any given year since they have a large number of students who are transfer students, who attend part-time, or who need to take a semester off here and there to take care of work or family responsibilities. In other words, the authors picked data points for the numerator that would show lower than actual borrowing for students at selective institutions (Perkins, home equity, personal loans and credit card borrowing are excluded) and lower than actual graduation counts for proprietary schools (graduates who are not first-time, full-time students are excluded).
Carey and Dillon seem to use Princeton as the yardstick by which all other institutions are measured, but even Princeton’s president, Dr. Shirley Tilghman, testified at a recent NACIQI meeting that her peer group was only other elite, selective, research intensive institutions. In her words, she has nothing in common with her neighboring community college and should not be considered their peer, nor should they be considered hers. Princeton is the outlier among institutions, as are their students. Using Princeton as the standard by which we measure institutions of higher education is a bit like using Microsoft as the standard by which we measure business success and Bill Gates as the standard by which we measure family financial security. We might all want to have Bill Gates’s fortune, but it will be a sad day when his level of wealth becomes the standard by which the rest of us measure our success.
