PPIC: Rising debt load strains students

From the Public Policy Institute of California

Debt among California students has increased dramatically in recent years, but college is a good investment for the vast majority, according to a report released today by the Public Policy Institute of California (PPIC).

Californians with college degrees are more likely to be employed than those with just a high school diploma—and the gap between the two groups has grown since the start of the Great Recession. In 2007, the unemployment rate for workers with just a high school diploma was 5.4 percent—2.6 percentage points higher than for those with a college degree. By 2012, the gap had grown to 5 points: The unemployment rate was 12.1 percent for high school graduates who did not attend college and 7.2 percent for college graduates. For new entrants to the labor market, the distinctions were even sharper: High school graduates ages 18 to 22 had a 29 percent unemployment rate in 2011, while the rate for college graduates ages 22 to 26 was 10.5 percent.

The full report is available here.

College graduates also earn significantly higher wages, on average. For example, a woman with a bachelor’s degree working in California in 2011 earned 57.3 percent more than one with a high school diploma and no college—even after accounting for differences in work experience and other individual characteristics. For male workers, the difference was 56.5 percent. College graduates’ wages do vary widely, and the choice of college major matters. At the high end, those with an engineering degree earn a median annual wage of $96,000. At the low end, those with a degree in education administration and teaching have a median annual wage of $57,000. But this is substantially more than the median wage of workers with a high school diploma only: $39,000.

“College is a good investment for the vast majority of students,” says report co-author Hans Johnson, co-director of research and a Bren fellow at PPIC. “And it’s important to remember that the benefit of a college education is greater than the gains enjoyed by any one person. College graduates contribute enormously to the state’s prosperity.”

Overall, student debt is lower in California than in the rest of the nation, largely because the public sector plays a major role in higher education in the state. The vast majority of students attend one of the state’s public colleges, with nearly half of freshmen attending low-cost community colleges. The Cal Grant program and grants provided by UC and CSU help keep loan burdens down. However, the PPIC report finds a notable increase in student debt, which raises concerns about Californians’ access to college.

More California students have taken out loans in the past few years, and the amount they borrow has also increased. In 2010, almost half of California freshmen took out a student loan, compared to just one-third in 2000. The average loan amount for California freshmen increased 36 percent between 2005 and 2010 (even after adjusting for inflation), reaching almost $8,000 for the first year alone. Increasing student debt coincides with sharp tuition hikes at the University of California and California State University systems. It also coincides with a steep rise in the share of students attending private for-profit institutions, where costs are higher. About 14 percent of California freshmen attend these institutions, and about 80 percent of them take out loans.

Student debt loads are much higher, and employment prospects are weaker for students at private for-profit colleges than for most students who attend public four-year colleges or private non-profit ones. In recognition of these differences, state policymakers recently required higher education institutions to meet specified loan default rates and graduation rates to be able to participate in the Cal Grant program. The PPIC report recommends continuing efforts like these—which restrict state aid that goes to institutions with poor student outcomes, including high student loan default rates.

The report concludes that policymakers should make loans more available—for example, by ensuring greater use of federal student loans. Finding ways to help families save for college should be another priority. Numerous states have already adopted college savings programs that guarantee full tuition at public universities. To keep costs down, policymakers also should look for gains in efficiency. Online education is a potential—yet still unproven—approach to doing so. Improving pathways from community colleges to four-year colleges should also be a high priority.

“California’s future depends on substantial increases in college enrollment and graduation,” says Johnson. “California faces a shortage of 1 million college-educated workers by 2025. Achieving those increases will require new efforts to make college accessible and affordable.”

The report, Student Debt and the Value of a College Degree, was co-authored by PPIC research associates Marisol Cuellar Mejia and David Ezekiel, and Betsey Zeiger, a Ph.D. student at the University of California, Davis. It was supported with funding from the Donald Bren Foundation.

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Ed’s Note: PPIC examines public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.