College Graduates’ Debt Load May Outstrip Ability to Repay

April 26 (Bloomberg) -- Students, especially at for-profit universities, are leaving college in the U.S. with a debt load large enough to raise questions about the ability of many to repay loans, a study found.

At for-profit colleges, 53 percent of the degree recipients in 2008 had education-related debt of $30,500 or more, compared with 24 percent at private nonprofit colleges and 12 percent at public schools, the New York-based College Board said in a report released today.

Students graduating in 2008 faced jobs prospects reduced by the financial crisis and subsequent recession, the worst since the 1930s. Whether the students can earn enough to repay their loans is unclear, according to the study.

“Too many students are borrowing more than they are likely to be able to manage,” wrote Sandy Baum and Patricia Steele, the study authors, who are policy analysts for the nonprofit College Board.

About a third of all bachelor’s degree recipients didn’t borrow any money for college, according to the study. The report was based on the 2007-2008 academic year, which is the latest available government data.

Seventeen percent of bachelor’s degree recipients had loans of at least $30,500, enough to put them in the upper quarter of borrowers in terms of debt load.

Of black bachelor-degree recipients, 27 percent had debt of $30,500 or more, the researchers said. That compared with 16 percent of whites, 14 percent of Hispanics and 9 percent for Asians.

“There is an urgent need for strengthening postsecondary financing policies and for better guidance and improved financial literacy for students before they borrow to finance their postsecondary education,” the study authors wrote.

Repayment Terms

While new repayment options on federal loans promise to help students cope with their debt, these choices don’t apply to private loans “taken by many students with high debt levels,” according to the report.

The U.S. Department of Education’s income-based repayment plan limits the amount students are required to pay to no more than 15 percent of discretionary income, Baum said.

The monthly payment is capped at an amount “intended to be affordable based on income and family size,” according to the department’s Web site. The payment will be lowered to no more than 10 percent in 2014 for new borrowers.