Loans cripple US dropouts

May 13, 2005

Boston. Borrowing cash to pay university tuition fees is putting a crushing financial burden on US students who drop out, according to a report.

The study, produced by the National Center for Public Policy and Higher Education, says the long-term economic pressure on dropouts is an overlooked result of the spiralling dependence on loans to pay for university fees.

It is a phenomenon that puts students in a double bind, the report says. If they delay university, enrol part time or work extra hours to avoid borrowing, low-income students end up at the greatest risk of dropping out.

But if they borrow and drop out, they still must repay their debt.

"In some cases, these students are worse off than before," said Pat Callan, president of the center.

Half of all US students borrow money, and more than 20 per cent of borrowers drop out, the report says. Nearly a quarter of those dropouts default on at least one loan, resulting in bad credit ratings and other negative consequences. That compares with only 2 per cent of student borrowers who complete their higher education. In 2001, this meant that there were more than 350,000 ex-students who had begun college six years earlier but had no certificate or degree and had a debt to repay.

At four-year institutions, borrowers studying for bachelors degrees who dropped out were twice as likely to be unemployed as borrowers who received a degree, and more than ten times as likely to default on their loan.

This is a "significant, negative and lasting consequence of the current system of financing higher education in the US, particularly for students from lower-income and lower-middle income families", the report says.

It recommends that universities strengthen support for students who are financially or academically at risk and make tuition fees more affordable to reduce dependence on borrowing.

"Even though taking out loans is still a sound investment for most students, policymakers and education leaders can hardly be satisfied when borrowers leave school with no degree, a debt to repay and a high risk of defaulting on their loan," Mr Callan said.

Because only minor changes have been made to federal student loan programmes since 2001, the report's findings are regarded as relevant to more recent groups of students.

"In fact, because loan rates and debt burdens have been rising, the choices and trade-offs highlighted in this report may be more extreme than they were for students who enrolled a decade ago and the need for action even more vital today," the report adds.

Details: reports/borrowing/index.shtml

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