The percentage of graduates who had borrowed and the average total amounts borrowed both increased between 1992–93 and 1999–2000, but the median “debt burden” (monthly payment as a percentage of monthly salary) a year later did not change.

Bachelor’s degree recipients in 1999–2000 were more likely than their 1992–93 counterparts to have borrowed to pay for their undergraduate education (65 vs. 49 percent), and if they had done so, to have borrowed larger amounts, on average ($19,300 vs. $12,100 in constant 1999 dollars). This includes all student borrowing, but not borrowing by parents.

Increased borrowing occurred among graduates of both public and private not-for-profit 4-year institutions. It also occurred regardless of sex, race/ethnicity, or family income (see table 38-1). The increase in borrowing reflects, in part, rising tuition during this period (adjusting for inflation) (NCES 2002–174). It also reflects provisions of the 1992 Reauthorization of the Higher Education Act implemented in 1993–94 that made it easier for students to qualify for need-based aid, raised loan limits, and made unsubsidized loans available to students whose family incomes were too high for them to qualify for need-based aid. That is, more students were allowed to borrow in 1999–2000 than in 1992–93, and they could borrow larger amounts.

Borrowers who do not enroll for additional education at least half time usually must begin repaying their loans 6 months after they graduate.¹ Because 1999–2000 graduates had borrowed more, on average, than their 1992–93 counterparts, they also had larger average monthly loan payments a year later ($210 vs. $160 per month in constant 2001 dollars). Although the average amount borrowed increased by more than 50 percent, the average monthly payment increased by less than 50 percent. This reflects, in part, lower interest rates paid by the later cohort (6 to 7 percent compared with 8 to 10 percent).² It may also reflect greater use of alternative repayment plans that reduce monthly payments in the early years. Under certain circumstances, federal borrowers may extend repayment over a period longer than the standard 10 years, elect graduated payments that start low and increase in stages, or make payments contingent on their income.³

The 1999–2000 graduates also benefited from higher salaries, even after adjusting for inflation. They earned an average of $2,800 per month in 2001, compared with an average of $2,400 (in constant 2001 dollars) for 1992–93 graduates in 1994. Therefore, although the later graduates had borrowed more, on average, the combination of higher salaries, lower interest rates, and possibly greater use of alternative repayment options resulted in a median “debt burden”—monthly loan payment as a percentage of monthly salary—of 7 percent for both cohorts. Similar findings were obtained by Goldenberg (2003), who estimated debt burden levels of 6 to 7 percent for federal borrowers in their first year of repayment in 1997, 1998, 1999, and 2000 using loan data on a random sample of all borrowers (not just bachelor’s degree recipients) in the National Student Loan Data Base and income data from the Internal Revenue Service.

Even though the median debt burden did not increase, graduates with large loans or low salaries had relatively high debt burdens. For example, 1999–2000 graduates who had borrowed $25,000 or more had a median debt burden of 10 percent in 2001, while their peers who had borrowed less than $10,000 had a median debt burden of 3 percent (see table 38-1). (Twenty-six percent of graduates in repayment had borrowed $25,000 or more, and 18 percent had borrowed less than $10,000; see table 38-2.) Also, those in the lowest salary quarter in 2001 had a median debt burden of 15 percent, whereas those in the highest salary quarter had a debt burden of 5 percent (see table 38-1).

It is important to understand that these data represent debt burden a year after graduation, but that debt burden can change during the repayment period. Interest rates for federal borrowers are variable⁴ and therefore may go up or down, and income and employment status are subject to positive or negative changes in economic conditions or personal circumstances. Thus, the extent to which any group of borrowers will have difficulty repaying their loans is sensitive to factors that are difficult to predict when they make decisions about borrowing. Students whose academic success is uncertain or whose families lack the financial resources to help them repay their loans if they run into difficulty are especially vulnerable to these uncertainties.

¹A borrower may obtain a deferment because of an economic hardship such as unemployment. (back to text)

²Students who took out federally guaranteed loans before 1992 paid fixed interest rates that ranged from 8 to 10 percent. Later borrowers paid variable rates, which were 6 to 7 percent in 2001 (depending on the date of the loan) and 3.42 percent in 2003. Historical interest rates are available at http://www.nchelp.org/elibraryII/main/10-RefMaterial/
default/htm. (back to text)

³Detailed descriptions of these options are available at http://studentaid.ed.gov/students/publications/repaying_loans/
2003-2004/english/index.htm. Although they reduce monthly payments, they result in higher interest charges over the term of the loan. (back to text)

⁴Borrowers can choose to consolidate their loans and obtain a fixed rate, however. (back to text)