Growth in student loan debt at graduation slows as borrowers hit loan limits
Increases in average student loan debt at graduation have slowed, based on an analysis of recently released federal government data. But, don’t start celebrating just yet. Borrowing has shifted from students to parents, especially at higher-cost colleges, because more students are reaching federal student loan limits.
Slow growth in debt at graduation for bachelor’s degree recipients
Average cumulative student loan debt at graduation for bachelor’s degree recipients increased by only 1.0% from 2011-12 to 2015-16, rising from $29,384 in 2011-12 to $29,669 in 2015-16. This $285 increase is a sharp deceleration from the $6,156 (26.5%) increase from $23,228 in 2007-08.
These statistics are based on data from the National Postsecondary Student Aid Study (NPSAS), a quadrennial study conducted every four years by the National Center for Education Statistics (NCES) at the U.S. Department of Education. The 2015-16 NPSAS surveyed 89,000 undergraduate students and 24,000 graduate students about how they paid for college.
Borrowing shifts from students to parents
While student debt at graduation for bachelor’s degree recipients remains flat, Federal Parent PLUS loan debt continues to grow at an accelerating rate. Cumulative Federal Parent PLUS loan debt increased from $27,352 in 2011-12 to $32,596 in 2015-16, a $5,244 (19.2%) increase, compared with the $4,073 (17.5%) increase from $23,279 in 2007-08.
More students are reaching student loan limits
The shift in borrowing from students to parents is caused by students reaching loan limits for federal student loans. The aggregate loan limit for Federal Direct Stafford Loans is $31,000 for dependent students and $57,500 for independent students. Annual limits depend on year in school, ranging from $5,500 to $7,500 for dependent students and $9,500 to $12,500 for independent students.
More student loan borrowers are reaching these loan limits. The percentage of students reaching the limits on Federal Direct Stafford Loans increased from 39.3% in 2011-12 to 40.3% in 2015-16. As dependent students exhaust their eligibility for federal student loans, their parents are increasingly borrowing from Federal Parent PLUS loans.
If a parent has an adverse credit history, however, the parent will be denied a Federal Parent PLUS loan. If a dependent undergraduate student’s parent is denied a Federal Parent PLUS loan, the student becomes eligible for the higher Federal Direct Stafford loan limits available to independent students. The percentage of students benefiting from these exceptional maximums increased from 3.3% in 2007-08 to 5.8% in 2011-12 and 7.4% in 2015-16.
Parent borrowing increases at higher-cost colleges
As this chart illustrates, reliance on Federal Parent PLUS loans increases significantly at higher-cost colleges. Federal Parent PLUS loans serve as a kind of pressure relief valve when dependent students reach federal student loan limits.
Source: Savingforcollege.com research
Student borrowing continues to increase at lower-cost colleges
The average student debt at graduation continues to increase at lower-cost programs, such as associate degree and certificate programs.
- The average student debt at graduation for associate degree recipients increased by 7.8% to $18,501 in 2015-16 from $17,158 in 2011-12 and $13,179 in 2007-08.
- The average student debt at graduation for certificate recipients increased by 16.8% to $15,512 in 2015-16 from $13,280 in 2011-12 and $11,077 in 2007-08.
The average student debt at graduation for bachelor’s degree recipients continued to increase at lower-cost public colleges while flattening out at higher-cost private colleges.
- The average debt at graduation for bachelor’s degree recipients at public colleges increased 4.6%, to $26,807 in 2015-16 from $25,640 in 2011-12 and $20,234 in 2007-08.
- The average debt at graduation for bachelor’s degree recipients at private non-profit colleges decreased by 2.7% to $31,446 in 2015-16 from $32,308 in 2011-12 and $27,700 in 2007-08.
- The average debt at graduation for bachelor’s degree recipients at private for-profit colleges remained flat, increasing by 1.4% to $40,583 in 2015-16 from $40,038 in 2011-12 and $31.416 in 2007-08.
There’s also been a shift in enrollment from higher-cost colleges to lower-cost colleges. This table demonstrates an increase in the number of undergraduate students graduating with student loan debt at public colleges and decreases at private colleges.
Average student loan debt at graduation increased by 8.5% for low-income students, who tend to enroll at less-expensive colleges, while the change in average debt was much smaller for middle- and high-income students (1.9% and -0.9%, respectively). Parent debt, however, increased significantly for middle- and high-income students (33.4% and 20.2%, respectively), but not as much for low-income students (3.2%).
Student debt continues to grow for graduate students
Graduate and professional school students have much higher loan limits than undergraduate students. The Federal Direct Stafford loan has an annual limit of $20,500 for graduate students ($40,500 for medical school students) and an aggregate limit of $138,500 ($224,000 for medical school students). The Federal Grad PLUS loan allows graduate students to borrow up to the full cost of attendance minus other aid for graduate students who have exhausted the Federal Direct Stafford loan limits.
Graduate students borrowing is not affected by low loan limits. Average student loan debt at graduation continues to increase for graduate and professional school students.
This table shows the average student loan debt at graduation for graduate and professional school students. Graduate debt continues to increase for all but law school students. The increase in average debt for social workers and PhD students has been substantial.
Law (LLB or JD)
Future changes in average student loan debt at graduation
As more students reach federal student loan limits, increases in borrowing will continue to shift from students to parents, especially at higher-cost colleges.
Stagnant federal student loan limits will continue to dampen increases in average student loan debt at graduation, even as the economic recovery slows. Annual and cumulative federal student loan limits were last increased a decade ago, in 2008.
Congress is poised to increase undergraduate federal student loan limits by $2,000 per year as part of reauthorization of the Higher Education Act of 1965. This will shift some borrowing from parents to students, until the next time students exhaust loan limits.
Congress should consider indexing aggregate student loan limits to the average annual starting salary for recent college graduates at each degree level. Annual loan limits can be based on the student’s progress to a degree or certificate and the student’s remaining loan eligibility. This change will base loan limits on the borrower’s ability to repay the debt and the likelihood of degree attainment.
Regardless of how Congress changes the loan limits, the failure of government grants to keep pace with increases in college costs will cause students to shift their enrollment from higher-cost colleges to lower-cost colleges, such as from private colleges to public colleges and from 4-year colleges to 2-year colleges. This will reduce the average student debt at graduation.