Student Loan Debt Has Outpaced Tuition Increases

Among the various problems plaguing higher education, mounting student loan debt remains one of the most pressing concerns. The Biden administration certainly thinks so, having taken several measures over the past year to alleviate this $1.6 trillion burden shared by 43 million Americans.

It’s logical to pin this problem on the rising cost of college tuition. Higher tuition equates to more loan debt, right?

Not so fast. A new study demonstrates that even though tuition has increased over the past 30 years, that’s not what has caused students to borrow more.

So what is causing students to borrow more money for college?

In his National Tax Journal article, “How Much Does College Cost and How Does It Relate to Student Borrowing,” Adam Looney, a professor at the University of Utah, postulates various reasons why student loan borrowing has increased so dramatically over the past 30 years.

One of his main arguments is that while sticker prices — what colleges advertise as tuition costs — have risen, net tuition costs have not.

Since 1993, sticker prices have more than doubled, increasing by 114%. But factor in tuition discounts (often awarded as merit scholarships), federal and state grants, and other forms of aid, and net tuition prices have grown by only 46%.

This doesn’t account for tuition-related tax benefits, however. Since 1998, the federal government has allowed deductions for some tuition expenses. Including this benefit, Looney says, reduces the net tuition increase during this span to zero.

At the same time, financial aid has become more plentiful. During the 1990s, aid constituted 45% of tuition expenditures. In 2020, it was 67%. Per student, aid represented a 16% discount in 1993 and grew to 24% by 2020.

Looking at it another way, in 1993, after subtracting grants and other aid, students were responsible for about 60% of the sticker price. In 2020, that figure had dropped to 35%.

All told, Looney estimates that the cumulative increase in net prices from 1993 to 2020 was 60% less than what sticker prices might suggest. In real dollars, it was $1,265. And given the advent of education-related tax credits, net prices have remained unchanged since the 1990s.

“The fact that borrowing increased so much faster than either average sticker prices or average net prices suggests tuition inflation alone is insufficient to explain changes in borrowing,” Looney claims.

If increasing tuition costs don’t explain the dramatic rise in student loan debt, then what does? Looney attributes the problem to several factors.

First, for some students, higher tuition has indeed translated into more loans. Students from higher-income families, along with some graduate students, often face larger tuition bills and take out loans to help meet these costs.

Second, students are choosing “more expensive” programs, he notes, increasing average costs and resulting in borrowing. A larger share of students has opted for four-year colleges instead of community colleges, where borrowing is rare.

For undergraduates, net tuition increases haven’t necessarily led to more borrowing because loan limits have remained relatively static. But there are simply more students taking loans and driving up the debt figures.

Many more students are pursuing graduate and professional degrees as well. Graduate students don’t face the same borrowing limitations as undergraduates and thus account for about 40% of the total student loan debt.

“Students are paying more in tuition to pursue more advanced or expensive degrees,” Looney contends, “and students who attend those programs tend to borrow more.”

Third, changing student demographics has led to more borrowing. Enrollment among historically underrepresented populations — including low-income, first-generation, Black, and Latino/a students — has grown considerably in the past three decades.

These students disproportionately attend for-profit colleges, where borrowing rates are high, as well as community colleges, where rates jumped during the Great Recession.

Looney points out that between 2000 and 2012, enrollments at for-profit colleges tripled, while the share of community college students who took out loans increased from 5% to 17%.

In that time frame, the number of undergraduates borrowing annually rose from 4.5 million to 9.3 million.

Finally, Looney conjectures that more students are borrowing to meet living expenses, though these costs are difficult to quantify.

The bottom line is that rising loan debt has been driven by whether students borrow more than incremental variances in how much they borrow, Looney concludes, and by a changing student population and their educational choices.

This study sheds important light on the complex issue of rising costs and soaring student loan debt, putting to rest the facile conclusion that the sole blame lies with tuition hikes. What it doesn’t do, of course, is offer any workable solutions to this growing problem.