Undergraduate Student Debt at MIT

Betsy Hicks, Executive Director of Student Financial Services

The news is everywhere. For the first time ever, Americans now owe more on student loans than on credit cards. Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.

Just how bad is it? Americans now owe more than one trillion dollars and higher education students are borrowing more than one billion a year. Much of the increase is attributed to tuition hikes at the nation's universities, but university leaders blame the increases on a decade of cuts in state aid to public universities.

The average student debt load nationwide tops $25,000, while the job market for recent graduates continues to struggle. Graduate after graduate tells stories of owing so much money on student loans that they're spending half of their monthly salary on the payments, which means in many cases they can't afford rent on a place to live by themselves. Hundreds of American students have protested their financial plight. Demanding a right to “debt-free degrees”, they are burning their loan documents because they believe the government should forgive all student debt, just as it bailed out big banks.

Bankruptcies are on the rise, with 81% of bankruptcy attorneys reporting more clients with student debts in the past few years. That has some economists worrying that student loans could become the nation's next huge financial crisis. It also worries many parents, educators and experts that the huge burden of student debt is putting a college education out of reach for many families.

The issue of college cost and student loan is gaining steam as a presidential campaign issue, and Congress is unable to reach consensus on whether the interest rate on the largest federal loan program, the Stafford Loan should double on July 1, 2012.

There is no doubt there are increasing issues of access and affordability to higher education, causing the American public to think “Is higher education worth it”.

Keeping this national context in mind, it is fair to ask ourselves several questions. Is an MIT undergraduate education worth it? Are our undergraduates at risk of not being able to repay their student loans? Fortunately the answer to the first question is a resounding “yes” and to the second an equally resounding “no”.

MIT’s commitment to need-blind admissions, awarding all aid based on need and meeting full need, ensures access and affordability. However, as the direct beneficiary of the education, undergraduates are expected to finance part of their education through reasonable amounts of student loan supplemented by work during the summer and term-time. Ultimately, each undergraduate, in consultation with their parent(s), decides whether to borrow and how much to borrow.

Each year SFS analyzes the debt of the graduating seniors, looking at the percent that borrowed at some point in their undergraduate career and their average cumulative debt. Since 1998, the trend has been encouraging until the recession hit. There has been a downward trend in the percent of graduating seniors who borrowed from 65% in 1998 to 41% in 2012. Average cumulative debt steadily decreased, bottoming out at $14,200 in 2007-2008, but since then has steadily increased and is $20,800 for the Class of 2012. This increase was due to the recession and the Institute’s decision to increase its expectation of the amounts undergraduates are expected to borrow.

Still the average cumulative debt for our graduating seniors is below the national average and aligned with starting salaries for MIT undergraduates, data that is annually collected by the Global Education and Career Development Office. MIT’s default experience (i.e. the percent of borrowers unable to repay their student loans) while not zero is quite low.

However, average debt levels do not tell the full story. SFS analyzes data on the median as well as the average debt, debt at the 90th percentile and the distribution of debt. The chart below shows the distribution of cumulative undergraduate debt in $5,000 increments up to $50,000 from 1998 to 2012. SFS shares this data on undergraduate debt with the Committee on Undergraduate Admissions and Financial Aid (CUAFA) and the Enrollment Management Group (EMG), two bodies involved in setting policies regarding student loan expectations.

Click Chart to View Larger Image

Cumulative Loan Debt of Graduate Seniors

More importantly, SFS provides undergraduates and their families with debt management counseling. Borrowers are required to have entrance and exit loan counseling for federal loans. Two members of the SFS staff assist borrowers throughout the repayment period, helping them understand the terms and conditions of their loans, available repayment options, as well as any deferments, forbearances or forgiveness of loans for which they may be eligible.

So while the national news as regards student debt is not good, for now the news on student debt for MIT undergraduates is good, but bears annual monitoring.