Degreeless in Debt: What Happens to Borrowers Who Drop Out

Chart 3 from "Degreeless in Debt: What Happens to Borrowers Who Drop Out"

The stories of college graduates burdened with mountains of debt and poor job prospects have been well documented in this recession year. But while these students do face real problems in today’s tough economy, their degree will still likely prove to be a wise investment even as the recession draws to a close.

This isn’t the case for another group of borrowers who may have bigger financial problems, even if the economy rebounds. What is happening to borrowers who did not graduate, but still have loans to repay?

In Degreeless in Debt: What Happens to Borrowers Who Drop Out, Education Sector Research Assistant Mary Nguyen takes a look at an often overlooked group: students who took out large loans but failed to complete a college degree.

Their prospects are bleak. “Many of those who drop out are saddled with high loan payments even as they are more likely to be unemployed and earn less than their degree-holding peers,” Nguyen notes. “When they default, as many do, they experience devastating financial consequences.”

Nguyen found several disturbing trends

  • Student borrowing has increased to the point that a majority of freshmen at all institutions now borrow to pay for their education. Borrowing has grown the most at for-profit institutions. This is especially significant because for-profit institutions enroll just 9 percent of all college students.
  • While borrowing is on the rise, dropout rates are also increasing. For-profit, four-year institutions have the highest dropout rate. In 2009, 54 percent of students in these institutions dropped out, an increase of 20 percentage points from 2001, when the rate was 34 percent.
  • Borrowers who drop out face higher unemployment rates, lower median incomes, and higher loan default rates than those who graduated.

In Degreeless in Debt, Nguyen draws on data from the U.S. Department of Education’s Beginning Postsecondary Students (BPS) longitudinal survey and builds on an earlier study by researchers Lawrence Gladieux and Laura Perna. She looks behind the dropout numbers, investigating why students drop out. She also looks at their long-term economic prospects.