Report: College completion a key driver in students’ ability to pay down debt

A new report from think tank Third Way finds that students who complete college are more likely to start repaying their loans than those who do not. The study authors urge lawmakers to keep this in mind as they work to reauthorize the Higher Education Act and consider opportunities to target federal financial aid, given “the role institutions play as stewards of this massive federal investment.”

Inside Higher Ed notes that most students who enroll at postsecondary institutions leave without earning a degree or certificate. Many of those students also leave with loan debt—and reduced power to repay it.

The benefits of college completion

Analyzing federal student loan repayment data from College Scorecard, Third Way found that “students who complete college are at least 20 percentage points more likely than non-completers to begin paying down their loan principal at every year of measurement.”

The link between degree attainment and loan repayment emerges almost immediately: completers show a loan repayment rate 27 percentage points higher than non-completers just one year out of college. In fact, completers are “more likely to make a dent in their loan principal in just one year…after leaving college and entering repayment than non-completers are in year seven.”

The repayment gap narrows—but still persists—over a seven-year time horizon. Nearly 74 percent of completers make progress on their loan principal seven years after entering repayment, while 49 percent of non-completers struggle to pace with accruing interest.

Completion-repayment dynamic varies by program type

The report also details differences in types of degree programs and length of study, finding that graduates of four-year programs are more likely than students graduating from two-year and certificate programs to start paying down their loan principal one year out. For-profit institutions had particularly low repayment rates: 48 percent of for-profit graduates still owed more than their initial loan amount seven years post-completion.

“We can see there are a number of institutions that leave their graduates in horrible shape even years after they’ve completed their program of study,” Michael Itzkowitz, the author of the report and a senior fellow at Third Way told Inside Higher Ed.

Authors urge accountability

The report concludes by calling on policymakers to hold colleges accountable for repayment rates and to fund institutions with the best track record of graduating students who have “the credentials needed to set them on the path to successful repayment of their student loans and future economic security.”

Saying that the report confirms the importance of degree completion, Douglas Webber, an associate professor of economics who studies higher education at Temple University, told Inside Higher Ed that future research should focus on revealing how much of the repayment gaps can be attributed to institutional factors versus student factors, like family resources.

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