The other student loan problem: too little debt

By Justin Pope

Associated Press

Published: Sunday, Nov. 27 2011 3:26 p.m. MST

In this photo taken Nov. 16, 2011, Jesse Yeh poses on the University of California campus with the Occupy Cal encampment at Sproul Plaza in the background in Berkeley, Calif. All those college students buried in debt you keep hearing about? Yeh will do just about anything to make sure he’s not one of them. He uses the University of California-Berkeley library instead of buying textbooks. He scrounges for free food and campus events and occasionally skips meals.

Eric Risberg, Associated Press

LONG BEACH, Calif. — Jesse Yeh uses the University of California-Berkeley library instead of buying textbooks. He scrounges for free food at campus events and occasionally skips meals. He's stopped exercising and sleeps five to six hours per night so he can take 21 credits — a course load so heavy he had to get special permission from a dean.

The only thing he won't do: take out a student loan.

"I see a lot of my friends who took out student loans, then they graduated and because of the economy right now they still couldn't find a job," said the third-year student, whose parents both lost their jobs in 2009 and who grew up in the boom-and-bust town of Victorville, Calif., on a block with several houses in foreclosure. "The debt burden is really heavy on them."

Even as college prices and average student loan debt rise, educators in some sectors of higher education report they're also seeing plenty of students like Yeh. After watching debt cause widespread damage in their families and communities, they're determined to avoid loans no matter what.

What's surprising is this: Educators aren't sure that's always such a good thing.

Students who take extreme steps to avoid debt at all costs, they say, may get stuck with something much more financially damaging than moderate student loan debt. They may not wind up with a college degree.

To pay for college and minimize borrowing, students are working longer hours at jobs and taking fewer credits. They're less likely to enroll full-time. They're living at home. They're "trading down" to less selective institutions with lower prices, and heading first to cheaper community colleges with plans to transfer later to four-year schools.

Those may sound like money-savers, but in fact each is a well-documented risk factor that makes students less likely to graduate.

"There's been such attention on student debt being unmanageable that current students have internalized that," said Deborah Santiago, co-founder and vice president for policy research at the group Excelencia in Education, a nonprofit advocacy group. In fact, "If you can take out a little bit of loan you're more likely to complete. If you can go to a more selective institution that gives you more resources and support, you're more likely to complete."

To be sure, educators can't help but admire the determination of students like Yeh; if that kind of responsibility was more common, the financial crisis might never have happened. And nobody blames students for being afraid amid a flurry of news about debt, like a recent analysis estimating the average debt burden for 2010 college graduates who borrowed was over $25,000, up 5 percent from the year before.

But getting almost no notice in recent reports was another stat: New borrowing nearly flattened out last year, according to the College Board, and actually declined on a per-student basis after accounting for inflation. Private borrowing (generally more dangerous to students) has dropped from about $24 billion in 2007-2008 to about $8 billion last year. A major factor is likely increased federal grant aid. But another may be students making more sacrifices to avoid loans.

What's the upside of borrowing? Federal data analyzed by Santiago's group and The Institute for Higher Education Policy (IHEP) in 2008 shows roughly 86 percent of students who borrow for college are able to attend full-time, compared to 70 percent of students who don't borrow. That matters because roughly 60 percent of full-time students receive a bachelor's degree within eight years, compared to 25 percent of part-time students.

Other research, meanwhile, shows just 26 percent of students who enroll in a community college hoping eventually to earn a four-year bachelor's degree succeed within nine years. That compares to 50 percent starting at non-selective four-year colleges and 73 percent at selective schools.

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