This study analyzes the impact of postsecondary institution type and student characteristics on students’ decision whether to borrow and how much to borrow to finance their education. Using data from the National Postsecondary Student Aid Study from the 2011-2012 academic year, the study uses a two-stage regression model in order to estimate the impacts of student and institutional characteristics on the probability that a student would borrow and, for students who borrowed, their student debt burdens. The model controls for a number of financial resources available to students, institution characteristics, and student and family characteristics that could contribute to variations in debt between for-profit, nonprofit, and public colleges, including the total cost of attendance, amount of parental support, expected family contribution, and amount of grants received.
The study found that:
- Students at two-year for-profit colleges were nearly 50 percent more likely to borrow than students at public colleges, all other factors being equal.
- Latino and white students at four-year for-profit colleges were significantly more likely to borrow than Latino and white students at public or nonprofit schools.
- Students who took out debt borrowed over $1,300 more on average to attend two-year for-profit colleges than to attend two-year public colleges.
- There were few significant differences in predicted amount borrowed at four-year colleges.
- Students' financial resources had a significant impact on the likelihood of borrowing and the amount borrowed.
- Student characteristics other than race or ethnicity had a bigger impact on the likelihood of borrowing than on the amount borrowed.
Based on these findings, we recommend:
- The Department of Education should strongly enforce the gainful employment rule to limit federal loans and aid to poorly performing for-profit colleges.
- The Department of Education should discharge the federal student debt of for-profit college students harmed by deceptive college practices.
- Regulators should continue to investigate and publicly report on the incentives and lending practices of for-profit colleges.
- The Consumer Financial Protection Bureau should enact student loan servicing standards that encourage affordable repayment options.