Understanding the Evolution of Student Loan Balances and Repayment Behavior: Do Institution Type and Degree Matter?

Student loan balances and delinquency rates have soared to unprecedented levels in recent years, forming what many commentators have termed a “student loan bubble” and creating a major public policy issue. Given the importance of student loans for human capital formation and economic growth, understanding student loans and repayment behavior is essential from a policy perspective. Yet research in this area has been limited. The authors seek to fill the gap by examining student loan performance over time by institution type and degree program. Using detailed data collected as part of RAND’s American Life Panel survey, they find that, relative to the preceding two decades, the 2000-10 period was characterized by 1) large increases in student loan balances at college exit and 2) deterioration in loan performance among students seeking associate’s degrees, undergraduate certificates, master’s degrees, and professional degrees at private institutions, compared with trends seen among students seeking corresponding degrees at public institutions. The declines in repayment behavior were by far most prominent for associate’s degrees and undergraduate certificates, and were statistically and economically different from the changes observed with other degrees. While deterioration was also seen with public associate’s degree programs, the deterioration was more prominent in such programs in private institutions. The results suggest that the worsening of loan performance at private institutions in the past decade is to a significant extent attributable to student loans extended for study at for-profit institutions.