When Student Loan Report polled their readers last month, they found there’s little that student loan borrowers won’t consider doing to be rid of their debt. In exchange for total loan forgiveness, 62% of respondents would star in porn, 27% would contract the Zika virus, and 9% would effectively hit “undo” and give back their degree.
Their desperation leaves no doubt: borrowers are feeling squeezed. Student loan debt has been blamed for millennials’ sluggish progress toward milestones like moving away from home and buying a house. Yet, if the size of the student loan industry is any indication, prospective students believe the increased earnings of college graduates justifies the pain of taking on debt.
But that assumption doesn’t hold true for all universities. Some schools leave their students paying a much larger share of their income on loan payments than others. Using data on the average debt of university students along with their expected income upon graduation, we looked into just which schools’ graduates have to budget the largest proportion of their paycheck for debt.
We examined debt and earnings data from the top 100 universities and top 100 liberal arts colleges according to U.S. News & World Report, as well as the largest institutes by undergraduate enrollment. We found that most borrowers have to budget 1-10% of their pay for student loan payments, and some unlucky grads—mainly from for-profit universities like Ashford spend more than 10% of their pre-tax salary on loan payments. Students from top private universities spend the least, as well as graduates of schools that specialize in STEM disciplines.
That data also shows that these figures seem to influence graduates’ progress toward loan repayment: the more borrowers’ debts take over their budgets, the lower the likelihood that they will begin repaying their loan within five years of graduation.
We began our analysis by looking at how much graduates of elite universities will spend on their debt. The following table shows the best and worst 25 schools in terms of how much of their graduates’ expected pay goes toward student loan payments. We used median, early-career pay estimates from Payscale.com, which represent the salaries of bachelor’s degree-holders with 0-2 years of work experience. Our median debt payment figures come from the College Scorecard, which assumes a 10-year repayment term at 6% interest, and only takes federal (i.e., not private) student loan debt into account.
A look at the “Best” list shows that borrowers spending the least on debt tend to come from top-ranked private universities. In fact, 6 of the 10 schools with the lowest debt burdens are ranked in the top 10 for academics by U.S. News & World Report. These students enjoy both high starting salaries and low debt.
Graduates from Clark University, which tops the “Worst” list, face the unfortunate combination of relatively low pay and a large loan burden. Consequently, the average Clark graduate will spend ~8.5% of his or her pay on student loan debt. The average household spends about this much (10%) on food in a given year, according to the U.S. Bureau of Labor Statistics.
We also ranked the schools that enroll the most students. This group of schools includes mostly large public schools, online institutions (many of which operate for profit), and some large, prestigious private universities.
Public universities, which generally offer discounted tuition to in-state students, graduate students with the lowest debt burdens on this list. California, which hosts 3 of the 10 large schools with the least debt-burdened students, offers generous grant packages to residents via its Cal Grants tuition assistance program. Receiving these subsidies means students will not have to rely as much on student loans.
The “Worst” table shows that the greatest debt burden falls on graduates of for-profit universities. The top 2 on this list Ashford University and Kaplan University-Davenport, are all for-profit institutions. Graduates of these schools allocate around 10% of their pay toward debt, thanks to a combination of low starting salaries and costly debt payments.
We also examined debt payments as a percentage of income at top liberal arts colleges. Because of their smaller student bodies, the government does not collect this data for about one third of these schools. Nevertheless, we noted some general trends.
Overall, liberal arts grads face a greater debt burden than graduates of top universities. Debt consumes an average of 6.7% of their budgets compared to 5.4% for graduates of top universities. This likely has to do with what these students choice of major; many of the lowest paying majors are liberal arts subjects. Alums from schools like Harvey Mudd (4.38%) and Grinnell (3.38%), which graduate a high percentage of students in STEM majors, including engineers, are among the least debt-burdened of liberal arts graduates.
Students whose loan payments represent a smaller chunk of their pay should be able to pay down their loans. But do they?
To see if students with lower debt burdens pay off their debt more quickly, we looked at five-year loan repayment data from the College Scorecard. This figure indicates what percentage of a school’s graduates have made at least some progress toward paying down their principal within 5 years of graduation. We plotted this data against the median debt-as-percent-of-earnings data we calculated above, pooling schools from all the lists we considered.
The good news is that most graduates, regardless of their relative debt burden, make at least some progress toward paying their loans within five years of graduation. This means they aren’t stuck in deferment limbo.
That said, there is a negative relationship between a school’s five-year repayment rate and its students’ debt payments as a percentage of their expected earnings. For students, this means the bigger the slice of their budget that their loan payment represents, the less likely it is that they will start reducing their debt after graduation.
With respect to repayment, students from Notre Dame come out on top: more than 99% of them have initiated repayment within five years of graduating. Rounding out the top 3 are Carnegie Mellon and the University of Pennsylvania, both with repayment rates above 98%. While these schools aren’t the lowest ranked for student loan debt as a percent of income, their students can expect to put around 5% of their earnings toward debt—a manageable figure, if repayment rates are any indication.
At the other end of the spectrum, the schools with the lowest repayment rates are those whose students face the worst debt burden: for-profit institutions. Kaplan University ranks dead last with a 61% repayment rate, followed by Ashford University at 78%. This means that nearly 40% of Kaplan graduates, and nearly a quarter of Ashford students, don’t make a single payment on their debt within five years of graduating.
So, in this age of student debt, where can students expect to earn a degree that will help them achieve financial freedom?
One answer is top-tier schools. Graduates of elite universities can compete for high-paying jobs, and these schools’ large endowments can defray students’ costs. Though loans may be necessary, they will be relatively small and affordable.
Many public universities are also a good route: their students may not make the most money after graduation, but low, in-state tuition rates make their debt payments relatively affordable.
According to our data, though, students should be wary of for-profit schools. They graduate the most highly indebted students, yet offer access to jobs with relatively low starting salaries. Since their graduates have to spend around 10% of their pay on loan payments, most for-profit colleges only enrich their investors—not their students.