1. Drowning in Debt or Investing in the Future? Sandy Baum The College Board and Skidmore College Michigan Default Aversion Symposium November 2006

2. Source: The College Board, Trends in Student Aid, 2006 Grants Versus Loans, Percent Share of Total Funds 1991-92 to 2005-06 Source: The College Board, Trends in Student Aid 2006

3. Source: The College Board, Trends in Student Aid, 2006 Growth of Stafford, PLUS, and Nonfederal Loan Dollars in Constant (2005) Dollars, 1995-96 to 2005-06 Source: The College Board, Trends in Student Aid 2006

4. Source: NPSAS: 1993, 1996, 2000, and 2004, Undergraduates; calculations by authors. Source: The College Board, Trends in Student Aid, 2006 Median Debt Levels of Undergraduate Degree Recipients Who Borrowed by Degree and Institution Type in Constant (2003) Dollars, 1992-93 to 2003-04 Source: The College Board, Trends in Student Aid 2006

5. Source: NPSAS: 2004, Undergraduates; calculations by authors. Source: The College Board, Trends in Student Aid, 2006 Distribution of Total Debt Levels of Degree Recipients, 2003-04 Source: The College Board, Trends in Student Aid 2006

6. Source: The College Board, Education Pays, Second Update, 2006 Source: U.S. Census Bureau, 2006, PINC-03. Distribution of Annual Earnings by Level of Education, Ages 35–44, 2005

7. How Much Debt is Too Much? Baum and Schwartz, The College Board and TICAS, 2005 Banking industry standards Relative living standards Need analysis Income contingent repayment Studies of borrowers in repayment

8. Life-Cycle Model Modigliani and Brumberg (1954), Friedman (1957) Consumption depends on permanent income, not just current income Standard of living smoothed over lifetime. Implies young people borrow in anticipation of higher earnings.

9. Evidence from Borrowers in Repayment : Nellie Mae 2002 Index of perception of burden Is repaying your loans harder than you had anticipated it would be? If you had it to do over again would you borrow less? About the same amount? More? How burdened do you feel by your student loan payments?

10. Perceived Burden Payments < 7% of income – no problem 7% - 11% - sense of burden begins to be apparent 12%-17% - greater expression of difficulty > 17% clear break in calculated index

11. Borrower Perceptions: Good News 1991 2002 College access 71% 70% Caused drop- out 46% 29% No grad school 71% 42% Changed career 15% 17% Source: Baum and O’Malley, Nellie Mae, 2003

12. Borrower Perceptions: Bad News 1991 2002 Benefits worth it 74% 59% Would borrow less 31% 54% Unexpected hardship 25% 34% Delayed home 25% 38% Source: Baum and O’Malley, Nellie Mae, 2003

13. Need Analysis: Institutional Methodology Income% of Income $10,0000% $15,0000% $20,0003% $25,0005% $30,0007% $35,0008% $40,0009% $45,00010% $50,00011% $55,00011% $60,00012% $65,00013% $70,00013% $75,00014% $80,00015% Source: College Board, Institutional Methodology

14. Proposed Benchmarks: 20% of income above 150% of poverty ( single individuals) Income Income above 150% of poverty line Annual payment (20%) payment/ total income Total debt supported at 6.8% interest rate* $10,000$0 0%-- $20,000$5,300$1,0605%$7,680 $30,000$15,300$3,06010%$22,160 $40,000$25,300$5,06013%$36,640 $50,000$35,300$7,06014%$51,120 $75,000$60,300$12,06016%$87,330 $100,000$85,300$17,06017%$123,540 $150,000$135,300$27,06018%$195,950 *Assuming standard 10 year repayment plan Source: Baum and Schwartz: How Much Debt is Too Much?

15. Years in Repayment < 3 Years 3 Years + Pay/income 12.1% 11.0% Very burdened 51% 61% Not worth it 12% 19% Source: Baum and O’Malley, Nellie Mae, 2003

16. Low-Income Borrowers Pell Non-Pell Access 76% 65% Cause drop-out 37% 23% Undergrad debt $18,700 $18,800 HH Income $44,200 $50,400 Source: Baum and O’Malley, Nellie Mae, 2003

17. Low-Income Borrowers Pell Non-Pell Loans worth it 82% 87% Worth it career 54% 63% Would borrow less 62% 50% Delayed home 45% 35% Source: Baum and O’Malley, Nellie Mae, 2003

18. Policy Issues Information Income-contingent repayment Loan forgiveness Interest rates Private loans