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Every investment involves an element of risk, and borrowing to pay for college expenses is no exception. Borrowing remains a sound investment for most students, but many who borrow and then drop out appear to have lost the bet. Students who borrow money for college begin postsecondary education with more academic and financial risk than other groups. Some of these students, after borrowing and then dropping out of college, beat the odds and go on to productive careers. Perhaps their courses and experience help them succeed, even without a certificate or degree. Or perhaps they come from families sufficiently well off that the accumulated debt is not burdensome.

Yet, along with those who do not finish high school and those who stop with a high school diploma, many college dropouts fall into what has been called "the forgotten half" of our nation's young adult population.1 The findings in this report, in providing a snapshot of students' experiences, suggest that many borrowers who drop out of postsecondary education may be left behind in the nation's economy.

The growing reliance on loans to finance rising college tuition has drawn widespread attention in the media and public policy debates. Much of the publicity and concern focuses on students who pursue a four-year degree and take on significant debt, averaging from $15,000 to $20,000 in debt by the time they graduate. Some college graduates have borrowed much larger amounts, and average debt burdens are especially high for low-income and minority students who complete their programs of study.2 However, most students who achieve their degrees reap sufficient economic benefits to pay off their loans.

For the first time, this study examines those who may be least well-served by our current system of financing higher education: students who invest in their own education by borrowing, but who do not complete their postsecondary programs. A recent report by the Education Trust warned that "hundreds of thousands of young people leave our higher education system unsuccessfully, burdened with large student loans that must be repaid, but without the benefit of the wages a college degree provides."3 This report examines the dimensions of this problem and identifies ways to address it.

Both individuals and society reap significant economic and other benefits from investing in higher education, and loans have become a pervasive means of financing student costs and consequently realizing these benefits. However, there are serious negative consequences of the loan trend. For example, half of entering freshmen borrow, and one-fifth of borrowers drop out.4 In 2001, this meant that there were more than 350,000 ex-students who had begun college six years earlier, but had no certificate or degree, and a debt to repay. For students who began at four-year institutions and expected to attain a bachelor's degree, borrowers who dropped out were twice as likely to be unemployed as borrowers who received a degree, and more than ten times as likely to default on their loan.

These findings provide an alert to policymakers and educational leaders, who can hardly be satisfied when so many students leave school with no credential, a debt to repay, and a high risk of defaulting on that debt-or with no debt, no degree, and therefore little gain in earning power to offset the time and money invested in postsecondary education. This report suggests the need for policy and educational leaders to establish policies and programs to better prepare, support, and guide students, especially low-income students, in completing their degrees. In addition, public policymakers and educational leaders must do all they can to assist students in making appropriate decisions about the use of loans to finance the costs of their postsecondary education.

This report draws from the most recent and comprehensive data available: family background, demographic, and other characteristics for the group of students who first enrolled in postsecondary education in 1995-96, along with a snapshot of data about what happened to them by 2001 (for example, enrollment status, academic experience, cost of attendance, financial aid, loan obligations, and employment status). The study provides a profile of students who borrow and then drop out, and compares them with other groups, including those who borrow and do receive a certificate or degree. The principal source of data is the longitudinal Beginning Postsecondary Students (BPS) study, which the National Center for Education Statistics of the U.S. Department of Education inaugurated in 1989 and repeated in the 1990s. (For extensive information about data sources, limitations, and definitions, see Appendix I.)

Since minimal changes have occurred in federal student loan programs since 2001, it is likely that the findings in this report are relevant to recent groups of students. In fact, since loan rates and debt burdens have been rising, the choices and tradeoffs highlighted in this report may be more extreme now than they were for students who first enrolled a decade ago-and the need for action therefore even more vital today.

1 See William T. Grant Foundation, Commission on Work, Family and Citizenship, The Forgotten Half: Pathways to Success for America's Youth and Young Families (Washington, D.C.: 1988), and American Youth Policy Forum, The Forgotten Half Revisited (Washington, D.C.: 1998).

2 Although most college graduates are able to pay off their loans, minority students and students from low-income backgrounds take longer to do so, and have significantly higher debt burden than do white students and students from more affluent families. See Derek V. Price, "Educational Debt Burden Among Student Borrowers," Research in Higher Education 45:7 (Nov. 2004).

3 Kevin Carey, A Matter of Degrees: Improving Graduation Rates in Four-Year Colleges and Universities (Washington, D.C.: Education Trust, 2004), p. 5.

4 For a full definition of dropouts, see Appendix I. We define students who have dropped out as those who were no longer enrolled in 2001 and did not have a certificate or degree.


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