How bad is Minnesota’s student-debt situation?

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Last month, Massachusetts Senator and Democratic presidential hopeful Elizabeth Warren released a student-debt plan that would forgive up to $50,000 in student loans for people with household incomes less than $100,000, forgive less in loans for those who make more and make public higher education free.

Not everyone agrees it’s a good idea. But Warren’s not the only one with policy ideas they say are designed to minimize student loan debt, from President Donald Trump to Bernie Sanders.

Lots of people are worried about student loan debt these days. Between 2000 and 2017, the share of U.S. residents with a bachelor’s degree or higher increased from 24 percent to 32 percent. And as the costs of higher ed rise, students are taking on more in student loans, meaning many millennials are starting their adult lives stuck with debt their parents didn’t have.

Just how extensive has the student-debt burden become? To give an idea, here’s a look at the student-debt situation for bachelor’s degree recipients in Minnesota (more information on student loan debt in Minnesota, including for two-year degrees, can be found here).

How much debt do Minnesota graduates rack up?

More than two-thirds of people who earned bachelor’s degrees in Minnesota in 2017 took out loans to pay for school, a number that’s down slightly from previous years, according to data from the Minnesota Office of Higher Education (OHE).

The median 2017 graduate who borrowed for a bachelor’s degree left school with about $25,500 in debt. But the amount those students borrowed varies a lot by the type of school they went to.

For example, students at private for-profit schools like National American University, known for its catchy TV jingle, Argosy University (now closed) and Rasmussen College, borrowed more than students at other types of schools, at a median $35,414.

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A larger share of students from for-profit schools graduated with debt than those who attended other types of schools, too: 86 percent 2017 bachelor’s degree graduates from for-profit schools in the OHE dataset owed student debt.

By comparison, about 70 percent of private nonprofit bachelor’s degree graduates left school with debt. For those students, the median debt carried was $28,046.

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At public institutions, debt loads were slightly lower, at a median $24,831 for Minnesota State Universities and $23,745 at University of Minnesota schools.

Two-thirds of public four-year graduates left school with debt.

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Is that a lot of debt?

People who live in Minnesota  rank fourth among states and the District of Columbia in average student loan debt per state resident, according to statistics from the Federal Reserve Bank of New York. Minnesotans owe about $6,280 for every man, woman and child in the state. That’s half of D.C.’s per-capita loans, at $13,320, but it’s higher than the national average of $5,390.

That sounds bad. And a lot of people who write checks to loan servicers every month probably think it is. But in relation to other states, Minnesota’s somewhat higher per capita loans might be more symptomatic of who lives in the state and where they go to school, said Meredith Fergus, who does financial aid data analysis at the state Office of Higher Education.

“Minnesota is a high-debt state,” Fergus said. “Partially because we have higher tuition rates, but we also have higher incomes, and we know that higher-income families are more likely to borrow.”

The median household income in Minnesota is nearly $68,000, compared to $60,000 for the country as a whole, according to Census figures. Minnesota’s also got higher education rates: 36 percent of adults over age 25 have a bachelor’s degree or higher, compared to 32 percent of Americans.

Is student loan debt bad?

People who go to school tend to get higher-paying jobs, which allows them to pay back their loans, so experts say taking out a reasonable amount of loans to pay for college is usually a good investment in the future. That is, if you graduate: students who take out lots of loans and then don’t graduate often have a harder time paying them back.

Fergus outlined a couple of baseline rules for borrowers to follow: don’t borrow more than what you think your salary might be your first year out of college, and don’t borrow so much that repayment is more than 8 percent of your adjusted gross monthly income.

What’s smart to borrow can vary based on school and major.

Bachelor’s degree graduates of Saint John’s University who borrow tend to leave school with a debt burden than graduates at Minnesota schools on-the-whole, at a median $31,800, according to the OHE. But surveys indicate that doesn’t have huge effects on the choices most students make during and after school, said President Michael Hemesath.

The school guides its financial aid policies using a student survey, Hemesath said. They ask whether students choices in college and after college revolved around student debt, plus look at the student loan default rates.

“Did you choose your major based on your concerns about loans for borrowing? Did you want to be an elementary ed major and you chose accounting so you could pay off loans? Does it affect, once you graduate, life choices, do you choose when to get married or not get married or buy a house because of student debt?” Hemesath said.

They find that debt tends not to affect those choices for students, who tend to default on loans at relatively low rates.  Saint John’s University graduates had high incomes 10 years after graduation compared to other Minnesota institutions, at $60,600, according to College Scorecard, a federal education data website.

Still, large amounts of debt aren’t a good proposition for all students at all schools. “We know that college is still a good investment for most students, but it’s important to remember the large number of students who take on debt and struggle to repay that debt after graduation remains deeply troubling,” said Lindsay Ahlman, senior policy analyst at the Institute for College Access and Success.

What can help ease students’ burden?

State financial support for higher education has fallen across the U.S. over time, including in Minnesota, increasing tuition costs and increasing the amount many families are expected to pay.

There are government grants available to low and middle-income students.

Low-income students are eligible for federal Pell grants, which help students from families that make less than about $60,000 pay for school, provide between $650 and $6,195 per year. Lower and middle-income students are eligible for Minnesota’s state grant, which is available to students from families that make less than about $90,000 per year and provides between $100 and $11,800 per year.

Colleges can ease student debt burdens by focusing their own student aid on need-based scholarships, Ahlman said, pointing to Northfield’s Carleton College.

Carleton’s tuition is about $51,000 and the school has relatively fewer Pell-eligible students than many other schools, at 14 percent. The school awards 99 percent of its aid on a need basis, according to TICAS data. The median Carleton student graduated with $20,362 in debt, according to OHE data

“We want to meet their need to come here with financial aid, but in the process, we don’t want to overtax them with loans. That’s not to say students won’t have some loans when they leave here, but by keeping that goal in mind, we are able to hold down the loans,” said Rodney Oto, associate dean of admissions.

It helps, of course, that Carleton has the biggest endowment of any private school in the state, at more than $878 million.

Awareness is also key. It can be really daunting for students and parents to figure out how much one school is going to cost in relation to another, because of all the different factors that go into paying for college.

Standardizing the terminology used in financial aid offers would go a long way to help families compare apples to apples about college costs, she said. Schools are required to post some information on their websites, but it’s often hard to find.

“Schools can do a better job of making sure their costs are clear to students so there aren’t surprises later on,” Ahlman said. “They can help a student make an informed decision so they know what they’re getting into.”

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