Universities’ admission and financial aid policies are helping to drive student debt, according to a new paper from Cornell Higher Education Research Institute. The study’s author, University of Richmond business professor James Monks, found that the contributing factors to rising student debt weren’t uniform at public and private colleges.
For public institutions, admitting students without considering their financial means can increase student debt by as much 30%, writes Monks. Private institutions that help students offset the costs of going to school with financial aid and work study programs significantly reduce the amount of money borrowed by students.
According to Monks, two ways that colleges can reduce student borrowing is by adopting no-loan or limited-loan policies and by increasing their academic selectivity. Monks found that “the higher the average SAT score of an institution the lower the levels of average debt” because higher SAT scores are “highly, positively correlated with family income and thus highly, negatively correlated with student debt.”
Schools that produce more graduates with high paying jobs also produce more debt, says the report. Monks found that the greater a students’ chances of graduating the higher his or her debt will be at graduation and that students with top paying majors have a higher level of debt.
Monks concludes the report by writing that while need-blind admissions policies are usually considered a positive way to increase low income enrollment, they do lead to students with higher levels of debt after graduation.
He warns that penalizing institutions for the levels of debt incurred by their graduates may lead to schools increasingly adopting admissions and financial aid policies that are “less conducive to enrolling low-income students.” Monks describes this possible policy shift as clearly leading to lower student debt levels, but not as being a “social welfare improving outcome.”
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