College Dropout Loan Debt

A new problem that has arisen is an increase in the number of people with college debt but no degree to show for it, with student debt now topping $1 billion. Nearly 30% of college students who took out loans dropped out. Fewer than 25% of students did so ten years ago, according to Education Sector. 

College dropouts are also the most likely to default on their loans, falling behind four times more often than graduates. Obama's administration is trying to address the issue by coupling its goal of ensuring that high school students are prepared for at least one year of higher education with new targets for college graduation rates.

The poor economy has forced more students to decide between the benefits of a degree and the burden of paying for it. More students are now taking on jobs or taking a reduced course load to save money, which also increases the likelihood that they will not graduate. In a 2009 study, half of college dropouts said that work was a major factor in their decision. Only one fourth said they had spent too much time socializing.

Although college dropouts make more than those with only a high school diploma, they earn about a million dollars less than college graduates over their careers. College enrollment has increased by 38% in the past decade to more than 20 million, according to government data.

However, lawmakers and regulators have recently shown more concern over the growing market of for-profit institutions with low graduation rates and high student debt. FinAid.org reports that students who receive a bachelor's degree from a for-profit college will have an average debt of over $41,000. Students graduating from a public university have roughly half that amount of debt. For-profit colleges also saw the biggest increase in borrowers who drop out.

The Education Trust found that more than half of students who take out loans to enroll in two-year for-profit colleges never finish. At traditional non-profit and public colleges, only approximately 20% of students with loans who started college in 2003 dropped out within six years. By comparison, about 8% of Americans between ages 16 and 24 do not have a high school diploma.

The Obama administration has made increasing the college graduation rate by 2020 one of its top educational priorities. Some schools have also tried to streamline majors and course offerings to help students stay on track. Education experts say many students aren't prepared for the more rigorous course work in college and that many schools don't offer enough guidance for these students.

As a reminder, student loans are generally not dischargeable in bankruptcy. However, if you are struggling with student loan debt, bankruptcy may be an option worth considering. Filing bankruptcy may allow you to eliminate many of your other debts, freeing up money to repay your student loans. Please feel free to leave any comments or questions.