How Congress sees Minnesota’s student debt

debt table

This student-debt study just came out this morning from the U.S. Congressional Joint Economic Committee, of which Minnesota Democratic Senator Amy Klobuchar is vice-chairwoman.

I spoke with analyst John Armstrong of the state Office of Higher Education, who was able to look at it briefly. The report seems to echo what the OHE has been saying for the past several years: Minnesota students carry some of the highest debt — but also tend to have lower default rates.

He told me:

“It conveys to us that our population is confident that the debt they are borrowing may enable them to get jobs.”

The data is about a year newer than the OHE report, he said, though it doesn’t break debt down as comprehensively as the state did.

A couple of new bits seemed to be graduates’ initial earnings and the debt-to-earnings ratio.

I did some Excel spreadsheet sorting to find out how Minnesota stacks up overall:

  • Amount of debt: 3rd with $30,411
  • Percent of students with debt: 6th with 71 percent
  • Annual earnings: 19th with $44,306
  • Debt-to-earnings ratio: 11th with 69 percent (That’s how much of a year’s earnings is taken up by debt)
  • Delinquency rates: 3rd lowest with 9.8 percent. (Could be a proxy for default rates.)

(I’m no Excel whiz, so please let me know if I’ve misread anything.)

I asked Armstrong about the debt-to-earnings ratio. He told me:

“It’s certainly concerning — the amount of loan obligations compared to an average starting salary that students may get into. But at the same point, it appears, at least in terms of delinquency and default rates, that Minnesota borrowers are meeting their obligations.”

I also found some interesting national figures (I’m using the report’s language):

  • Student loan debt has almost doubled in the past five years, increasing from $550 billion in the fourth quarter of 2007 to just under $1 trillion in the first quarter of 2013.
  • Two-thirds of recent graduates have student loans, with an average balance of more than $27,000.
  • On average, recent graduates left college with student loan debt of 60% of their annual income.

Armstrong said the report was heavy on policy. (Clarification/correction: I’d written that he thought it was a political document.) The report says debt will only increase for future borrowers if the interest rate on new federally subsidized Stafford loans is allowed to double from 3.4 percent to 6.8 percent on July 1st.

Below is the executive summary, followed by the report itself and Klobuchar’s press release. They’re not long.

Here’s the report:


Date: June 18, 2013
Contact: Ian Jannetta

Senator Amy Klobuchar, Vice Chair


 New Report Shows Rising Level of Student Debt in America, Highlights Need for Legislation to Stop Student Loan Interest Rates from Doubling

Report shows that while Minnesota students have some of the highest debt rates in the country, they also have some of the lowest delinquency rates

Klobuchar has cosponsored legislation that would prevent interest rates on federally-subsidized Stafford loans from doubling to help keep college affordable

WASHINGTON, D.C. – U.S. Senator Amy Klobuchar (D-MN), Vice Chair of the U.S. Congress Joint Economic Committee (JEC), today released a new report that shows a rising level of student debt in America and highlights the need for legislation to stop student loan interest rates from doubling. The report shows that student debt has increased significantly in recent years, nearly doubling from $550 billion in the fourth quarter of 2007 to just under $1 trillion in the first quarter of 2013. The report also shows that while Minnesota students have some of the highest debt rates in the country, they also have some of the lowest delinquency rates when paying back their loans. With interest rates on federally subsidized Stafford loans set to double on July 1, the report calls for swift action to prevent loan rates from increasing and new strategies to make higher education more affordable. Klobuchar has cosponsored legislation that would prevent interest rates on federally-subsidized Stafford loans from doubling from 3.4 percent to 6.8 percent, costing students thousands of dollars in increased interest payments.

“Higher education provides students with the skills needed to be competitive in today’s global economy and creates a gateway to well-paying careers. At a time when more and more jobs require some form of postsecondary education, we cannot allow cost to be a barrier to opportunity,” Klobuchar said. “This report makes it clear that we need to take immediate action to block the rate hike and I will continue to focus on policies that make college more accessible and affordable for Minnesotans and all Americans.”

The new report shows that two thirds of 2011 college graduates have student loan debt. Minnesota has one of the highest rates of student debt in the country (71 percent compared to 66 percent nationally), with an average debt load that is more than $3,000 higher than the national average ($30,411 in Minnesota compared to $27,152 nationally).  But Minnesota also has one of the top five lowest delinquency rates in the nation when paying back their loans, at just 9.8 percent, compared to 15.9 percent nationally. Student debt can negatively impact both individual Americans and the larger U.S. economy, since graduates with high debt may delay making key investments like saving for retirement or buying a home. Student debt may even impact a person’s career choices, deterring some graduates from taking lower-paying jobs in public interest fields like education.

New borrowers may soon face additional costs: if Congress doesn’t act, interest rates will double from 3.4 percent to 6.8 percent on new federally subsidized Stafford loans issued on or after July 1, increasing the cost of a college education by as much as $4,500 and impacting 200,000 students in Minnesota.

Today’s report highlights the need for smart policies to ease the student debt burden and expand access to affordable options in higher education. Potential solutions include working to restructure loans based on financial hardship, lowering interest rates on federal direct loans and forgiving loan debt for students entering lower-paying jobs in public interest careers.

Klobuchar has fought for policies to expand access to higher education and make college more affordable since her very first days in the Senate. In 2007, she helped pass the College Cost Reduction Act, legislation that raised the maximum Pell grant amounts that students can receive, capped loan payments at 15 percent of discretionary income and cut student loan rates in half for federally subsidized Stafford Loans. She also helped pass legislation to eliminate waste from the federal student loan system and fought to pass legislation last summer to prevent interest rates from doubling on federally subsidized Stafford loans.

The full report on student debt can be found here.