Why it may be possible to have too little college debt

It’s hard to believe, but there may be such a thing as too little college debt.

A new study shows that students who borrow less than $2,000 to attend community college earn significantly fewer credits than those who borrow more. The finding suggests that many students who avoid taking on too much debt struggle to balance the cost of attendance with uncertainty about future earnings, which could result in what has been shown to be the worst financial outcome for a college student — a partially finished degree.

“They’re making these cost-benefit analyses, and at a certain point for these students, they may decide that taking another class is not worth the cost,” said study co-author Dominique Baker, a professor of Education Policy at Southern Methodist University.

As four-year-college prices have skyrocketed in recent years, more students have turned to community colleges — which means more students are borrowing to attend them. During the 2004-2005 school year, just 6 percent of federal student loans were disbursed to community colleges; that number increased to 10 percent by the 2013-2014 school year.

Though it accounts for a relatively small amount of the recent large-scale increase in student borrowing, community college debt, like debt from other educational institutions, can linger for years even in small amounts — particularly for students who don’t complete their degrees.

In the study, published in the May 2017 issue of the journal “Annals of the American Academy of Political and Social Science,” authors used data from the Educational Longitudinal Study of 2002 to 2012, which tracked a group of high school sophomores over the course of eight years to determine how they fared in post-secondary education and the labor market.

After controlling for race, gender, prior student achievement, and parental income and education, the authors found that the community college students who borrowed $1,999 or less in federal aid on average completed 15 percent fewer credits than those who borrowed more or those who didn’t borrow at all. (Researchers found 83 percent of those attending community college did not borrow.)

Baker says that as more students opt to attend community college for financial reasons, more research needs to be done on their borrowing patterns.

“There’s sort of this assumption that because there’s a lower price tag [for community colleges], these students may not borrow, and then that these students may not have any negative effects from borrowing,” Baker said. “That’s not what the actual situation is.”