The blog of the Urban Institute
March 24, 2021

Who Is Taking New Student Loans during the Pandemic?

March 24, 2021

Even during the pause on student loan repayments, new and returning students are taking on loans for higher education. But student loan lending patterns look different this year.

Initial loan volumes for graduate school have increased, but loans for undergraduates (and Parent PLUS loans supporting undergraduates) have declined. Using credit data, we show those taking on new or additional student loans—especially larger loans that indicate borrowing for graduate school—are more likely to be from predominantly white neighborhoods. However, this pattern is largely similar to prepandemic patterns of student loan borrowing.

The National Student Clearinghouse reports overall postsecondary enrollment declined 2.5 percent in fall 2020, which is about twice the rate of enrollment decline in fall 2019. The drop is especially steep for first-time undergraduate enrollment, which fell 13.1 percent, and for public two-year freshmen enrollment, which fell 21.0 percent, a rate almost 20 times higher than the previous year. In contrast, graduate enrollments are climbing, increasing 3.6 percent over the previous fall.

Preliminary Federal Student Aid (FSA) data for the first quarter (ending on September 30) in the 2020–21 academic year demonstrate that trends in student loan volume mirror enrollment trends (figure 1). Compared with previous years, first-quarter student loan volume is down sharply: a 10 percent decrease for undergraduate loans and 23 percent for Parent PLUS. These aggregate dollar-amount drops are likely steeper than overall enrollment declines in student loan borrowers; for example, students may borrow less if they are living at home rather than on campus.

Line chart showing the aggregate student loan volume disbursed, by loan recipient, from 2012 to 2020

To understand which students might be driving these differences in aggregate student loan lending patterns, we consider how new loan borrowing might have changed at the individual level. We look more closely at which student loan borrowers are taking out new loans during the loan pause using data from one of the three major credit bureaus.

Because undergraduates face limits on the amount they can borrow in federal loans ($5,500 for a first-year undergraduate dependent student, $9,500 for a first-year undergraduate independent student), we use amount borrowed as a rough proxy for credential level. We assume students taking out loans of less than $10,000 are likely enrolling at the undergraduate level and that students taking out loans greater than or equal to $10,000 are likely enrolling at the graduate level. Although our data do not have information on borrower demographics, we use the borrower’s zip code to describe whether the borrower is from a neighborhood that is predominantly (greater than 60 percent) non-Hispanic white or predominantly people of color (nonwhite).

During the pandemic, young people (ages 18–29) from predominantly white communities were more likely to borrow than young people from predominantly nonwhite communities (figure 2). (Because of limitations in the data, we group together Black and Hispanic communities but acknowledge this limits our analysis.) Of young borrowers in predominantly white neighborhoods, 2.3 percent took out a loan greater or equal to $10,000 (indicating potential graduate enrollment), compared with 1.71 percent in nonwhite neighborhoods. As for borrowing in typical undergraduate amounts, 8.7 percent of young borrowers in predominantly white neighborhoods took out a loan of less than $10,000, compared with 6.6 percent in primarily Black and Hispanic neighborhoods.

These demographic patterns are relatively similar to prepandemic trends, meaning the percentage of people taking out new loans within each demographic group is roughly the same. This suggests that no one demographic group is responsible for the steep drop in aggregate undergraduate loan volume.

Rates of student loan borrowing from April to October 2020 by neighborhood

Among people ages 30 and older, pandemic student loan borrowing rates are similar, even across neighborhoods that are predominantly white or predominantly people of color.

There are many possible explanations behind what we see in the FSA and credit bureau data. The loan pause could serve as an incentive for certain students. Borrowers might be interested in leveraging the loan pause’s no-interest policy to take out unsubsidized student loans. Others may have avoided higher education (and borrowing) during this period, struggling with access to technology or with uncertainty around other college costs. There are also accounts of students choosing to defer enrollment because they don’t believe online learning offers the same value as in-person learning.

Policymakers will need to watch what happens with student borrowing during the pandemic. Based on credit data, demographic borrowing patterns look largely similar to years past, but we need to collect further information to understand pandemic borrowing patterns, such as whether amounts borrowed have changed (particularly for those learning remotely) and how borrowing has interacted with student needs during the pandemic.


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