Americans Fare Poorly in Student-Debt Study of 8 Nations.

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Author: Labi, Aisha

COLLEGE GRADUATES in the United States with low incomes and high debt devote a far greater portion of their earnings to repaying their loans than do graduates elsewhere, according to a new report.

The report, which was prepared by the Educational Policy Institute, a nonprofit research organization with offices in Australia, Canada, and the United States, examines and compares student-loan burdens in eight countries: Australia, Britain, Canada, Germany, the Netherlands, New Zealand, Sweden, and the United States.

"There is considerable variation between countries in debt-income ratios, from a low of 13.6 percent in Germany (where loans are small in size and hard to obtain) to a high of over 70 percent in Sweden (where loans are large and carry no needs test)," the report says. "Most countries have debt-to-income ratios of between 30-40 percent, while Canada is at 50 percent and the U.S. is at 51 percent." In the United States, borrowers may spend as much as 15.3 percent of their earnings to service their loan debts.

Alex Usher, the report's author and the institute's vice president for research, said the high level of student debt in Sweden was especially surprising. "One of the things that would shock anyone not from Scandinavia is that Swedish students graduate with a phenomenal amount of debt, even though they don't pay tuition and have a full grant system," he said. "At the same time, Swedes allow their students to manage debt reasonably well, with long periods of time to pay back their debt."

What that policy demonstrates, said Mr. Usher, is that the amount of debt students incur is not necessarily the determining factor in how easily they are able to repay their loans. Interest rates are an especially crucial variable in predicting how well students will cope with their debt, the report found.

"In some countries interest rates are a driving force behind high debt-service ratios," it says.

Mr. Usher underscored that some loan programs work well for certain groups of students and not for others, although he said that the more a government subsidized loans, the better off the system would be for all students. "In Europe, what they tend to do is say there is a single interest rate for the life of the loan, which subsidizes it for a longer time," he said. "In our system, in North America, we tend to punish students because we basically charge them market interest rates."

The report concludes that debt is important, but not as important as many people assume, and it offers no universal guidelines for managing student debt levels.

"In short, details matter when it comes to student loans and student-loan repayment," the report says. "Advocates of particular 'silver bullet' solutions to the problem of student debt, such as blanket loan reductions or the introduction of income-contingent loans, are almost always guilty of oversimplifying the burdens that face students and/or the choices that face governments."

The institute plans to make the report available on its Web site (http://www.educationalpolicy.org).

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By Aisha Labi