Young Adults, Student Debt and Economic Well-Being

The link below is to a new study released today by the Pew Research Center on accumulated student debt and its economic impact. I attach a link to the full study. Some of the findings are very interesting.

http://www.pewsocialtrends.org/2014/05/14/young-adults-student-debt-and-economic-well-being/

  • College graduates have more student loan debt than non-college graduates.
  • College graduates have higher earnings than non-college graduates.
  • Higher student debt loads have a negative impact on overall net worth.
  • College graduates also have more accumulated debt loads in addition to student debt, and, as a result, lower net worth than non-college graduates.

The data suggest that college graduates, even though they have borrowed money to finish school, are able to get better paying jobs (the good news) which leads to additional, increased spending and, ironically, more accumulated debt (the bad news). College graduates with student loan debt are also more likely to have higher credit card debt, higher car payment debt and higher housing debt than either college graduates without student loan debt or non-college graduates. The debt load creates significant downward pressure on their net worth. This is contributing to less overall satisfaction.

Finding ways out of this “Catch 22” is not part of this report. A logical implication is that continuing to raise college tuition and passing this on to students in the form of more borrowing to pay tuition may not be a very productive idea in terms of overall economic development. Lowering the need for accumulating student debt could have a significant economic upside since the increased spending of college graduates from higher paying jobs would not be off-set by the volume of loan debt they are carrying. It may well be in a state’s best interest to invest more in higher education (2 and 4 yr programs and Career and Technical Education programs) and lower overall student loan debt to allow the increased spending levels of college graduates to flow more directly into the economy and not into paying off student loans. Current trends appear to focus more on increasing enrollment, raising tuition and shifting to lower cost delivery models (online, etc.) to offset declines in state funding. Thus, the decline in funding causes revenue shortfalls that are passed onto students which adds more pressure for students to borrow in order to pay the bill for higher education. Alternatively, the Pew data suggests that the state is more likely to see positive economic returns and growth by helping students to lower their overall debt loads which will make completing higher education more likely for more students and, thus, produce a higher return to the state’s economy over time. The increase in earnings and spending that higher education affords will produce a higher rate of return to the state than will adding more to the students’ debt load.

Consider:

  • More investment in higher education to reduce pressure on tuition increases, i.e., increasing the share of cost for higher education to be born by the state.
  • More incentives for long term savings by families prior to high school graduation, e.g., higher guaranteed interest rates for college savings, more creative savings plans, employer sector investments, etc.
  • Guaranteed payment of state tuition for all students, e.g., current proposal to provide Community College tuition for all high school graduates in Oregon.
  • Lowering (not raising) interest rates for student loans to pay off loans quicker and foster other investments in the economy.
  • Continue to expand college credit bearing opportunities while in high school.

Your thoughts and feedback are most welcome.

Pat Burk

Department of Educational Leadership and Policy

ST_2014.05.14_student-debt_complete-report.pdf

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