Real World Consequences of Student Debt

This past week-end, John Oliver, likened student debt to a sexually transmitted disease. I suppose the punch line is that it’s easy to get in college and stays forever.  Student debt is a serious problem.

Gallup in conjunction with Purdue University polled college graduates on different elements of well-being and levels of student debt. The results are summarized in table one – they are adapted from the Gallup Report.  The point is that is a variety of areas – liking life, enjoyment of community and health — college graduates with high levels of student are worse off than graduates without such debt.  Table One presents only ends of a spectrum, and it looks at graduates since 1990.  The differences are real enough although I am saddened that so much of the population reports it is struggling or suffering in these categories irrespective of their association with student debt.

table 1
Percentage of U.S. College Graduates “Thriving” (rather than “struggling” or “suffering”) in Five Elements of Well-Being, by Amount of Student Loan Debt (Adapted from Gallup Poll, 2014)

A more recent study associated higher levels of student debt with delay in purchase of a house – a point on which there was agreement.  (Intramural disagreement – between writers at the Washington Post and Slate – seemed to center on whether problems of student debt “crush” chances of buying a home.)

How important are the differences? According to a study by the New York Federal Reserve Bank, between 2004 and 2012, the proportion of 25 year olds with student debt grew from 27% to 43%, and by 2012, 12.7% of public had student loan balances above 50K. (p. 7) So, the differences are becoming more important because more college graduates have debt, and more of them have a good deal of debt.

What do these results mean for academic advisors?  Well, the obvious response is that advisors should encourage students to minimize debt or optimize return on educational spending.  What does that choice mean?

  • Dissuading students from delaying graduation or entry into the work force to pursue minors, second majors or other educational credentials that add little value to a college degree;
  • Working with students to assure credit transferability from study abroad, other institutions and so on;
  • Encouraging students – where the issue arises – to make prudent financial choices;
  • And other things.

On the PBS Newshour, a reporter from the Wall Street Journal, Doug Belkin,neatly summarized the old conventional wisdom: “…take out as much debt as you need or you go to the best school you got into…” And, he added, “that’s sort of where the thinking stopped.” 

Belkin see the problems of that advice at the present time.  My view is this: however good that advice once was, it’s surely no longer good advice now.