Young students in the US take on large amounts of debt to receive that esteemed college degree, but at what cost?
A famous study conducted by Jesse Rothstein of the University of California, Berkeley, and Cecilia Elena Rouse of Princeton revealed that the amount of debt students take on determines their specific life paths.
The study concluded that those with high student loans often chose to work in corporations in the private sector in order to receive those high wages to pay back what they owed.
Students with low student loans worked in low-paying public interest jobs, like at a nonprofit or as a teacher, since high wages aren’t necessarily a top priority. Clearly, loans have a huge effect on one’s career move.
In both cases, regardless of if the job was high or low-wage, the monthly student loan payment was the same percentage of their income. This report from Beth Akers and Matthew M. Chingos of the Brookings Institution says that this means student loans aren’t a problem.
According to Brookings, the number of households with student debt increased from 14 percent to 36 percent between 1989 and 2010, but the percentage of monthly income young people put towards student debt payments has remained the same between those two years.
Student loan debts are increasing, this report argues, but these increases are accompanied by rising incomes, which balances out the debt burden.
This study looks too closely at student loan payments on a month-by-month basis and says that everything is fine. However, it’s important to study the overarching effect that student loans have on a young person’s entire life. That’s where things become worrisome.
The truth is that young people are picking careers based on the amount of money they have to pay back. And, even more so, people are taking way more time to pay off their student debt than they used to.
Once again, the percentage of income remains the same for payments, but students have gone from paying off loans in an average of 7.4 years (in 1992) to an average of 13.4 years.
This means you’ll be dedicating a huge portion of your life to student loans. Studies like Brookings that examine the short-term effects of loans ignore statistics like these and other important long-term implications.
Overall, people who didn’t take out student loans were more satisfied with their financial situation than people who did take out loans.
This study by Richard Fry even found that “households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).”
If all of this isn’t enough, student loans decrease your changes of getting married. Dora Gicheva of the University of North Carolina at Greensboro found that having $10,000 in loans meant a decrease in your possibility of marriage by at least 7 percentage points.
Young students with massive loans are backing away from these traditional indicators of being an adult, like marriage, owning a home and a car — all because of their loans.
The American system of student debt is dramatically altering important ways of life.
Young people are simply weighed down by too many loans. Although some research shows that everything is okay in the short-term, students are severely affected by student loans in the long-term, which is far more important to consider.