A new study finds that student loans unfavourably affect a student’s ability to acquire wealth after graduating college or even dropping out of college. Researchers from the University of Illinois and University of Kansas reveal that upon reaching the age of 30, young people with college loans have lower net worth, live in houses with lower market values and hold fewer financial and nonfinancial assets.
The study, to be published in the journal Children and Youth Services Review, states that the problem is worse among black young adults. These people have 40 percent lower net worth than white students.
The research team studied 626 participants with student loan debt and 581 who did not have any remaining balance after graduating from college. The participants completed at least one year of college.
Forty-five percent of the individuals dropped out of college and do not have a degree, 39 percent have bachelor’s degrees, 11 percent have associate degrees while five percent received master’s or postgraduate degrees. On the average, these participants are still US$15,200 (AU$ 21,000) in debt
Those who dropped out of college have US$13,680 (AU$ 18,918) lower net worth than college graduates. Overall, those with outstanding balance hold US$39,630 (AU$ 54,817) lesser financial assets and US$12,670 (AU$ 17,525) lesser nonfinancial assets.
By age 30, 39 percent of the students owned their own homes. However, the market value of homes owned by those with student loan debt was US$103,000 (AU$142,472) lesser than those without debts.
“Our findings suggest that in addition to negatively impacting young people in the short term, education loans may also compromise their financial well-being over the longer term,” says principal investigator Min Zhan, a University of Illinois’ social work professor. “Both large and small amounts of education debt act as a barrier to future wealth building.”
The better predictors of wealth accumulation are the students’ parental economic status and having health insurance. The study calls for developing alternative sources of funding education without solely relying on student loans. The findings may seem grim but they assert that college education is still worth the price.