Expert Interview: Min Zhan & the Effect of Loans on Low-Income Students
Joel had the opportunity to speak with Min Zhan, a professor at the University of Illinois. Her research focuses on the economic mobility of low-income families. Zhan finds that the human capital development provided by higher education can improve the economic standing of low-income students. However, low-income students usually take out large amounts of student loans, which can have negative effects on their financial wellbeing. In the following interview, Zhan discusses the impact of higher education and student loans on low-income students.
Could you give a little background on yourself?
I received my Ph.D. in social work from Washington University in St. Louis in 2001 and have been a faculty member at the School of Social Work, the University of Illinois since then. I was trained as a social policy researcher during my Ph.D. study and have studied various topics related to poverty, social welfare policies, and socioeconomic inequality. My research centers on examining the impact of financial capacity building and post-secondary education in the economic mobility of low-income families and educational outcomes of their children. I also evaluate the savings performance of participants in structured savings programs for the poor and assess the effects of financial management programs on financial knowledge and behaviors of low-income people. My recent research projects investigate the impact of education loans on college graduation and postgraduate financial well-being among young adults. In my recent administrative experiences, I served as the Ph.D. Program Director between 2009 and 2014 and has been the Associate Dean for Academic Affairs since 2015 at School of Social Work – has further helped me understand the student loan debt issues at a different level.
Regarding the papers you have published, some of them revolve around education and personal finance, how did this become an interest of yours?
My research focuses on identifying social policies and other factors associated with the long-term economic well-being of low-income families, I am particularly interested in developmental strategies on the financial security of low-income families. These strategies emphasize the importance of investing in human capital development (i.e., the development of knowledge, skills, experience, creativity, motivation, and other individual attributes) in enhancing self-sufficiency for the low-income population. With the growing gap between the rich and the poor and the diminishing middle class in the U.S. in recent years, I believe these strategies have become even more critical because they have the potential for providing developmental opportunities and enhancing the long-term economic security for the poor. Because of this, I started researching the impact of educational and investment approaches, specifically in the form of postsecondary education, financial management training, and financial assets accumulation, in enhancing the well-being of the poor. Asset building is vital for the poor because assets provide an important cushion during times of economic crisis. Owning assets further increases access to resources and opportunities. More importantly, assets give people a sense of position and stake in society and may motivate people to focus on the future and make specific plans concerning work and family.
In one of your published articles, you find that having education loans negatively affects net worth. Is this the case for any other kind of debt?
I also have examined how youth credit card debt affects their college graduation, and I found that credit card debt is positively related to college graduation, but only among families with modest financial assets. There is evidence that unsecured debt, or consumer debt (money owed to creditors, hospitals, stores, or anyone else, such as medical bills, student loans, and credit card debt), which is usually incurred when the current consumption of a family exceeds currently available income, tend to have negative impact on families’ financial well-being. On the other hand, families with secured debts (i.e., borrowing to purchase an asset such as a home or vehicle) are not necessarily experiencing economic hardships. Also, obtaining secured debt often requires certain levels of family income and/or assets. Evidence shows that the impact of secured debt is less harmful than unsecured debt.
What makes education loans different from other kinds of loans?
While I think educational loans is one type of unsecured debt as mentioned above, it is different from other unsecured debt because it is viewed as an investment in human capital, and unlike other unsecured debt, such investment is expected to have good “returns.” My and other studies show that even burdened with student loans, college graduates fare better regarding financial asset accumulation and other well-being compared to their counterparts without a college degree.
Educational loans may also be different from other loans because they are taken on through various processes and also have different requirements regarding repayment. Take credit card debt as an example: it has increasingly been used to meet financial needs of a college education. However, educational loans may produce less stress for college students during their college years because monthly payments are not demanded educational loans. Also, the influence of credit card debt could be more complicated due to the fact that it could also be used for other forms of purchase, and educational loans can only be used for college education-related expenses.
According to the Wall Street Journal, there are approximately 5 million students that have defaulted on student loans. What do you think this means for the broader economy?
I think this means that we have a generation of young adults facing great difficulty in building their credit, accumulating wealth (such as a delayed home purchase), facing economic fragility, delaying family formation, and in the long-run, hurting their planning for retirement. While more data is needed, all these will hold back the economic growth over time.
What do you hope to see in the next 5 years?
I would like to see that we make progress in these following program/policy areas:
1) The expansion of the income-based repayment programs, which set payment at a percentage of borrowers’ discretionary income and provide loan forgiveness for any unpaid balance after certain years, aim to reduce the stress of loan holders.
2) The expansion of Pell Grants that help reduce low-income students’ reliance on loans.
3) Providing financial education to help youth and their families make informed business decisions about planning and paying for college. In addition to providing borrowers with needed information, it is equally important to strengthen policies that prevent fraud and abuse of student loan services.
4) Enhancing opportunities for students and their families to prepare early on for the costs of a college education and to be self-reliant and promoting federal and state investment in affordable higher education, thus increasing access of low-income students to need-based student aid.