The Implications of Student Debt

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Nov 08, 2017
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Student loans

student loan implications

Getting a college degree is getting more and more expensive, and students are taking on more debt to finance their education. In addition to that, demand for college degrees has never been higher. According to the National Center for Education Statistics, the employment rate for young adults with some undergraduate degree is 88%, this number drops to 69% for people with just a high school degree. With that being said, it is important to know what the implications of student debt are before taking them on.

 

It affects your household’s net worth

In a 2010 study by Pew on college educated adults, households without any student debt obligations have about 7 times the typical net worth ($64,700) compared to households with student debt ($8,700). This is controlling for the fact that these households have identical incomes.

 

It affects your ability to make investments

A study done with Northeastern University and Brandeis University found that greater levels of student debt reduces the incentive of households to invest in risky investments like stocks and bonds. This eliminates the opportunity for people to earn passive income to grow their wealth.

 

Home ownership becomes a challenge

A study by the National Association of Realtors found that 78% of millennials born between 1980 and 1989 claim that student loan debt impacted their ability to purchase a home. This is partially due to the fact that they have to spend their disposable income on paying back on their student loans rather than saving up to pay for a down payment. Not being able to take out a mortgage means that a large amount of money goes to rent, which ultimately hurts long term wealth accumulation.

 

Although there are several drawbacks to taking on student loans, it is important to know that you are much more likely to succeed in your career with an undergraduate degree. Student loans enable you to do just that. There are also many alternatives to student loans you can use to finance your education.

 

Find out how Income Share Agreements are a great alternative to taking on more student loans

About the Author

Joel Soo

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