New Research Shows Student Loans Are a Slippery Slope to Lifelong Debt of All Types
May 22, 2014

New data from Pew Research on Social & Demographic Trends shows that student loans have deeper implications than just the educational debt itself. Student loans leave households lagging in net worth and accumulating much more debt of all types. In some cases, student loans make it so that those with college degrees are deeper in debt and have less net worth than those who never completed college. This is a huge concern since the whole notion behind getting a college education is to improve your lot in life.

Student debt is a slippery slope

Student loans are a slippery slope to other debts
Image source: Matt Zimmerman via Flickr Creative Commons

Let’s look at the results Pew found and some possible solutions:

#1 Comparative net worth of those with a college degree

Those with student loans have an average net worth of $8,700 while those without student loans have seven times that at an average of $64,700. Income earned by both groups is roughly the same and so that is not the driving differentiator according to this research.

#2 Comparative net worth of those without a college degree

Among those that did not complete their degree but took out loans, net worth averages a paltry $1,200 while those that have no loans average $10,900 – more than those with a degree, but debt and nine times more than those that started school, but never completed it. These groups also have similar income.

#3 Comparative total indebtedness of those with a college degree

Those with student loans owe a total average debt of $137,010 for mortgage, car loan, credit cards and student loans while those with no student debt owe just $73,250 on average. While these do include student debt, at an average of $13,000, this is not the driving factor in the double amount of debt.

#4 Comparative total indebtedness of those without a college degree

Those with student loans owe $28,300 total while those without student debt owe just $2,500 on average. These lower debt levels indicate that home ownership is not in the mix for most student loan borrowers that don’t complete their degree. And there’s 10 times the debt between these groups.

#5 Comparative income between those with and without a college degree

Those with a college degree average incomes double those without a degree. $58,000 is the median income for degree holders and $32,500 for those without a degree. But if you look at debt to income ratio, you can quickly see that those without a degree and student debt owe less than a years’ worth of wages while those with a degree and student debt owe nearly three times their salary in total debt.

#6 Comparative types of debt of those with a college degree

Of those that hold a degree, mortgage indebtedness is nearly identical. 56% of those with degrees have a mortgage, whether or not they have student debt. But vehicle loans and credit cards are disparate. 43% of those with student debt have a car loan compared to 27% of those without student loans. 60% of student loan debtors also have credit card debt compared to just 39% of those who don’t have loans.

#7 Comparative types of debt of those without a college degree

The results are closer for those without a degree, but in every category, student loan debtors are borrowing more to pay their way in life. 36% of student loan holders have a mortgage compared to 32% of non debtors. 41% of student loan holders have a car loan and 46% have credit card debt. Of those without student loans, 32% have a car loan and 34% have credit card debt.

So what’s the corollary and the takeaway?

It’s naive to draw a simple corollary between student loan debt and other debts, but it’s also unwise to ignore the implications. As a rule, debt of any kind leads to other debt because it prevents you from paying cash for things you need, lowers the amount of funds available to serve as a down payment for major purchases like a car or home which results in higher balances, higher interest costs and a slippery slope to a life deeper in debt than is necessary.

So what can we do about this? There are two areas of concern – first is that college tuition is too high and pressure needs to be applied to schools to force them to cut costs and not increase tuition simply because students can borrow more. Second is that students need to push back on the high cost of college by opting for cheaper alternatives. If students en masse opt to take core classes at cheaper venues like community colleges and then transfer over for junior and senior years, universities will be forced to be more affordable or lose two years of revenue.

If you’re borrowing to pay for school, sign up now for Tuition.io’s free student loan tool to track your debt throughout the process from taking out your first loan to pay off and see the impact of different repayment plans and making additional payments to reduce your debt more rapidly. Be sure to read our blog often for news on student loan research, legislation and tips on paying your debt.