<p>The WSJ reports on an interesting study that looked at the long-term effects of student loans. </p>
<p>"Even 24 years after graduation, students who borrowed more than $25,000 are less likely to enjoy their work and are less financially and physically fit than their counterparts who graduated without debt. For more recent college grads, the discrepancy is even more pronounced."</p>
<p>High-debt grads were also more likely to say their lives lacked purpose.</p>
<p>The data suggests that incurring major debt to attend an expensive dream school vs. less costly alternatives may have a long-term negative impact on the student's health and psyche. </p>
<p>The usual cautions about individual differences apply. And, some students can expect to pay down debt more quickly than others due to major/career choices.</p>
<p>Interesting article - it doesn’t specify if respondents only held undergrad degrees. Curious if lawyers, doctors, veterinarians, pharmacists (people likely to have significant debt) were in included in or excluded from the survey.</p>
<p>" The data suggests that incurring major debt to attend an expensive dream school vs. less costly alternatives may have a long-term negative impact on the student’s health and psyche. "</p>
<p>Doesn’t have to be an expensive dream school, sometimes it just depends on your finances. My DD19 is attending our branch campus of Penn State. Even if she picks one of the few 4 yr degrees they offer there, she is easily looking at $25K - $30K in debt. It is something that is of great concern to me. </p>
<p>Twenty four years after graduation, students who borrowed more than $25K to go to college (so the debt was signed on for beginning 28 years prior), are still unhappy and unfulfilled thanks to their college loans? This ranks as one of the most ridiculous superficial pseudo-studies I have ever read.</p>
<p>Common sense screams that, for those unhappy and unfulfilled people, it cannot be just their $25K or more college debt that is holding them back - unless, of course, they decided not to pay back their loans - but something else is going on. Perhaps these same people who were willing to take out $25K or more 24 years ago (before it was even fashionable to take out so much student loan debt) also signed up for credit card debt, expensive car loans, and mortgages beyond their means (following in the footsteps of their debt-loving Baby Boomer parents.) For those who took on so much debt, their parents likely took out loans on their behalf, too, so two generations are paying off a 24-year-old college degree, and everybody is maxed out and unhappy. Who knows.</p>
<p>What I would say is that, over the past 24 years, the level of conspicuous consumption funded by easy credit has been mind-boggling. The ease with which college students (and their parents) have been so willing to take out loans to pay for their room and board (versus working part-time jobs or using savings) has been unsettling. The ease with which our entire society has been willing to become indebted is shocking - and, yes, I bought into the “debt is no big deal” mindset for a while, too, but now I know better. People buy their groceries using credit cards (and most are not doing so to get points) and so they are literally eating their future, and have nothing to show for it. Paying for the present by mortgaging the future is always going to lead to unhappiness.</p>
<p>College loans taken out 24 years ago are an easy scapegoat. And this survey is entirely useless without providing information as to the survey responders’ total household debt - except that it plays into the daily stream of articles working to persuade the public that something must be done about the “student loan crisis.”</p>
<p>This comes as no surprise. If you do a search of “substantial undergraduate debt” here on CC, you will find that I have railed for years against incurring a lot of debt for undergrad education regardless of the school. Many other posters have said the same thing. In my 30+ years of financial and tax lecturing, I have never met anyone who was happy incurring a lot of undergraduate debt from any school! In fact, there was a fairly recent article in the Wall Street Journal about people in their 60s still paying off school loans.</p>
<p>Sadly the mentality here on CC is to send your kid to the best , highest ranked school regardless of cost,which I have always thought was idiocy.</p>
<p>Even worse, you can only deduct up to $2,500 of yearly student loan interest. Any amount above that isn’t deductible,which makes student loans very expensive. </p>
<p>The real bomb, however, isn’t in just in the student loan defaults. The real time bomb is for those parents who guaranteed a student loan for their kids. Studies have shown that as many as 50% of recent college grads are either unemployed or underemployed,which means that they can’t pa off their student loans. The lender then comes knocking on the parent’s door if they guaranteed the loan. </p>
<p>A recent case is particularly sad. A minister who earned about $75,000 a year guaranteed $100,000 of student loans for his daughter to go to nursing school Sadly, the daughter died in a car accident. Not only was this devastating to the parents,but in their time of sorrow, the lenders came after the minister for the money since he guaranteed the loans. He couldn’t make the payments which results in the loan balance becoming $200,000, which was way beyond what he could possibly pay. Obviously he should have taken out some term life insurance on his daughter and even better, never have guaranteed the loan. </p>
<p>Mark my words: These guaranteed loans will be the next time bomb to hit this country. </p>
<p>Colleges in general were a lot less expensive in 1990, so borrowing $25,000 in 1990 would have been on the high side of borrowing. So perhaps the result is not surprising, in that people who make spendy personal finance decisions tend to be unhappy due to always being in debt and short of money, and being in situations where the debt constrains their choices (e.g. must take the job that pays the most, rather than the job that is most interesting and/or has better career development potential).</p>
<p>Note that the article writes about recent graduates in terms of $50,000 in debt (11% of recent graduates have this much or more debt; 21% have between $25,000 and $50,000 in debt).</p>
<p>But is college debt always the cause of the unhappiness, or is it just that those to take on the most college debt are those most prone to have spendy habits and will generally find themselves in debt and out of money for everything else as well?</p>
<p>The main caveat is that it is not debt per se that causes, or correlates to, the trouble… the ramifications are far more complex than college loans alone.</p>
<p>I don’t think there is much new news here. The standard college financial aid calculator (which adjusts for major, interest rates etc.) would have recommended against those students taking out more than (approximately) their first year salary in debt 20 years ago (starting salaries for recent college graduates averaged well under $30,000 in 1994 except for engineers) and would recommend the same now. Not much has changed.</p>
<p>That calculator is not unique in recommending that maximum undergraduate debt be below that level. Presumably the equivalent to the $25,000 back then would be more than double that now. For example the maximum recommended debt limits for a typical psychology major would be taking on no more than $35,000 in debt or for a Petroleum Engineer taking on no more than $67,000 in debt.</p>
<p>I graduated in '83 with $10,000 in debt. I seem to recall the payment was a little over $100 a month and it was never a problem even though I started with a nearly minimum wage data entry job. Inflation would make that $10,000 just about $25,000 today. So while there has been wage stagnation I still can’t see this as the cause of life dissatisfaction or becoming unfit. Sure I’m special - but I ain’t <em>that</em> special! :-)</p>
<p>People take out significant debt to purchase a house, cars, and in some cases even vacations. Is this good debt and paying for an education bad debt? </p>
<p>24 years after graduation, almost nobody enjoys their job. “Less likely” is just a matter of degrees (not the kind they borrowed to get). </p>
<p>To paraphrase Gordon Gecko “Debt is good” if you know how to handle it and why you’re doing it. </p>
<p>It’s amazing what passes for journalism or studies these days.</p>
<p>And to top it all, these are the same college grads who are spending 35-40k on a car, with a 5 year pay-off. Seems to be more about priorities than student debt; I wonder how happy the study participants would be if they had only a high school diploma and were trying to get by…</p>
<p>I;m not a bit surprised. Try telling that to kids whose only question here is how to get the money to go to school of choice. Or the parents who are signing and taking on loans as an “investment” on a teenager, young adult who can’t earn what he costs per year. They think that the college degree is going to channel the kid into a job that will pay more than a living wage and take care of all of the loans. </p>
<p>My son lives in NYC, hand to mouth, but no loans. Some of his friends who are in some very good paying positions who have heavy debt are really far more bitter about the state of things. They are working hard, and still living well below their peers because they have huge loan payments, and some of loans are 20 year sentences. It affect a lot of things that you want long after the memories of how badly you wanted to go to a given college have faded. Great you went to Colgate, Lehigh, Gettysburg, etc, but the kid from SUNY is making the same or close to what you are, in fact a bunch of them and they don’t have that monthly loan payment. Same with others who went to the same schools you did but they have no loans, and parental help still to boot. Very bitter when you are living this.</p>
<p>I didn’t finish paying our loans till after our kids were in pre school and then we started paying for their things on top of our school loans. We lived well under what our salaries could have provided had both DH and I not had those loans. Believe me, it made a standard of living difference that hurt. Throw in some other factors, like decision for me to be a SAHM, the number of kids we had, and our living conditions were not as great as many who made far less than DH in his field With a second income, less kids, grandparent-family support, no school loans for all of those years, they live far better than we did and ever will. All of this counts, you know. </p>
<p>There is the tendency to compare oneself with those one considers peers. Those who go to college grad, prof school do not tend to compare themselves with those only with a high school diploma. We don’t fell like we are so much luckier than a lot of family members who did not go to college, did not get the type of jobs and income we did. We look at those who did, and we had those huge loans to get what they got, and yes, we did have to pay them back for years to come. It’s a numbers thing, and when you owe, it comes out of what you earn giving you less to spend and live on.</p>
<p>I graduated from 7 years of school–4 undergrad and 3 grad/law owing a total of $3000, which I had in my bank account (as I was very frugal about my spending). I was told at my exit interview where we were counseled on how to handle our student debt NOT to pay it but to pay the required $90//quarter every quarter until it was fully paid off for my credit history, so I did that. It did not hinder me at all as I moved on with my life, but I was very happy when I wrote the last check. It had a simple interest of 3.0 or 4.0% and my savings account was getting more than 5-6% interest, so I made more interest than I was paying. It was a National Direct Student Loan–was never late with any payment.</p>
<p>My spouse had around $25,000 of debt when he graduated (the rest was full grants - a comparable student today would have no loans as he was in poverty growing up). Payments were over $200 per month. I bought my parents’ old car for a dollar , and he was able to get a loan for a new car for $200. We lived in a very low-cost city and rarely went out to eat more than fast food. Plus, we gave money to his parents because of their financial status. </p>
<p>I would say unless you can isolate lifestyle and financial status before and after college from the study, it’s meaningless. If you “need a cell phone, need a laptop, need several vacations per year, need a new car every other year”, you’re going to be miserable if you see that $25,000 you paid back as $25,000 “taken” from you and not available for your peccadillos.</p>
<p>In our case, I expect that my spouse and I will take on most of our children’s debt from college. If they want to pay any of it back, great. But we are specifically looking at schools with mostly grants because of this. Why would he go to a school that is 100% loans and 0% grants over a school that is 90% grants and 10% loans (because of academics)? When you bother to run the NPCs, you’ll be shocked to see which schools are REALLY the cheapest, unless your child will get absolutely zero aid.</p>
<p>Any payment that has to be made each month is going to have effects on the payer. And having to make those payments over time will detract from other opportunities that could have been bought with that money. So it doesn’t really matter what the purpose of such a loan was; having to pay it will have an effect.</p>
<p>The good news is that the effects of taking on such debts can really make postive differeneces in ones’ lives too. My DH went into a lot of debt for those days to get a top 25 college degree and then getting his MBA from a top school That has been instrumental in what job opportunities he has had and his earning power. I know many who borrowed to go to med school, and they are doing well as MDs, something that would not have happened without those heavy duty loans Well worth the investments So there are benefits for some students.</p>
<p>@cptofthehouse: Someone did that Dale & Krueger study except for b-schools instead of undergrad and found that, unlike undergrad, there <em>was</em> an earnings difference due to the name/network of a b-school that could not be explained away by other factors. So unlike undergrad, paying up for a better b-school seems to be a worthwhile investment. Likewise, as you need an MD to become a doctor in the US (well, or a DO), heavy debt for med school certainly could be a worthwhile investment as well. </p>
<p>I have not seen evidence that heavy debt for more undergrad prestige is worthwhile (outside of maybe a few exceptions), however, and it could be very detrimental.</p>
<p>Class of 1984 here. Tuition began outpacing inflation in the early 80s. Reagan reacted (correctly) by cutting Pell grants, which colleges were accessing (using students as a drinking straw). Those were replaced by loans, and the students were told the loans were “rational”.</p>
<p>The damage was psychological… teaching 17 year olds that their first ever major financial decision should be to accept XX,XXX in debt before they had a job. Those were the students who grew up numb to buying houses, cars, and accepting credit card debt. Those were the people who created the housing bubble. Because they were mis-educated about compound interest by the higher education system.</p>
<p>It’s also critical to bear in mind that not only is the student’s life greatly impacted, so are the lives of any children they may have. Not just while growing up, either. Parents who are still dealing with their own loans are far less able to help their kids with their own college expenses. This serial indebtedness traverses generations.</p>
, and he was able to get a loan for a new car for $200. We lived in a very low-cost city and rarely went out to eat more than fast food. Plus, we gave money to his parents because of their financial status. </p>