A recent study sheds light on the long term effects that loan debt has on graduating students; the study analyzed the net worth and financial standing of people at the age of thirty who graduated with or without debt from financial assistance. The overall reveal from the study shows that those without debt were able to build greater net worth after about ten years following graduation.
This study, run by Min Zhan of the University of Illinois, was pulled from the Children and Youth Services Review Journal, and it took a sample of 1200 people born between the years of 1980 to 1984. Roughly 620 people had student loan debt after leaving college while the other approximate 580 did not have any debt following college.
For those with loans, the average amount owed back from taking out loans was roughly $15,000. In terms of education, about 45% of the sample did not have a degree from college, 39% had a bachelor’s degree, 11% had an associate’s degree, and the remainder had a master’s degree.
The net worth, financial assets, nonfinancial assets, and home value were gauged in this study which revealed some telling results. People who graduated from college with about $15,000 in debt had about $14,000 less in overall net worth than those without any education loans. Those burdened with loans had $40,000 less in financial assets; additionally, the same group had about $13,000 less in nonfinancial assets. The average home value of the debtors was $100,000 less than those who did not use financial assistance.
The conclusions from this study are fairly clear; essentially, those with outstanding loans following college have a much harder time in building net worth and wealth than those without the initial burden. Their homes are valued less since those with debt are much less likely to invest in higher value property or housing. One may have been able to predict this outcome, but this evidence solidifies the notion of long term hampering loans. Loans are generally known to stymie short term wealth accumulation, but their impact in the long term is not brought to question often.
Education loans are known to take a chunk out of retirement funds for parents, so it makes sense that these burdens would take a chunk out of a graduates long term net worth. Those starting out their career with an overall negative net worth have a much greater chance of accumulating less than someone with a net worth of zero or greater.
The outcome on this study confirms preexisting notions about student loans; it is clear that they keep graduates from building wealth. Now this effect is shown to apply down the road instead of only short term; however, this study only assessed those with an average of $15,000 in debt which is less than half of the average today. For now, only the future can tell what type of impact loans will have on the current student population ten years from now, especially given the current average student loan debt.