The Lifelong Consequences of Student Debt

The default rate on student loans, overall, is close to 9%.

August 1, 2012

I know a young woman who was offered a full academic ride at a public university. But her father convinced her to go to a more expensive Ivy League school where she’d receive less scholarship money.

She now has a degree in art history and a lot of debt. She’s paying a very high price for Dad’s need to brag about her accomplishments.

I once listened to a discussion about the value of a two-year trade degree from the local community technical college compared with a four-year degree from a well-known Catholic college. The local technical college placed 90% of its graduates in good-paying trade jobs.

The counter argument was that a four-year liberal arts college taught critical thinking skills and exposed students to a wider variety people and experiences that would benefit them during a lifetime.

There’s merit to both points of view. But rising education costs and student debt make choosing the right school a more complex decision than in the past.

From 2001 to 2009, the percentage of freshmen with student loans increased at all institutions from 47% to 53%, according to a report on But the story is markedly different at for-profit two- and four-year private schools, where close to 90% of first-year students have student loans.

That’s not necessarily a bad thing, but no student should graduate with debt levels that rival a home mortgage in size, unless their prospects for high-paying jobs are excellent.

U.S. student debt is about $1 trillion and growing, and defaults are climbing. It’s entirely possible this trend might evolve into a crisis.

Members (parents and students) are lucky to have credit unions with partners such as Fynanz (check out to help fund the rising costs of education. But while student lending is a critical and essential service provided by credit unions, educations costs are so high now that heeding bad advice about where to go and how to pay for it can have lifelong adverse consequences.

It’s difficult for graduates to find decent-paying jobs in a bad economy. So deciding where to go and what to study is pretty important. There’s statistical evidence that grads unemployed in their fields for a year or more never really catch up in terms of pay. They tend to earn less than their more fortunate peers during the course of their careers.

Student debt thus becomes even harder to repay. The default rate on student loans, overall, is close to 9%, but it differs by type of school.

It’s less than 5% at not-for-profit private colleges. It’s more than 7% at public schools. But it’s 15% at for-profit private schools, whose numbers have increased dramatically during the past two decades, and who heavily recruit lower-income and minority students with fewer family resources. Defaults are especially acute among students who drop out without a degree or a job.

Building household wealth and long-term financial security increasingly will be tied to education. The great and growing divergence in American wealth isn’t simply between the 1% and the 99%; it’s between those with an education beyond high school and those with only a high-school diploma or less.

While college costs have outpaced inflation for years, household incomes haven’t kept pace. Between 1982 and 2007, college tuition and fees increased three times faster than median family income, according to the Education Department.

States dealing with budget shortfalls have cut aid to schools. Schools have responded by increasing tuition and fees. The burden for the increased costs falls on the shoulders of students, who rely on loans.

Over time, a college degree is worth it, and a bachelor’s degree can mean twice as much in lifetime earnings as a high-school diploma. The unemployment rate for college grads generally is half that of workers who only finish high school.

Credit unions can play a com­prehensive role in educating consumers about education costs and the best school and degree choices for young members.

MARK CONDON is CUNA’s senior vice president, business and consumer publishing. Contact him at 608-231-4078.