Student Loan Debt and Its Diverse Future Consequences

In modern-day society, a post-secondary degree is needed to compete for a well-paying job in the labour market. Higher education is viewed as a necessary long term financial investment to better oneself in their career, however, in reality, it is often a financial risk for students. Student loan debt is an unfortunate norm for many students who choose to pursue post-secondary education. Tuition for higher education is quickly increasing, and as this incline continues, many students are unable to pay for their education on their own. As a result, these students must borrow money through the form of loans to finance their education.

Student loans typically have high-interest rates, which sends borrowers plummeting into a downward spiral of accumulating debt. This is a common reality for students, as 'almost 70% of US college students borrow to finance their degree, amounting to an average debt burden of $28,950 for four-year graduates' (Despard et al. 2016). This ongoing trend of student loan borrowing has become a global financial crisis, impacting both postgraduate students and the overall economy. Cumulative student debt has now surpassed credit cards as the largest form of consumer debt worldwide (Despard et al. 2016). Students are faced with seemingly insurmountable debt once they graduate from post-secondary institutions, which continues to accumulate until the full loan and its accompanying interest is repaid. Since student loan repayment begins almost immediately after graduation, it forces 'graduates to make employment decisions based on what can best contribute to loan repayment' (Canadian Federation of Students, 2015). Countless postgraduates are not in a secure financial position to pay off their student loans until many decades after receiving their degree. This trend of immense student debt has profound effects on the financial wellbeing of individuals for the rest of their lives. Student loan borrowers are faced with greater financial difficulty in their future due to the debt they possess.

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Student loan debt has a diverse array of future consequences such as decreased net worth and reduced ability to start a family and purchase a house or other assets. These impacts were proven in a study conducted by R.M. Despard. The authors examine the relationship between student debt and material, healthcare hardship and financial difficulty among a sample of LMI (low-to-moderate income) households. The researchers conducted a study with an analytical sample of 5558 participants that obtained a university degree. Participants were categorized depending on whether or not their completion of a university degree was accompanied by student debt. Propensity score analysis measures were used to balance the sample on factors associated with loan borrowing for postsecondary education, such as age, gender, income, and the number of adults and dependents in the household. This method reduces selection bias that might affect the relationship between student debt and financial hardships. Each participant was given a survey and instructed to give a detailed assessment of their demographic characteristics and financial circumstances. The findings of this study concluded that participants with higher student loans have a greater likelihood of financial hardship and social and economic disadvantages. Those with student debt also tend to have difficulty meeting basic needs such as 'housing, food and healthcare' as well as difficulty managing general finances and bill payments (Despard et al. 2016).

Elliot and Lewis analyze research conducted from multiple studies to prove the 'correlational relationship between student debt and students' financial outcomes' later in life (Elliot & Lewis, 2015). Multiple studies were conducted by a variety of researchers using different methods and samples. Each study analyzed several different financial outcomes, such as net worth, homeownership, and asset accumulation, etc. affected by student debt. The collective data from the many studies conclude that there are 'long‐term, volatile, and often hidden effects of student loan dependence' (Elliot & Lewis, 2015). Indebted post-secondary graduates have a lower net worth, less home equity, and more difficulty accumulating assets, when compared to other individuals with the same level of education but no student debt. This article supports the research paper, as it examines and proves that the financial wellbeing of postsecondary graduates is greatly impacted by student debt.

Luang examines the financial position of student loan borrowers compared to non-borrowers post-graduation. The conducted study uses the Survey of Labour and Income Dynamics (SLID) and the Survey of Financial Security (SFS) to compare income, savings, retirement pension plan investments, homeownership, mortgage, and total assets, debts and net worth for student loan borrowers and non-borrowers (Luang 2010). The sample population of each survey included postsecondary graduates between the ages of 20 and 45, who were no longer attending school. The findings of this study conclude that non-borrowers were in a better financial situation post-graduation than student loan borrowers. Those who had student debt were less likely to have savings and investments, own a home, or have adequate wealth accumulation. There was not, however, a significant difference between borrowers and non-borrowers 'in terms of employment rates, total personal income and the likelihood of having an RPP' (Luang, 2010). The researcher hypothesized this is because the education level of postgraduates is the strongest correlate of employment and income levels, thus a similar return on education between postgraduates, regardless of their student loan borrowing status. This article supports the research paper, as it shows the debt held by student loan borrowers affects their finances for years after their postgraduate education.

This research paper identifies the common effects and consequences of student debt, focusing on the financial implications presented by student loans. The annotated articles each have a different approach towards examining the effects of student loan debt and prove the hypothesis.

Annotated Bibliography

1. Despard, M. R., Perantie, D., Taylor, S., Grinstein-Weiss, M., Friedline, T., & Raghavan, R. (2016). Student debt and hardship: Evidence from a large sample of low- and moderate-income households. Children and Youth Services Review, 70(Complete), 8-18. http://dx.doi.org/10.1016/j.childyouth.2016.09.001
2. Elliott, W., & Lewis, M. (2015). Student Debt Effects on Financial Well-being: Research and Policy Implications. Journal of Economic Surveys, 29(4), 614-636. doi: http://dx.doi.org/10.1111/joes.12124
3. Luang, M. (2010). The financial impact of student loans. Perspectives on Labour and Income, 22(41), 29-42. Retrieved from http://libaccess.mcmaster.ca/login?url=https://search.proquest.com/docview/742950423
4. Student Debt in Canada: Education Shouldn't be a Debt Sentence. (2015). Retrieved November 10, 2019, from https://webcache.googleusercontent.com/search?q=cache:ug0L-t4AT0 8J: https://cfs-fcee.ca/wp-content/uploads/2018/10/Factsheet-2015-05-Student-Debt-EN.pdf+&cd=1&hl=en&ct=clnk&gl=ca.