For a great many of these grads things will work out fine. After all, student debt is "good debt" because it is generally tax deductible, can be deferred if you run into trouble and is a relatively small problem next to the alternative: no college degree and, as a result, less lifetime earning potential.
But the downside is considerable, especially when you combine student loans with unmanageable credit card debts and lump in a plain-vanilla degree that may not lead to a high-paying job anytime soon. The worst case, of course, is folks who take on the debt and never get the diploma.
In some instances, anyway, the debt itself keeps people from finishing college. They become too stressed and miserable to focus on their studies, or maybe they drop out in order to earn enough money to begin making payments on their debts.
In researching this subject for my next book, I found:
- For one in three college students, debt makes it difficult to concentrate on their studies; this either delays their graduation or requires them to put forth greater effort to complete their degree.
- For one in four college students, debt leads to either physical or mental health problems.
- For one in six college students, debt leads to taking fewer credit hours per semester.
- For one in 20 college students, debt leads to dropping out of school for at least one semester.
This kind of research is leading a handful of schools to make financial education a priority. Champlain College in Burlington, VT requires all students to attend two personal finance sessions, which mostly focus on good credit practices. That's fine, as far as it goes. But a couple of lectures isn't nearly enough. At the University of Illinois in Chicago, incoming freshman at the business school are required to take a one-credit-hour course offered online via the website MoneyU. At St. Joseph's College in West Hartford, CT, all incoming freshman must take the MoneyU course.
Robin Brierton, assistant dean of the college of business at Illinois, says financial stress is the top reason that students drop out. "Whether it's that they got themselves in a mess of credit cards or that they didn't know how to do a proper budget, or that college is just it just too expensive - it's financial," she says. "For a great deal of them, they just didn't budget properly because it's the first time they've ever had to do that."
How effective these kinds of programs are remains an open question. They haven't been around long enough to produce long-run reliable data. But Brierton insists that her school's financial literacy requirement reduces the dropout rate due to financial troubles by 10% to 20%. That's a start.
Photo courtesy Flickr user carmichaellibrary
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Â· Financial Education Takes a U-Turn
Â· Taking Financial Education to the Next Level
Â· Financial Education: Where We're Headed