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In Praise(?) of College Debt

Photo of author, Will Carter, JD.
Will Carter, JD
Senior Advisor

A Wall Street Journal blog post earlier this year cited a study which concluded that millennials who borrowed money to secure a college degree were more likely to achieve certain measures of financial success (e.g., mortgage, marriage, children) than graduates who did not take out loans.

The study surveyed the financial health of over 3,000 adults in the U.S., ages 22 to 35, and found that the trend held true for all levels of higher education—associate degrees, bachelor degrees, and post-graduate degrees.

I was initially skeptical, because the research was commissioned by a company that services and collects student loans and would obviously like to be able to report positive effects of student borrowing. Also, though student loans may correlate with financial success, that does not mean they help cause it—it could be that students who borrow money and finish their degree are, on average, more competent and ambitious than students who complete degrees without having to borrow money.

Upon further reflection, however, I believe the study is worth paying attention to, because my experience helping families manage their money suggests several reasons that the process of borrowing money to go to college might, in and of itself, increase the likelihood of financial success for young adults on average.

First, I have observed that students who take out loans for college are more likely to think of college costs as an investment, not just another consumer purchase. Especially for families that can afford to send their child anywhere, thinking of college as an investment focuses students less on consumer-oriented criteria like how nice the dorms are and more on return on long-term investment considerations such as how the college will help into a fulfilling career.

Second, students taking out loans may be more inclined to put themselves on a budget in order to avoid borrowing money unnecessarily, a practice that serves them well when going out into the real world after college.

And lastly, and perhaps most significantly, students with loans may encounter sooner than their loan-free peers that “Oh sh—” moment, when they really confront that they alone are going to have to take care of their future wants and needs—that the market is indifferent to their success and will punish them for not creating enough value for others to earn the money needed to live a good life. All competent adults eventually confront this reality, but I think the sooner that fact gets hard-wired into the early adult brain, the better.

Just as the children of working moms have been shown to do better in certain domains of money and family than those raised by stay-at-home moms (my 2015 post on this topic), I think children and young adults often benefit from learning that no matter how much their parents love them, the world does not always organize around what they want or need.

The challenge that parents face is how to acquaint our children to the practical financial realities of the real world without pressing them so hard that they lack the space to explore and learn what kind of life is worth living. Too heavy a college debt burden is clearly counterproductive, but it is possible that too few financial obligations may be as well.

Though the best way to help young adult children learn about the real financial world will vary from family to family, the goal of helping them understand how to prudently borrow, spend, and invest is a constant. Preliminary research suggests that sensible borrowing for college is one way for some families to advance that goal.

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