A new study finds that students who borrowed money for college will actually have higher incomes than those who borrowed the money for other reasons, including the fact that they’ll earn more while earning less.
The new study, by researchers at the University of Michigan, shows that the more money students borrow for college, the more they’ll pay in interest over their lifetime.
The study, titled “Borrowing to College: A New Measure of the Financial Motivation to College Students,” will be presented at a conference in Washington, D.C., next week.
It’s the first comprehensive study of the motivations behind students’ borrowing for college.
“The real question is how do we make sure that they can get out on their feet when they go to college and earn money that they didn’t earn in college?” said co-author Jennifer Hovland, a professor of management and economics at the university.
“We don’t have a good answer to that yet.”
The study looked at a sample of 2,000 students, ages 17 to 24, who were undergraduates in their first year of college in 2010.
The researchers compared their net worth at graduation, after their student loans had been paid off.
“I thought this was a great time to ask students if they had ever had a student loan that was so bad that they needed to be refinanced?” said Hovlands co-researcher, David Wegner, a doctoral candidate in public policy at the School of International Service at the U.S. Naval Postgraduate School in Monterey, California.
Students who borrowed for other types of debt, like mortgages or credit cards, were also considered.
They were also compared to those who did not borrow at all.
Students were also asked to explain why they borrowed the funds.
“What did you do to get the money?” was the most commonly asked question in nearly half of the cases, according to the report.
Hovs was surprised to find that the borrowers who borrowed to pay for college didn’t always have the best financial outcomes.
“It’s very hard to make sure you can make a long-term loan and keep your student loans paying off,” she said.
Students with large debts often have lower earnings than those with less debt, but they also tend to borrow a lot more than their peers with less money.
“Banks are very good at picking students with higher debt,” said Wegners co-investigator, Robert D. Johnson, a senior research fellow at the Urban Institute.
“That’s what they do.”
Johnson said it’s important to think of this as an indicator of a student’s willingness to pay back their loans.
“There’s a very small subset of students who will be able to get a loan, and they will have to pay it back, but it’s really only for a very few years,” he said.
But that small group of students will have higher debt loads than those in the majority of other students who aren’t paying back their student loan debt.
“If you look at the data, they are paying more than students with debt,” Johnson said.
“This is a very specific group of borrowers.”
The authors of the study also said that the higher debt burden among borrowers with higher loans is one of the reasons they may struggle to repay their loans, even when they get them back.
“When you’re struggling to repay your student loan, it really puts pressure on your credit rating,” Johnson told the Associated Press.
“Students with higher debts are more likely to be at risk for defaulting on their loans.”
The researchers said that students with more debt can have even worse outcomes than those without it.
For example, students with student loans with a higher average monthly payment were more likely than students without debt to default on their loan within six months of graduation.
Students’ borrowing habits could also affect their chances of getting into a good job.
“In terms of finding a job, a higher income means you have more money to pay your rent, food and utilities, and the mortgage,” said Hvland.
“So a student with a more expensive college education, or a student who borrows to pay off their debt, is less likely to get into a position where they can afford a decent wage.”
Students who had a loan for more than five years were more than twice as likely to have a job at some point in their careers, according the study.
But students who had no debt at all were more like the typical college student: They had higher rates of unemployment and lower earnings.
“While higher earnings can be a good thing, it’s still not a guarantee that you’re going to be able pay off your student debt,” Hvles said.
In fact, the study found that student loan borrowers with more loans had higher debt burdens than those whose debt had been forgiven.
For instance, students who defaulted on their