Studies Show Avoiding Debt Is Not Necessarily Beneficial For College Students

November 30, 2011

DebtAs student loan debt rises to enormous levels, some students are becoming more determined than ever to completely avoid borrowing to pay for higher education. But some caution that such a step is not necessarily the most prudent.

According to Michelle Singletary, who writes for The Washington Post, the Federal Reserve Bank of New York recently stated that it has been underestimating the amount of student loan debt. In its August report, the New York Fed reported a $550 billion student loan debt. That figure was just revised to $845 billion--53.7 percent higher.

"We came to realize that our aggregate reported student loan balance was at the low end of the substantial range of publicly available sources," the report said.

Singletary's advice about student loan debt was summed up in the title of her article: Avoid it.

But a recent article from the Associated Press questioned the wisdom of such a strategy. According to the article, educators who are seeing students avoid student debt are concerned that such students may never graduate. That's because such students are working longer hours at jobs, taking fewer credits, are less likely to enroll full-time, are living at home, and are more likely to attend less selective and cheaper institutions. As a result, these students are also less likely to complete college and earn a degree.

As reported by the AP, Deborah Santiago, co-founder and vice president for policy research at the nonprofit advocacy group Excelencia, agreed that students that borrow sensibly are actually more likely to complete college. She pointed out that attending a more selective institution that offers resources and support will ultimately help students graduate.

As reported by Education Week, a study released this week underscores the importance of such considerations. The report, titled "Completing College: Assessing Graduation Rates at Four-Year Institutions" by the Higher Education Research Institute at the University of California, Los Angeles, noted that many factors can influence the likelihood of graduation. For example, living on campus the first year of college--a situation that debt-conscious students often avoid--can have a positive impact on college completion.

The report also found that students attending private colleges were more likely to earn a degree than those who attend public institutions. But the study noted that this is directly related to the quality of such students: Private colleges are more likely to admit students who have the educational and socioeconomic backgrounds to ensure that they will graduate.

Compiled by Yaffa Klugerman


"Report Sheds Light on Factors Influencing College Graduation," blogs.edweek.org, November 29, 2011, Caralee Adams

"Student Debt Hint: Avoid It," washingtonpost.com, November 29, 2011, Michelle Singletary

"The Other Student Loan Problem: Too Little Debt," Associated Press, November 28, 2011, Justin Pope

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