Why does tuition have such a major effect on student enrolment, University education is a long term investment in ones future. Post-secondary schooling typically results in higher wages and a higher quality of life that more than offset the cost of tuition. But as with all investments, there is no guarantee that post-secondary education will lead to a better future, and student debt can have long lasting effects on graduates. Studies of graduates suggest that university education may not be as great a class equalizer as people think.
Although loans are available, students may be wary of taking on debt to complete a four-year program, and not without reason. Studies from the United States have shown that students from low-income homes who take out loans face a number of challenges upon entering college. These studies found that, not only were students who took out loans less likely to complete their program of study, but low-income students were 7% more likely to take longer than four years to graduate than high-income students. So, while student loans do give students from low-income homes the opportunity to obtain post-secondary education, low-income students who take out loans have been found to be less likely to complete their degree in four years or at all than high-income students without loans. Furthermore, low-income students who do complete their degree face their own challenges after graduation.
It is important to note that post-secondary education is a significant advantage, even if the student has to take out a loan. Post-secondary graduates earn higher wages, on average, and are more likely to find work than those without post-secondary education. University graduates earn over 33% more than college graduates. Of course, students that do not complete their studies gain few of these advantages. Students who start, but do not complete post-secondary education do not earn significantly different wages than high school graduates. (Luong) This lowered income, if combined with student debt, can be a significant hindrance to achieving financial goals such as buying a house.
Even though university graduates with debt have the advantages associated with earning a degree, their debt is still an obstacle that graduates who do not have significant debt do not face. May Luong used data from the 2007 file of the Survey of Labour and Income Dynamics to find that university graduates between the ages of 20 and 45 who do not take out loans achieving greater prosperity than graduates who did take out loans from the same age range. 52% of non-borrowing graduates have some form of savings or investments, while only 42% of graduates with student loans have savings or investments. Graduates without student debt have larger amounts of disposable income and, are using this disposable income to invest.
Graduates with student debt are also less likely to be homeowners than other graduates. Home ownership is often the largest asset for young adults and a long-term investment. Home ownership suggests stability in one’s life as well as greater wealth, or if not greater wealth a greater ability to take on debt. Many homes are financed through mortgages that are repaid over time. Given that graduates that took out student loans are also 2% more likely to have an unpaid mortgage it is likely that they are unwilling or unable to take out a mortgage in addition to their student debt. (Luong)
All of this means that student loan borrowers have less wealth than their non-borrowing counterparts even after their student loans have been paid. On average they do not have significantly more debt, but have lower assets (which includes things such as money, possessions, retirement funds, and any businesses they have a stake in). In 2005 the average net worth (assets minus debt) for graduates with student loans was $17,500, while the average net worth for graduates without student loans was significantly higher at $61,900.
Even if a student has to take out a loan, having post-secondary education will open up job opportunities that have higher wages and greater stability. However, the facts that graduates who take out a student loan are less likely to have investments and savings, less likely to own their own home, and will on average have significantly less net worth than their non-borrowing counterparts implies less social mobility. It is difficult for a person born to a low-income family to becoming middle or upper class adults, even with post-secondary education. As useful as university education is, students who come from low-income families will likely be less financially successful post-graduation.
Luong, May. “The Financial Impact of Student Loans.” Perspectives on Labour and Income 22.1 (2010) 29-42.
Yu, Hongwei. “At Issue: The Relationship Between Student Loans and Low-Income Students’ Baccalaureate Attainment: A Literature Review” The Community College Enterprise 20.1 (2014): 49-58.