Academic journal article Journal of Financial Education

Thinking Patterns: An Exploratory Investigation of Student Perceptions of Costs and Benefits of College Loan Debt

Academic journal article Journal of Financial Education

Thinking Patterns: An Exploratory Investigation of Student Perceptions of Costs and Benefits of College Loan Debt

Article excerpt

INTRODUCTION

Higher education still pays even in times of rising tuition and unemployment rates. According to a 2010 College Board study, a typical bachelor's degree recipient can expect to earn 66 percent more over his or her working lifetime than an average high school graduate (Education Pays, 2010). A more recent report by the Georgetown University Center on Education and the Workforce shows the median projected lifetime earnings of employees with a bachelor's degree is about $2.3 million compared to $1.3 million for an employee with a high school diploma (Camevale, Rose, and Cheah, 2011). Even with an unprecedented high of 8.7 percent unemployment for young college graduates (Project on Student Debt, 2010), the college educated are still better off than high school graduates whose unemployment rate stood at 13.8 percent (Education Pays, 2010). However, this differential comes at a price. With the average annual cost of attendance at about $14,000 (Statistical Abstract of the United States, 2011), college seniors who graduated in 2009 had an average of $24,000 in student loan debt, up six percent from the previous year (Project on Student Debt, 2010). In Appendix A, we conduct a simple simulation of net present value derived from college education using a cost-benefit analysis framework.

To date, studies investigating student debt have taken several different approaches to understand this important construct. One stream of research has examined the relationships that demographic variables such as student classification, age, gender, semester credit load, ethnic background, (for examples, see Callender and Jackson, 2005; Cummins, Haskell, and Jenkins, 2005; Davies and Lea, 1995; Kuzma, Kuzma, and Thiewes, 2010), and personality variables such as optimism, locus of control, self-control, materialism, and impulsiveness (Baumeister, 2002; Romal and Kaplan, 1995; Wells, 2007) have with student debt. A second stream of research has explored student debt interventions such as parental influence and the level of financial knowledge of students (Caruana and Vassallo, 2003; Churchill and Moschis, 1979; Grossbart, Carlson, and Walsh, 1991; Mascarenhas and Higby, 1993; Strayhom, 2002). Results consistently show that the financial knowledge or literacy of students as well as their parents' teaching and modeling of financial concepts influence students' financial behavior. Finally, a third stream of research has focused on student attitudes about debt in general and how these attitudes influence the level and frequency of debt (Davies and Lea, 1995; Haultain, Kemp, and Chernyshenko, 2010). These studies report that students' acquisition of debt has a positive relationship with their tolerance of debt. Also, other findings suggest that apprehension or fearfulness of debt acts as a deterrent especially for students from lower socio-economic groups (Callendar and Jackson 2005; Davies and Lea, 1995). While the previous three streams of research focused on student debt, the more recent literature examines not just student debt but also credit card debt and credit card misuse (e.g., Norvilitis et al. 2006; Pirog and Roberts, 2007).

The ease and speed with which students can accumulate large sums of debt may influence students' attitude about loan debt, especially in terms of costs and benefits. In addition to increasing the risk of default and the reduction in overall financial well-being, student loans and credit card debt are shown to relate to negative outcomes such as dropping out of school, high levels of stress, and low self-esteem (Norvilitis et ah, 2006; Robert, Golding, Towell, and Weinreb, 1999).

This study further investigates student attitudes about college loan debt and how it relates to decision making. While prior research has conceptualized attitude more as a one-dimensional metric variable (continuous variable), we take a different tact by operationalizing the construct as a multidimensional and non-metric (categorical) variable. …

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