Student loans linked to greater harm for parents who borrow for their children than people who borrow for themselves

Student loans linked to greater harm for parents who borrow for their children than people who borrow for themselves
Written by Publishing Team

(The Conversation is an independent, nonprofit source for news, analysis, and commentary from academic experts.)

(The Conversation) When people take out student loans for themselves, there are certain risks involved. Debt can negatively affect a person’s mental, emotional, and even physical well-being. It can also harm a person’s financial well-being.

But when taking out a student loan for one child, the risk is greater that the loan can be associated with lower financial well-being.

Here’s what economist Charlene Kalinkowski and I found published in Personal Finance. The study — which used a nationally representative federal data set on family economics and decision-making — included nearly 12,500 American adults over the age of 18, with an average age of 48. It is not known whether the parents had private loans or government for their children.

By lower financial well-being, we mean that these parents were more likely to report feeling as if they weren’t going to be able to get the things they wanted in life or that they were “only getting it financially”. They also reported that they felt a lack of control over their financial situation. This data is part of what the US Consumer Financial Protection Bureau uses to measure financial well-being. Decreased financial well-being reduces general well-being.

Our findings remained consistent even after we took into account several other factors, such as parents’ education levels, whether or not they work, how much they earn annually and how they spend their money. We also looked at their financial literacy and current financial stresses.

The Consumer Financial Protection Bureau gives people a financial well-being score on a scale from 0 to 100. Obtaining a student loan is associated with a lower financial well-being score for everyone, but our research has found it to be associated with an equally lower score when the loan is for the borrower’s child. For example, taking out a loan for oneself would likely lower the score by 1.44 points, and taking out a student loan for a spouse would likely lower the score by 1.37 points. However, getting a student loan for one child likely lowered the financial well-being scores by 1.88 points.

Most students rely on loans

In public policy discussions about people taking out student loans, it is not always clear whether the loan is for themselves or someone else, such as the borrower’s wife or child. Knowing this information provides insight into how student loan debt relates to the borrower’s well-being if the loan is for their children.

In 2020, 64% of college graduates financed their education through student loans – accruing an average of $29,927 in debt.

The combined amount of federal and private student loans—plus the number of borrowers—continues to increase. Student loan debt totaled $1.75 trillion as of November 30, 2021, and borrowers totaled 47.9 million.

Negative effects on the family

This student loan debt has negative effects on individuals, families and the American economy. Hence, the federal government is considering federal student loan forgiveness. In a letter dated December 2021, several Democratic lawmakers urged President Biden to extend the moratorium on student loan payments — which expires in January — and work to cancel student debt.

[Get the best of The Conversation, every weekend. Sign up for our weekly newsletter.]

Lawmakers are drawing attention to the “big disparities” that contribute to the racial wealth gap. “Twenty years after starting college, the average black borrower still owes 95% of their loans, compared to just 6% for the average white borrower,” lawmakers note, citing a 2019 study by Brandeis University.

Studies have shown that student loan debt influences family decisions and outcomes. These include delayed home ownership, lower likelihood of owning equity, lower likelihood of life satisfaction, and lower level of financial wellness compared to those without student loan debt.

Our study used a 2017 data set. The long-term effects on parents’ financial well-being after taking out loans for their children’s college education are unknown. Having data sets for longer periods will enable us to examine whether loans cause lower financial well-being at different stages in parents’ lives, such as when their children finally move in or when parents retire.

This article has been republished from The Conversation under a Creative Commons license. Read the original article here: – 172939.

About the author

Publishing Team

Leave a Comment