Is A College Degree Worth It? New Study On Student Loans Shows Stark Differences

The age-old debate surrounding the worth of a college degree, especially with the soaring costs of tuition, continues to be a contentious one.

With student loan debt outstripping inflation rates over the past few decades, the question is — does the reward outweigh the risk?

A study issued this week by the Federal Reserve underscored the high-risk nature of pursuing higher education.

A college degree might promise a lucrative future with earnings of an additional $1 million over a lifetime, yet it remains a gamble for many. The glaring risk associated with attending college is the increasing likelihood of non-completion — so it's no surprise that a huge chunk of the risk can be attributed to the financial strain brought on by student loans without the financial advantages of having a degree.

The Cost Of Non-Completion: It’s apparent the financial returns of attending college predominantly lie with acquiring the degree. Those failing to graduate bear the brunt of both implicit and explicit costs, the report said. Alarmingly, the Fed's data showed just six out of 10 attendees of four-year institutions obtain their degree, with rates even lower at two-year institutions.

Despite considerable investments from both the government and educational institutions to boost the numbers, there are still no impactful solutions.

Amid the ongoing debate about student loan debts, political figures are increasingly vocal. Notably, Senators Elizabeth Warren and Chuck Schumer, in their response to the new Saving on A Valuable Education (SAVE) plan, acknowledged the potential benefits of plans aiming to alleviate student debt.

“The fight to cancel student debt is far from over, but this is a massive step in the right direction,” Schumer said in a Tuesday statement.

Warren urged caution, saying in a post on X that Republicans in Congress are "trying to repeal this relief."

The Untapped Data: Most surveys overlook the financial outcomes of students with loans who do not complete their degree, primarily due to a lack of relevant data. However, the Survey of Household Economics and Decisionmaking (SHED) the Fed used stood out by probing respondents about their highest education level funded by student loans, identifying those who borrowed beyond their completed education level.

SHED's findings were strikingly grim. Non-completion among student loan borrowers leads to severe consequences on financial well-being, regret concerning their education and heightened SNAP benefit receipt.

The Numbers Tell The Story: When comparing those who completed (“completers”) to those who didn’t (“non-completers”), the SHED provided alarming insights. A distinct chasm emerged in financial well-being between the two groups, with non-completers struggling to manage even a sudden expense of $400.

The statistics further underscore the precarious financial situation of non-completers, especially when borrowing for college does not lead to a degree.

Additionally, a look at 6-year completion rates across public and private institutions using the College Scorecard data shows a stark contrast. While the median completion rate hovers around 60%, there is steep variation, with educational disparities only widening existing inequalities.

More to that, non-completion not only has financial repercussions but also leads to a sense of regret regarding one’s educational choices, the report found. Non-completers were frequently unhappy with their chosen field, institution, or the lack of further education, with the last being the most pronounced sentiment.

The data from the SHED highlights a poignant reality.

College graduates with debt undoubtedly fare better than those without degrees, however, college dropouts burdened with debt face the harshest financial outcomes, worse than any other group.

The potential reasons behind the disparity are manifold — restricted credit access due to undischarged student loans could mar an individual’s financial trajectory.

In a climate of increased scrutiny of student loans, investors may want to keep an eye on stocks exposed to loans. Companies like as Nelnet, Inc. NNI, SLM Corp SLM, and SoFi Technologies Inc SOFI might see volatility as a result of changing student loan policies.

Non-completers might find themselves locked out of significant financial decisions, like purchasing homes or cars, even if they default on their student loans.

The Fed's findings reiterate the need for boosting higher education completion rates. Investing in measures to provide comprehensive support, financial literacy and mental health resources can pave the way for a brighter future for many.

Read Next: Stocks Rally Ahead Of Nvidia’s Earnings; Treasury Yields Plunge On Soft Data: What’s Driving Markets Wednesday?

Photo: Shutterstock