Debt Without Degree: Are educated parents handing down 'debt' sentences to their kids?

A “debt” sentence for students 

Too many students drop out of college every year. Disturbingly, many do so after assuming the burden of student loan debt. In fact, nearly 40 percent of student loan borrowers have debt but no degree, based on data from the U.S. Department of Education.  

There is no metric or standard for what constitutes an acceptable number of people who have debt without a degree, yet two out of every five borrowers certainly feels like it’s on the high side. And here’s why it matters: With no degree to boost earnings, the time it would take to pay off tens of thousands of dollars can literally feel like a “debt sentence.” 

Students drop out for many reasons. Unexpected life events like illness or family-related issues routinely play a role. And sometimes the school ends up not being the right academic or cultural fit for the student. But for a majority, it’s the college costs – even the financial aid process itself – that derails finishing a program.  

Working to end the debt without degree crisis means looking into the causes and factors at play for students.  

Can highly educated parents make debt without degree worse? 

Exactly why paying for college gets in the way of obtaining a degree is still not well-understood. One factor higher ed researchers like to look at is parents’ educational backgrounds (especially since we know parents and guardians often play an outsized role in helping their children decide at which college to enroll.)  

We also know the federal government ensures, at least for dependents, that parents share a significant portion of the financial burden. But there’s more: For students embarking on higher education for the first time, having someone in the house who has already gone through the experience may appear to help soothe uncertainties with the process. Further, it provides a firsthand understanding of the benefits of a college degree (which doesn’t hurt the go/no-go decision.) 

So it was strange, especially as we began thinking about this and digging into the characteristics of people who have college debt but no degree, that there is a relationship between the debt without degree crowd and their parents’ highest education levels. It just wasn’t the one we were expecting.  

For students who do earn degrees, the average amount of debt a student leaves school with is basically the same whether their parents or guardians have a high school diploma or an MBA. 

However, for students who leave school without a degree, you can see there is a positive relationship between parents’ education levels and the amount of loan debt the student drops out with. 

Among those who don’t complete their education, the more education mom and dad have, the more debt the student ends up leaving school with. 

Here’s the hook: There’s no clear reason for this relationship. It may be possible that students who have more educated parents are more reluctant to drop out initially (thus taking on more debt along the way).  

Another explanation? Perhaps these students just attend more expensive schools (again, because mom and dad encourage the value of graduating from a more prestigious university). In other words, they don’t necessarily stay enrolled in school any longer; it could just be that the cost of their education is higher. 

Looking at why students whose parents have no postsecondary training borrow less before leaving doesn’t clarify things, either.  

It could be that parents who are unfamiliar with the process (or guardians who may be debt-averse themselves because they simply earn less) may counsel their children toward a lower-cost degree program. Or maybe students who don’t get the chance to see the long-term higher ed pay off reflected in their own household take a more cautious path. 

In practice, it’s likely that a combination of these explanations combine and swirl in the higher ed ether to create this issue. 

Still, if there’s one thing a relationship like this points to, it’s that the experience of the people who most often help guide student decision-making can flex some serious muscle, (in either a productive or not-so-productive manner) when it comes to college decision-making.  

The backstop to parent support? Colleges. 

Research tells us that prospective college students value expert advice from people they trust, which is why parents with prior education experience play such an important role in both the school choice and financing process. But what do we do for the millions of students whose parents don’t have the background or who may be adults themselves now and no longer under their parents’ roof? 

Research also tells us that outside of immediate family and close friends, the next place people look for financial guidance are the schools themselves. Every school’s financial aid and enrollment management offices are well-equipped to provide the kind of advice that prospective students need to navigate the complexities of finding (and paying for) a college program that fits their needs and ambitions. 

If we’re going to shore up the resources that drive better decision-making and boost student financial success, a primary consideration needs to help schools and students cut through complexity, so support staff can spend less time processing forms and more time counseling at-risk students.  

From simplifying the management of an enormously complicated regulatory framework to policies that simplify a school’s ability to better-leverage technology, no potential solution should be off the table. 

About the Author

Carlo Salerno, VP of Research

Carlo is the Vice President for Research at CampusLogic. Over an 20-year career, he has done higher education research for the federal government, co-founded an education analytics company, and conducted a wide range of analyses for national advocacy groups and the student lending industry. He writes and speaks frequently on the economics of higher education.

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