The Effect of Student Loans on Parental Views of Education Financing

March 19, 2022 Off By Virgil Olson

The Effect of Student Loans on Parental Views of Education Financing

Executive Summary

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  • College costs are increasing, and most students need to? save or borrow to pay for education. Outstanding parental debt may affect the decision about how to fund their children’s education.
  • The purpose of this research is to investigate whether parents’ own student loan balances affect their decision to save for their child(ren)’s college education via tax-advantaged education saving vehicles and if their debt affects their decision to take out loans on behalf of their child(ren) for educational purposes.
  • According to this study, parents who are paying off their own student loan debt are less likely to invest in tax-advantaged accounts for their children’s education.
  • For financial planners, this research highlights the importance of advising parents who may have their own student loan debt to start saving in tax-advantaged vehicles early.

Terrance K. Martin Jr., Ph.D., is an assistant professor at the Woodbury School of Business at Utah Valley University. He is also the founder of Tranquility Financial Planning and a professional speaker. His research interests include the value of financial advice and financial education.

Lua A.V. Augustin, Ph.D., is an associate professor at the Eberly College of Business at Indiana University of Pennsylvania. Her research interests include financial literacy and credit management.

Laura C. Ricaldi, Ph.D., CFP, is an assistant professor in the Woodbury School of Business at Utah Valley University. She also works as an associate adviser for GRID202 Partners, a financial planning firm consisting of multi-credentialed advisers committed to helping diverse clients. Her research interests are consumer loans, credit card borrowing, and materialism.

Jose Nunez is a research associate for Tranquility Financial Planning. He is an honors graduate of The University of Texas Rio Grande Valley.

The Effect of Student Loans on Parental Views of Education Financing

One of the best investments an individual can make is earning a college degree. Having a college degree ily; it allows an individual to have better job opportunities with higher pay; and it provides better job security in volatile , the U.S. Bureau of Labor Statistics analyzed the earnings and unemployment rates by educational attainment. https://getbadcreditloan.com/payday-loans-ia/norwalk/ Of those above age 25, people with a high school diploma had an unemployment rate of 4.1 percent, whereas people with a bachelor’s degree had an unemployment rate of 2.8 percent. The median weekly earnings for people with only a high school diploma were $730, and $1,198 for people with a bachelor’s degree, for an annual difference totaling $24,336.1

College costs are increasing (Carnevale and Strohl 2013). Paulsen and St. John (2002) noted that governments are placing more of the burden of financing college education on families and individuals. Student loans are replacing grants as the primary source of education financing; tuition rates continuously rise as a result of the decline of state funding for colleges. And student loan debt is increasing due to the greater costs of higher education (Belfield, Britton, Dearden, Van Der Erve 2017).

Rising college costs have affected students in other ways, such as having poor academic attainment, below-average performance, lower expectations, and lower college enrollment (Bennett, McCarty, and Carter 2015; Cappelli and Won 2016; Elliott and Beverly 2011). Even if a college education represents an opportunity for upward social mobility, this is not happening for students from low socioeconomic families and/or minorities who appear to have lower levels of educational attainment, lower GPAs, and lower academic aspirations. This is due to students having to work more and study less in order to afford their education (Walpole 2003; Bozick 2007).

Although Americans value college education, they may have a hard time estimating the cost of attendance (Horn, Chen, and Chapman 2003). Due to the complexity of the federal student aid system, many parents do not know the true costs of a college education and they overestimate the coverage of financial aid (Long and Riley 2007; Dynarski and Scott-Clayton 2006). Parents either do not save enough due to miscalculation or simply are unable to save enough due to the high cost of attendance.