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Debt by Degrees: A Distinct Challenge for College Students

It is a commonly held belief in America that a college degree facilitates income potential, career advancement and financial stability. Student loans make college possible for many students, while simultaneously commencing their lives under the burden of debt.

Examining the debt journeys of young adults, beginning with education loans, new NEFE-funded research quantifies debt holding by level of education completed and identifies the corresponding financial precarity as young adults progress through their 20s.

What it finds is a much different—and sometimes more financially vulnerable—experience for those who obtain associate’s degrees. Community college attendees share unique characteristics as they seek higher education and accumulate unique debt portfolios compared with bachelor’s degree holders.

Often overlooked by those who assume a traditional four-year college experience, two-year degree holders deserve closer attention—and a different approach.

Educational Attainment and Debt Profiles

“The story of young adulthood is the story of debt holding,” says researcher Rachel Dwyer, Ph.D., of The Ohio State University, who conducted this study for NEFE. Dwyer investigated financial inequality and insecurity among Americans from age 20 to 30, focusing on individual and household educational attainment and the types of debt held. She examined student loan debt along with secured and unsecured consumer debt to illustrate the broader financial risk experienced by young adults with education ranging from high school diplomas to graduate degrees. “While debt does not always become an unbearable financial burden, it makes young adults more vulnerable to financial problems when troubles do arise,” Dwyer says.

Community college attendees are at the forefront of this vulnerability, particularly compared to traditional four-year college attendees. They represent a financially precarious population attempting to get ahead by investing in postsecondary education. On average they are more likely to start school later and stay in school longer despite a shorter overall degree program—only 39 percent have earned a two-year degree within six years of starting. (In comparison, 60 percent of those who started at a four-year institution have earned a bachelor’s degree within six years.)1

Differences in Student Loans

Like their four-year college counterparts, two-year college attendees take out student loans to cover education costs. In fact, similar proportions of individuals with bachelor’s degrees and associate’s degrees carry college debt. However, nearly 11 percent of associate’s degree-headed households are paying the highest loan interest rates (over 10 percent) compared to 6 percent of bachelor’s degree-headed households. This is likely a result of taking on private loans, which often carry higher interest rates than federal loans.

Bachelor’s degree holders are more likely to have student debt across the entire age range reviewed in this study, first increasing in proportion and then decreasing as they pay it off. The proportion of associate’s degree holders with student debt increases steadily over time.

breakdown of college debt by degree

Life Events Impact Debt Holding

average age at life events

Although degree holders vary in average age of experiencing significant life events such as moving out, living together, getting married, having a child and completing a degree, traditional four-year students and those without college degrees tend to make these transitions sequentially in time.

Two-year students, conversely, are more likely to experience major life events during the same time period that they are pursuing their education, particularly marriage and child rearing.

“Grown-Up” Debt: Cars, Homes and Credit Cards

Debt portfolios evolve over time in early adulthood as individuals with bachelor’s and graduate degrees gradually accumulate more secured debt and pay down unsecured debt between age 20 and 30.

Associate’s degree holders are less likely to have home debt than higher degree holders by age 30. Although associate’s degree holders are less likely to have credit card debt at age 25, they are more likely than other degree holders to have it by age 30. The proportion of bachelor’s degree holders with credit card debt drops steadily over time.

The likelihood of car debt for associate’s degree holders is higher than all other groups from age 20 to 30, possibly because two-year degree pursuers need transportation earlier for work and child-related obligations.

percent of individuals carrying debt by degree

Financial Risk in Context

Debt holdings heighten a household’s vulnerability to economic shocks, whether personal or societal. The Great Recession is an example of such a shock. Households headed by someone with less than a bachelor’s degree fared worse as measured by utilization of payday loans—specifically those with associate’s degrees.

Additionally, households headed by an individual with less than a bachelor’s degree have higher rates of loan delinquency.

financial risk

Call to Action: The Case for Distinction

The prevalence of the “everyone should go to college” philosophy in the United States has encouraged widespread investment of young adults in higher education—72 percent of the oldest Millennial cohort enrolled for at least one term in a two-year or four-year higher education institution by age 302. Student demographics for two-year and four-year schools definitely overlap, even as educators and researchers strive to identify and serve similarities and differences among their student bodies.

Studies such as the NEFE-funded OSU research reveal surprising outcomes after college attendance, particularly the similarities in debt holding and financial risk shared by associate’s degree holders and those who never attended or never graduated college.

“We’re not questioning the value of higher education,” says Amy Marty Conrad, director of NEFE’s college-focused financial education program CashCourse. “What we are learning is that two-year college attendees experience major life events and transitions in a significantly different manner than most four-year students. Getting married, going to school and having children at the same time have profound, long-term effects on debt holding and financial precarity. There’s an opportunity to address these situations in the financial education we offer to community college students.”

“Most data and assumptions about ‘college’ focus on bachelor’s degrees,” says Katherine Sauer, Ph.D., NEFE senior director of education, research and strategic impact. “But these are not universally translatable to two-year degree pursuers. Understanding their unique challenges forces us to treat them as a distinct group rather than lumping them in with traditional four-year students,” Sauer adds.

 NEFE offers these recommendations to researchers and financial educators concerning associate’s degree holders:

  • Design, analyze and interpret data sets to distinguish between levels of educational attainment, rather than aggregating all college attendees together regardless of what degree they are pursuing.

  • Conduct additional research on the life experience and circumstances faced by those who ultimately complete two-year degrees to understand their challenges and how they make educational decisions.

  • Deliver financial education for community college students that addresses situations common to their experience. Individuals seeking an associate’s degree are a distinct group that deserve consideration, especially when it comes to the financial education resources that colleges provide.


National Center for Education Statistics, 2016

2 Authors’ analysis of National Longitudinal Survey of Youth data

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