The Times Australia
The Times World News

.
The Times Real Estate

.

Taking out a student loan for your child can hurt your own financial well-being

  • Written by Thomas Korankye, Assistant Professor, Personal and Family Financial Planning, University of Arizona
Taking out a student loan for your child can hurt your own financial well-being

When people take out student loans for themselves, certain risks are involved. The debt can negatively affect[1] a person’s mental[2], emotional[3] and even physical well-being[4]. It can also harm a person’s financial well-being[5].

But when taking out a student loan for one’s child, the risk is even higher that the loan could be associated with lower financial well-being.

This is what economics scholar Charlene Kalenkoski[6] and I found in our peer-reviewed study[7] published in the Journal of Personal Finance[8]. The study – which used a nationally representative federal dataset on household economics and decision-making[9] – involved nearly 12,500 American adults ages 18 and over, with an average age of 48. It is not known whether the parents had taken out private or government loans[10] for their children.

By lower financial well-being[11], we mean that these parents were more likely to report feeling as if they will never be able to have the things they want in life or that they are “just getting by financially.” They also report feeling a lack of control over their financial situation. These statements are part of what the U.S. Consumer Financial Protection Bureau[12] uses to measure financial well-being. Lower financial well-being decreases overall well-being[13].

Our findings remained consistent even after we took into account several other factors, such as the education levels of the parents, whether or not they work, how much they earn per year and how they spend their money. We also considered their financial literacy and their current financial strain.

The Consumer Financial Protection Bureau offers people a financial well-being score[14] on a scale of 0 to 100[15]. Taking out a student loan is associated with a lower financial well-being score for everyone, but our research found that it is associated with an even lower score when the loan is for the borrower’s child. For instance, taking out a loan for oneself is likely to lower the score by 1.44 points, and taking out a student loan for one’s spouse likely lowers the score by 1.37 points. However, taking out a student loan for one’s child was likely to lower financial well-being scores by 1.88 points.

Most students rely on loans

In public policy discussions about people who take out student loans, it’s not always clear whether the loan is for themselves or someone else, such as the borrower’s spouse 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 of college graduates[16] financed their education via student loans – accumulating an average debt of US$29,927.

The combined amount of federal and private student loans – as well as the number of borrowers – continues to increase. The total amount of student loan debt reached $1.75 trillion[17] as of Nov. 30, 2021, and the total number of borrowers stood at 47.9 million.

Negative effects on households

These student loan debts have adverse effects on individuals, households and the U.S. economy[18]. Consequently, the federal government is considering federal student loan forgiveness[19]. In a December 2021 letter, several Democratic lawmakers urged President Biden to extend the pause on student loan payments – which ends in January – and to act to cancel student debt[20].

[Get the best of The Conversation, every weekend. Sign up for our weekly newsletter[21].]

The lawmakers call attention to “significant disparities” that contribute to the racial wealth gap. “Twenty years after starting college, the median Black borrower still owes 95% of their loans, compared to only 6% for the median white borrower,” the lawmakers note, citing a 2019 Brandeis University study[22].

Studies have shown that student loan debt influences household decisions and outcomes. This includes delayed homeownership[23], lower likelihood of stock ownership[24], lower probability of life satisfaction[25] and lower financial wellness[26] compared with those without student loan debt.

Our study used a dataset for 2017. The long-term effects on parents’ financial well-being after taking out loans for their children’s college education are not known. Having datasets for longer periods of time would enable us to examine whether the loans cause lower financial well-being at different stages in parents’ lives, such as when their children finally move out or when the parents retire.

References

  1. ^ negatively affect (theconversation.com)
  2. ^ mental (doi.org)
  3. ^ emotional (doi.org)
  4. ^ physical well-being (doi.org)
  5. ^ financial well-being (www.consumerfinance.gov)
  6. ^ Charlene Kalenkoski (scholar.google.com)
  7. ^ in our peer-reviewed study (cdn.theconversation.com)
  8. ^ Journal of Personal Finance (www.iarfc.org)
  9. ^ federal dataset on household economics and decision-making (www.federalreserve.gov)
  10. ^ government loans (studentaid.gov)
  11. ^ financial well-being (www.consumerfinance.gov)
  12. ^ U.S. Consumer Financial Protection Bureau (www.consumerfinance.gov)
  13. ^ decreases overall well-being (doi.org)
  14. ^ offers people a financial well-being score (www.consumerfinance.gov)
  15. ^ scale of 0 to 100 (files.consumerfinance.gov)
  16. ^ 64% of of college graduates (www.usnews.com)
  17. ^ $1.75 trillion (educationdata.org)
  18. ^ individuals, households and the U.S. economy (doi.org)
  19. ^ federal student loan forgiveness (www.savingforcollege.com)
  20. ^ urged President Biden to extend the pause on student loan payments – which ends in January – and to act to cancel student debt (www.warren.senate.gov)
  21. ^ Sign up for our weekly newsletter (memberservices.theconversation.com)
  22. ^ 2019 Brandeis University study (heller.brandeis.edu)
  23. ^ delayed homeownership (doi.org)
  24. ^ lower likelihood of stock ownership (doi.org)
  25. ^ lower probability of life satisfaction (doi.org)
  26. ^ lower financial wellness (doi.org)

Read more https://theconversation.com/taking-out-a-student-loan-for-your-child-can-hurt-your-own-financial-well-being-172939

The Times Features

Why Regional Small Businesses in Bendigo Deserve Better Access to Finance in 2025

In the heart of regional Victoria, Bendigo has long stood as a beacon of innovation, resilience and community spirit. As we step further into 2025, the importance of nurturing sm...

Is It Time for a Deep Cleaning? Signs You Shouldn’t Ignore

Most people know they should visit the dentist for a regular check-up and cleaning every six months. But sometimes, a standard cleaning isn’t enough. When plaque and tartar build...

The Hidden Meaning Behind Popular Engagement Ring Cuts

When it comes to engagement rings, the cut of the diamond is not just about aesthetics. Each shape carries its own symbolism and significance, making it an important decision for...

Annual Health Exams in the Office: How They Can Reduce Sick Days and Healthcare Costs

Regular health check-ups, especially annual health exams in the office, can significantly impact the overall well-being of your workforce. A proactive approach to employee health...

Best Deals on Home Furniture Online

Key Highlights Discover the best deals on high-quality outdoor furniture online. Transform your outdoor space into a stylish and comfortable oasis. Explore a wide range of d...

Discover the Best Women's Jumpers for Every Season

Key Highlights Explore lightweight jumpers for spring and summer, ensuring breathability and ease. Wrap up warm with cozy wool jumpers for the chilly autumn and winter season...

Times Magazine

The Essential Guide to Transforming Office Spaces for Maximum Efficiency

Why Office Fitouts MatterA well-designed office can make all the difference in productivity, employee satisfaction, and client impressions. Businesses of all sizes are investing in updated office spaces to create environments that foster collaborat...

The A/B Testing Revolution: How AI Optimized Landing Pages Without Human Input

A/B testing was always integral to the web-based marketing world. Was there a button that converted better? Marketing could pit one against the other and see which option worked better. This was always through human observation, and over time, as d...

Using Countdown Timers in Email: Do They Really Increase Conversions?

In a world that's always on, where marketers are attempting to entice a subscriber and get them to convert on the same screen with one email, the power of urgency is sometimes the essential element needed. One of the most popular ways to create urg...

Types of Software Consultants

In today's technology-driven world, businesses often seek the expertise of software consultants to navigate complex software needs. There are several types of software consultants, including solution architects, project managers, and user experienc...

CWU Assistive Tech Hub is Changing Lives: Win a Free Rollator Walker This Easter!

🌟 Mobility. Independence. Community. All in One. This Easter, the CWU Assistive Tech Hub is pleased to support the Banyule community by giving away a rollator walker. The giveaway will take place during the Macleod Village Easter Egg Hunt & Ma...

"Eternal Nurture" by Cara Barilla: A Timeless Collection of Wisdom and Healing

Renowned Sydney-born author and educator Cara Barilla has released her latest book, Eternal Nurture, a profound collection of inspirational quotes designed to support mindfulness, emotional healing, and personal growth. With a deep commitment to ...

LayBy Shopping