The financial impact of student loans
1990s when the average tuition fees jumped by 10% two years in a row. While the rate of tuition increase subsequently fell back to single digits, between 1989/1990 and 2008/2009 tuition fees more than doubled in constant dollars (Chart A). 1 The rise in tuition fees in most provinces brought increased attention to levels of student borrowing and associated debt loads. One study found that between 1982 and 1995, the proportion of bachelor’s graduates with student loan debt rose from 45% to 47% for men and from 39% to 44% for women. Average loan amounts at graduation for those with a bachelor’s degree also rose during this period by 121% for men and 145% for women (Finnie 2002). The rise in average tuition fees is the result of a substantial shift in the funding of postsecondary education (PSE), a change requiring students to pay proportionally more while governments pay proportionally less (Schwartz and Finnie 2002). Between 1989 and 2009, average tuition fees as a percentage of total revenues for universities and colleges more than doubled, rising from 10% to 21% while funding from government fell from 72% to 55%.2 Although the cost of postsecondary education has increased for students, most individuals interested in pursuing studies are able to do so,3 whether through personal savings, parental contributions or government-sponsored student loans (see Canada Student Loans Program). For those not eligible for governmentsponsored programs, loans through private institutions are also available. It is widely accepted that borrowing for postsecondary education is a long-term financial investment. Individuals spend time and money on their education to increase the chances of obtaining meaningful, higherMay Luong is with the Labour and Household Surveys Analysis Division. She can be reached at 613-951-6014 or firstname.lastname@example.org. January 2010 Perspectives 5
nterest in student loan debt heightened in the early Chart A Average tuition fees for full-time undergraduate university students $ 5,000 4,000 3,000 2,000 1,000 0 19721973 Current $ Constant 2007 $
Source: Statistics Canada, Tuition and living accommodation costs for full-time students at Canadian degree-granting institutions, 1972/1973 to 2008/2009.
paid employment (Keeley 2007). In addition to financial gains, it has been found that students acquire other skills and experiences through higher education. These include more opportunities for self-accomplishment, social interaction and independence (Oreopoulos and Salvanes 2009). Although costs may not deter most students from obtaining a postsecondary education, the debts accrued may be substantial. Moreover, the average benefits of a postsecondary education will not be realized by all graduates—some will do better, others worse. Thus the accumulation of student debts may have lasting effects for some portion of graduates. To date, the majority of the research relating to the rise in tuition fees has been focused on access to postsecondary education (Frenette 2009, Finnie and Mueller 2008, Frenette 2008, Frenette 2007, Frenette
Statistics Canada — Catalogue no. 75-001-X
The financial impact of student loans
and Zeman 2007, Christofides et al. 2006, Frenette 2006, Finnie et al. 2005, and Frenette 2004). Research in the area of student loans has been focused on trends in student loan borrowing and characteristics of student loan borrowers (Kapsalis 2006 and Finnie 2002). Little research has been directed at exploring the impact that student loans may have on individuals’ financial position after graduation. The key question is “How does the financial situation of student loan borrowers compare to the situation of their non-borrowing counterparts?” This article examines the financial position of student loan borrowers compared to non-borrowers after they have left school and uses...
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