Claims about the positive effects of debt warrant a closer look  

Left: A twenty-something faces the horror of her account balance [Photo: RNuwer]  

There’s a reason it’s called a “debt burden.” Recent headlines—things like Debt Boosts Young People’s Morale and What, Me Worry? Young Adults Get Self-Esteem Boost from Debt —indicate this might not be the case, however. Debt that’s a mental health nightmare for most people, the articles assert, is actually a positive thing for people in their early to mid-twenties. But before twenty-somethings start firing up their credit cards or their elders start muttering about the “immature minds of young adults,” as one Scientific American article commenter put it, let’s take a closer look at what the data are actually saying.  

For young adults coming of age in the 2000s, debt—from credit cards to student loans—is available at unprecedented levels, says Rachel Dwyer, a sociologist at Ohio State University and lead author of the study that started all the fuss, published in Social Science Research in March.  

Dwyer was interested to see how young people perceive debt. To investigate this question, Dwyer called upon the Bureau of Labor Statistics’ National Longitudinal Survey of Youth, a data set composed of surveys administered biannually to a group of respondents throughout their lifetimes. She and her colleagues focused on the relationship of debt to self-esteem and sense of mastery for respondents aged 18 to 34. These attributes are determined by a set of statements, like “I am a person of worth” or “I am inclined to feel like a failure,” that are scored on a gradient, from strongly disagree to strongly agree. The researchers also took into account the person’s economic background, education and other demographic factors. All of the data was collected prior to 2004, though the researchers do not specify the years from which they drew their samples.  

Statistical analysis revealed that young adults under 27 with substantial debt had enhanced self-concepts compared to those their age who had less debt, but for those 28 or older with debt, the reverse was true—they had lower self-esteem and sense of mastery. Dwyer, who accumulated debt herself as a graduate student, guesses this is because student loan payments kick in around the age of 28.  

But let’s hold our horses, here. Just because two things are related doesn’t mean one thing caused the other. In other words, correlation does not necessitate causation. Dr. Dante Morra, an assistant professor in medicine and the associate director of the Center for Interprofessional Education at the University of Toronto, thinks Dwyer’s study is “100 percent” a case of correlation without causation. “We’re not even in the realm of causation here, this is all about correlation,” he emphasizes. Though Dwyer says her statistical models controlled for things that could have painted an inaccurate picture of debt’s positive influence, Morra points out that the correlation she found between self-esteem, mastery and debt is “very, very small.” The correlation of having a college degree to mastery and self-esteem, on the other hand, “is on a whole different scale.”  

Morra thinks data-crunching allowed the researchers to find loose connections that other studies have found to be “profoundly and far more complicated.” What we can definitely say is that education is associated with a much higher sense of mastery, says Scott Schieman, a sociologist at the University of Toronto. This relationship is one of the most repeated findings in sociological literature. But whether or not debt itself can take some of the credit is a much trickier topic, and any student who has lost sleep wondering where the post-graduation meals will come from, let alone loan payments, will probably disagree.  

Dwyer’s study included 588 participants, and of those the average education debt totaled at just $6,596. Out of the 3,079 young people originally selected from the survey, only 19.1 percent actually had any education debt at all.  

The average debt [pdf] of graduating seniors in 2009, compiled from over 1,000 universities from all 50 states and the District of Columbia, totaled $24,000. According to the College Board, the average cost for an in-state resident at a public university for a four-year degree is $30,420 ($7,605 per year). In 2010, community college cost an average of $2,713 per year, and a four-year degree from a private university totaled a whopping $109,172 ($27,293 per year). Specialized degrees like medical school almost guarantee a six-digit debt figure, with over 80 percent of graduating U.S. med students owing an average of $100,000 for public school and $135,000 for private schools, according to the Association of American Medical Colleges. None of these costs take into account the price of room and board, textbooks or other necessary living expenses. Compared with these price tags, the mean education debt of $6,596 cited in the youth debt study is a drop in the bucket that most students would indeed be happy to take on as their sole debt burden.  

Right: This student looks forward to loan payments until he’s about 50. [Photo: RNuwer]  

Students have noticed these exorbitant prices. Back in 1996, when medical school in Canada cost about $3,000, Morra conducted an unpublished survey in which med students ranked their biggest stress factors. At the time, debt fell to the bottom of the list, behind things like “What type of doctor should I be?” and “Will I fit in with my class?” When Dante repeated the survey in 2002, after the cost of Canadian medical school had risen to about $20,000 per year, financial stress had risen to the top of the worry list. “It’s not like each dollar of debt may have the same impact,” says Schieman, “it’s probably worth thinking about excessive debt.”  

Between 1982 and 2007, college tuition and fees rose three times as fast as a median family income, reported David Broder at the Washington Post. From 1985 to 2005, tuition increased by 165 percent in private medical schools and 312 percent in public medical schools. Stress related to financial strain is not a laughing matter. Although they are difficult to link, a 2008 Annals of Internal Medicine study found an apparent association between levels of education debt and suicide ideation in medical students mostly between the ages of 25 to 30. Suicide ideation was highest—14 percent—amongst students with more than $100,000 worth of debt, while students who never considered suicide had the least amount of debt, $49,999 or less, though this correlation warrants further investigation before any conclusions can be drawn. (Suicide [pdf] is the second-leading cause of death among 25- to 34-year-olds).  

Anticipated debt—which Dwyer’s study does not account for—is also a powerful indicator for someone’s mental health. For example, one student may have $5,000 in debt at graduation, accounting for all she’ll ever owe. Another student may have $5,000 in debt but is just starting a program that will eventually cost $60,000 in total. Current debt versus anticipated debt are two different beasts entirely, and they have a very different psychological impact. Dwyer’s study is “more of a snapshot,” as she says. It measures only the actual debt at the time of the survey, though she hopes to examine how debt and its effect may change over time by following her cohort as they age.  

Unfortunately, the world has continued to turn since the study's data gathering prior to 2004. Schieman points out that mastery refers to the ability to maintain manageable, realistic levels of debt that people know is within their capacity to pay back. But many students today are graduating with mortgage-sized debt. The financial crisis has dramatically changed circumstances with respect to credit and jobs. Dwyer says she’s very interested to see if there are shifts in thinking about debt following the recession, but the data are still not in yet. In the context of today’s job insecurity, debt is probably a stronger stressor than it was in the past, says Schieman.  

Left: The infamous “education bubble” graph comparing college tuition inflation to the housing market  [Image from Flickr by Virucides]  

Education is an investment, and it’s something that no one can take away from you, Schieman says. But money talks, and some degrees lend better returns on investments than others. If a student has just completed school with $30,000 in debt but is starting a job that pays $100,000 a year, she probably doesn’t feel too bad about herself. She knows $30,000 is all the debt she’ll have to deal with and that she can pay it off in a few years. On the other hand, if a student just enrolled in a master’s of art history at Harvard University and knows that she’ll come out of the program owing an accumulated $130,000, she’s probably going to be much more stressed. Today the nation buzzes with talk of the education bubble, or the claim that the nonrefundable, “unrealistic, astronomical price tag” of education with overrated rewards will soon come crashing down à la the 2007 housing bubble burst. “I certainly think there’s stress when people get education at higher levels and it doesn’t translate into expected outcomes and employment,” Schieman says.  

Dwyer and her colleagues treat the limitations of their study much too flippantly. They write that it is “regrettable” that they do not have “crystal balls” and thus cannot predict with certainty whether or not young people are justified in viewing debt as a positive investment rather than a burden. But this complex melting pot of psychological, social, cultural and economic factors calls for more than a simple answer conjured by the wave of a magic wand. Delving a bit deeper into these convoluted questions can help tease out such associations, and may even raise questions about the conclusions on which they are based. “What I would just caution everybody on,” says Morra, “is that the [statistical] relationships, when studied more carefully and in a more controlled environment, are found to be very, very complicated, and blanket statements really do unravel as you get one level deeper.”

About the author: Rachel Nuwer is a graduate student at New York University’s Science, Health, and Environmental Reporting Program. Her keen interest in science and nature was fostered in the bayous of southern Mississippi. Taking this love to an extreme, she investigated illegal wildlife trade in the peat swamp forests of Vietnam for her ecology master’s thesis at the University of East Anglia, England. When not writing about science Rachel can be found taking photos, exploring the world, or rehabilitating stray kittens.

The views expressed are those of the author and are not necessarily those of Scientific American.

Take a look at the complete line-up of bloggers at our brand new blog network.