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Ohio State study finds that more education means more debt

College-educated people were shown to be more likely than those with less education to have a risky amount of debt, according to a recent Ohio State study.
The study was co-authored by Sherman Hanna, an OSU consumer sciences professor. Hanna and the other researchers looked at data from six rounds of the U.S. Survey of Consumer Finances held between 1992 and 2007, according to a university press release.
The study accounted for the fact that those with higher educations generally have higher incomes. Debt was defined as “rent or mortgage, vehicle leases or loan payments, property taxes, credit cards, student loans and more.” The line for a risky amount of debt was drawn at 40 percent of income, which included data from 25,889 households, according to a university press release.
“The fact that education was positively related to having the higher debt burden just sort of raises some questions about how do we solve this,” Hanna said.
It was also found that more renters had a heavy debt burden in 2007 than homeowners, leading to the implication that the financial crisis of 2007 was equally precipitated by all types of households and lenders – not just homeowners and those with less education, according to the release.
In 2007, the U.S. entered into the “Great Recession” caused mostly by the burst of a “housing bubble.” This recession led to a peak unemployment rate of about 10 percent in October 2009, according to data from the research group Moody’s Analytics based in U.S., Europe, Asia and Japan.
The recession led to an increase in U.S. unemployment and home foreclosure.
Between 1992 and 2008, the total percentage of Americans who were paying more than 40 percent of their income to debt increased from 17 percent in 1992 to 27 percent in 2007. There was only one short drop-off period around 2001 where this percentage decreased when the U.S. went through a short recession, according to the press release.
In 2011, the average student loan debt increased more than 5 percent for graduates. Ohio students had the seventh highest average debt in the U.S. at more than $28,600, according to findings from the Institute for College Access and Success, a non-profit higher education research group.
Some OSU students felt like this debt was dependent on a student’s parent’s financial status.
“It does depend on the student, but it also depends on whether or not their parents have enough money to pay, you know. It just depends on what the student decides to do with their future,” said Kristina Akhmametyeva, a second-year in biology. “The only reason I don’t have debt right now is because I have my parents paying for my education, but if I didn’t have my parents paying, I would have just as much debt as anybody else.”
Other students had an optimistic take on their financial future.
“I feel like in the end we’ll finally get out of this recession and jobs will appear, so that’ll change and having the experience of being at college and getting a degree will help in the end. Right now it does look a little darker, but picking a major where there’s lots of openings and different options for it also helps to make sure that I’m not in debt as much,” said Lauren Leddy, a second-year in electrical engineering.
The study found that people who reported being optimistic about the future were also more likely to have heavier debt burdens, according to the press release.
“Since it’s optimism that leads some households to take on high burdens, and it may be that up until about 2006, maybe the optimism was justified by a lot of the people, but obviously in 2007 and 2008, we just had basically the worst economic crisis in a lifetime,” Hanna said. “In a sense it means that financial education to help people, it doesn’t necessarily have to focus on sort of the details of household finances but more on like, ‘Okay, maybe you should be pessimistic in your assumptions and making financial decisions on how much to borrow.’
“(Being pessimistic about the future) is very hard for a lot of students to accept,” Hanna said. “That’s a very hard idea for a lot of people to accept.”
However, some students thought that being pessimistic about financial planning was logical.
“If you’re more aware of your surroundings and you plan ahead, that means you’re probably gonna be well off,” Akhmametyeva said.
Other students agreed that being realistic was the right mindset to have when thinking financially.
“I think that makes sense because they’re planning for outcomes that may not happen and they’re being cautious and taking all of the aspects into (account) instead of just assuming that things will work out somehow,” Leddy said.
Hanna said she thinks that planning realistically has gotten easier because of the recession.
“I think it’s easier now because of the terrible economic times we’ve had in the last four years … It’s a lesson that has to be learned every five or 10 or 15 years, I guess,” Hanna said. “In terms of like, OK, you can hope that things will go great in your career or business but you shouldn’t necessarily spend like they’re gonna be good forever.”

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