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Home » Lifestyle Finance, Student Finances

The Student Debt Cocktail: When Student Debt, Poor Credit, & Unemployment Wipe Out the Increased Earning Power of a Degree

Last updated by on January 11, 2015

At first, the idea that a secondary degree might leave you worse off than before will sound contradictory to everything we’ve heard.

After all, there is plenty of data to go around that proves the added earning power of those with a college degree.

For example, according to the National Center for Education Statistics, in 2008, young adults (ages 25-34) who were employed full time received the following median income:

  • no high school diploma or equivalent: $23,500
  • high school diploma: $30,000 (28% more than those with no diploma)
  • associates degree: $36,000 (20% more than those with a high school diploma)
  • bachelor’s degree: $46,000 (28% more than those with an associates)
  • master’s degree or higher: $55,000 (20% more than those with a bachelor’s)

In March of this year, the Bureau of Labor Statistics reported data on unemployment statistics by education level:

  • no high school diploma: 13.7%
  • high school diploma: 9.5%
  • associates degree: 7.4%
  • bachelor’s degree: 4.4%

Seems fairly clear cut. The more advanced your education is, the more you make. You’re happy, higher education is happy, employers are happy, everyone is happy. Yay!

We’ll overlook the gainfully under-employed fast food workers with bachelor’s degrees who got the job over their high school diploma counterparts phenomenon for now.

The Student Debt Cocktail

The averages present a fairly clear conclusion: an education results in a higher income and lower unemployment rate.

But, increasingly, it’s not paying for everyone.

Consider that student debt was higher than credit card debt for the first time ever in 2010 and is likely to pass $1 trillion this year (5 times what it was just 10 years ago).

Also, consider that according to the Society of Human Resource Management 60 percent of employers do a credit check as a means of screening candidates.

And common sense would dictate that those who are unemployed are much more likely to have poor credit than those who are not.

All of these factors mixed together to present a toxic situation where a new graduate or newly unemployed worker with mounds of student debt and poor credit could get denied job offers and end up in an even deeper whole. One that they may not be able to dig out of for years, even decades.

student loan debt

The Debt Treadmill

For those who are lucky enough to find a job after getting an advanced degree – you better hope you can keep it.

Hypothetically, a bachelor’s-holding worker earning the median $46,000 who wanted to go to a top-notch business school to get an MBA (at the cost of about $80,000 on the low end) would be foregoing two years of income and adding $80,000 in student loans plus whatever credit card debt they accrued while not earning an income.

Let’s assume a total income loss of $200,000, on the conservative end.

That investment might pay off in the long run, but at what cost? If it takes 10, 15, or 20 years of increased income to break even from that income loss and debt, that’s a lot of years of added pressure and stress just to get back to square one. The more debt one takes on, the faster they feel like they have to run to not get swallowed by it.

In other words, the added earning power does not come without an added cost.

Secondary education is crossing a dangerous line where the cost is becoming too much of a negative for those that desire to attain it – even if it pays off in the long run.

student debt

What can you do to Avoid this Student Debt Trap?

My goal is not to talk anyone who’s considering getting an advanced degree out of doing so. The averages speak for themselves. My goal here is to simply consider the short and long-term dangers involved with building too much student debt and do whatever you can to minimize those dangers before they become a reality.

There are other paths than the zero income, credit card reliant, debt treadmill cycle that many blindingly accept as the only way. For example, you could:

  1. Apply for financial aid.
  2. Shred your credit cards while in school. Find a way to avoid new debt.
  3. Budget plan as if you were gainfully employed and not a student. For many, being a student is a legit reason to pile on debt. Don’t let it be.
  4. Work a flexible part-time job to pay off existing debts and prevent the accrual of new debts.
  5. Don’t go back to school until you can pay it off in full.
  6. See if your employer will help you pay for part of school, or find one who does.
  7. Go into a field that pays just as much for skilled associate’s degree earners as bachelor’s (i.e. nursing and other medical professions).
  8. Clean up your credit reports – you get three free annual through Also monitor your credit score for free before you graduate through Credit Karma or elsewhere while applying for a job to make sure it is not the reason you are getting turned down.
  9. Look at your education as an investment. What can give you the best return on investment at the lowest cost?

It might require a bit of work to do these things. But not nearly as much work as digging yourself out of a 20-year hole.

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Frugal Living says:

    I think that the value of a college degree is becoming less and less important because most employers are looking for skills and experience

    • Eric says:

      While employers are looking for skills and experience, college degrees are often viewed as a baseline qualification for entry-level, higher-paid corporate positions. That being said, college degrees provide value as a means to overcoming the initial hump to enter the workforce, but diminishes in value as one adds more skills / experience.

  • Ginger says:

    I really hate that private student loans are accessible to students under 21 yet credit cards are not. People have more protections with credit cards, and credit card companies are more willing to work with someone than the private student loan companies. When I was in undergrad I called to see about a private student loan and was told the rate was anywhere from 6-20% and they could not tell me what rate a person with an excellent credit score would get until after the money was dispersed. Because private student loans are guaranteed by the government, the companies have no reason to work with the student. At least with credit cards you had bankruptcy.

    • Seraphina says:

      And if you are wise enough to properly handle credit cards, then you may be able to obtain a personal loan with a much better loan rate than government backed loans. Rare and unlikely, but possible, under the correct circumstances.

  • Eric says:

    I think the other aspect overlooked in a lot of these studies is the type of degrees people are pursuing in secondary education. While I am all for students who want to pursue their passions at the undergraduate level, picking the right major and specialization can have a huge impact on your earning potential.

    Engineering, “hard” sciences (biology, chemistry, etc.), mathematics and/or business-heavy majors will yield higher-paying prospects than their counterparts. While it is difficult to find a job in this market regardless of one’s educational background, the average Philosophy / East Asian Studies major will probably have a more difficult time securing a well-paid position than his friends with Chemical Engineering / Accounting degrees.

    If you’re looking into secondary education as a means to boost (or secure) your future income, what major you choose should be a careful consideration.

    • Barbara Saunders says:

      This advice about lucrative majors makes sense as far as it goes, but it doesn’t go far. Obvious next-step questions/issues that never seem to be addressed in these simplistic discussions: 1 – What if a person does not have strong abilities or interest in math, science, or engineering? Should that person, then, not go to college at all? 2 – What about those jobs that DO use other skills? If you want to design software packaging, isn’t an art degree more helpful than computer science? If you want to produce video content for marketing efforts in Fortune 500 companies, wouldn’t it be helpful to study filmmaking or theater and not business administration?

      Obviously the choice of majors should be thought-through, but it really is not so linear or literal. A person with a philosophy degree has more choices than professor and philosopher-king (openings rare!) I have worked with anthropology majors in software research and development; their studies included methodologies for analyzing culture, which translated into user experience. I’ve worked with classics majors in corporate forensics. They had learned how to develop various approaches for interpreting artifacts. I studied psychology and work as an editor. In the context of marketing, communications, and other organizational work, it is useful to have a basic understanding of cognitive psychology, which was my major.

  • Ross says:

    I tend to look at the pursuit of an advanced degree in business terms. You wouldn’t ever spend thousands and thousands of dollars on something for your business unless you knew, or had a reasonable expectation, that it would allow you to make more money, now would you?

    If you’re getting an advanced degree to make more money, then how long will it take you to earn as much as you spent on getting that degree? Is there a guarantee you would actually be making more money with that degree? Is that job industry stable enough to allow you to keep your job long enough to simply break even?

    Now if your reasons for getting an advanced degree have nothing to do with earning more money, then by all means go for it… if you’re comfortable with that amount of debt.

    I for one feel more comfortable working my butt off at work to earn raises, promotions, and more resume bullet points, all the while working on a completely separate source of income independent from my job. These things I have more control over.

  • Honey says:

    and what percentage of those with student loan debt left without even finishing their degree(s)?!

  • Justin @ MoneyIsTheRoot says:

    I recently wrote about this issue as well. First, I wouldnt choose a degree that will cost you 100k, yet only provide you with 25k in annual income…at least if you have to finance it! Also, too many people forget that it is possible to work full time and still go for your MBA. I attented the University of Michigan, and my employer paid 80% of my costs. Granted it was difficult work, a ton of hours, but a few years later and Im glad that at least part of my degree was paid for.

  • Natalie says:

    I’m about to get my BS degree. Price tag: ~$40k. I admit that a lot of it went to cost of living rather than tuition and books. However I just found out that I qualify for a smart grant, which will reduce my loans for the last two years by over 50%. I’m super excited and I didn’t even know this grant existed yesterday morning. It pays to research all the can into help for school. You may be surprised where you find it.

  • E.J. says:

    I disagree with your advice to look into jobs that pay the same for an associates level degree as a bachelors. You cite nursing as a good profession to do this. However, if you look into nursing further, you will see that as hospitals fight for certain standards and certifications, the level of required degree for a job is going up. In California, for example, there is an increased need for a bridge program from ADN to BSN because the state regulations are limiting the situations in which an ADN may be hired. In many cases, former CNOs that are now in middle management, who hold a bachelors, are being required to return for a MSN to keep their jobs!

    It is important to research your field and find out not only what level of degree is required today, but the trend of what will be required in years to come. Going back to get a masters to keep your job just 10 years shy of expected retirement is maybe less cost effective than preparing ahead of time. Thank goodness for bridge programs, but guess where you find those? Private and online universities, mainly. Sometimes planning for that higher degree ahead of time can help avoid this struggle later on. Medical professions and engineering professions are two fields I know are facing these situations.


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