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

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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