Research Brief

Education Pays Off Handsomely, but Borrowing for It Makes People Unhappy

Student debt weighs on happiness more than mortgages or credit card loans

A college education costs more in the U.S. than just about anywhere else in the developed world but, even so, the long-term financial return is pretty fantastic:

  • The median income of a household where there is at least one bachelor’s degree under the roof has consistently been about double what a household without a degree earns. For households with an advanced degree, the median income premium is about 175%. This is according to Federal Reserve research published in 2019 that examined household income and education for the 30 years through 2016.
  • Even when a portion of that higher income is needed to pay back student loans, the benefit persists. A project at the Georgetown University Center on Education and the Workforce used a federal database of median college expenses, student loan debt and post-school earnings to estimate a long-term return on investment for those graduating from more than 4,500 schools. The researchers found that, over the course of 40 years, the net present value (with median debt accounted for) clocked in at $765,000 for a public four-year degree and nearly $840,000 for a degree from a private nonprofit school.
  • In the Los Angeles area, the 40-year return on a net present value, for a bachelor’s degree at California State University, Long Beach, was calculated at $1,040,000; for UCLA, $1,300,000; Loyola Marymount, $1,186,000; and an associate’s degree at Citrus College, $727,000. (All after median debt was accounted for.)

Of course, in the early years following a borrowed-for college education, the debt can seem big and the reward, beginning with a starting salary, can seem small, distant and uncertain.

And then there are the external messages to deal with. Type “student loan” into Google and the search engine will likely finish your thought with “crisis.” Not likely to make anyone feel good about a student loan. (In 2020, the Coronavirus Aid, Relief and Economic Security Act benefits federal loan borrowers whose loans are held by the Department of Education.)

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Thus, many young adults in repayment mode question their decision to borrow. The Pew Research Center reports that fewer than 50% of adults between the ages of 25 and 39 who took on student debt to earn their bachelor’s degree believe the financial benefits of the degree outweigh the financial cost. (It’s not like debt-free college is nirvana, by the way: Among those who graduated without debt, only 63% say the financial benefit outweighs the cost.)

Research from Bocconi University’s Adam Eric Greenberg and UCLA Anderson’s Cassie Mogilner Holmes suggests one reason for the student-debt blues is the associated emotional burden.

Greenberg and Mogilner Holmes recruited nearly 6,000 participants to engage in seven studies to learn about the emotions around borrowing. They explored the extent to which three common forms of consumer debt — mortgage, credit card, student loan — impact happiness.

Long-term benefits of a bachelor's degree. Comparison of early-career pay versus mid-career.  Those with bachelor degrees have higher rates of home ownership and average life expectancy. High school only degree had higher % who lacked financial stability, unemployment at great recession peak, and obesity rate.

“It would be reasonable to expect that carrying debt with an especially high balance (e.g., mortgages) or an especially high interest rate (e.g., credit cards) would be most strongly tied to subjective well-being,” they write, using the academic term for happiness.

Yet that reasoning did not prevail. “Student loans have the most negative relationship to life satisfaction,” they report.

To start, the authors ran four different iterations of the same survey polling different populations. Participants were queried on what forms of debt they had and then asked to rate their life satisfaction. There was a distinct negative correlation between student loans and happiness, which did not exist for mortgages or credit card debt.

A separate study revealed that people run a different marketing script in their heads for different types of borrowing. More than 1,000 participants were asked to rate on a scale of 1 (not at all) to 7 (very much) the extent to which they perceive a given loan as “debt.” Among participants with student loans, the average score was 6.39, compared to 5.71 for credit card balances and 5.44 for mortgages.

Relative to other debts, a student loan “carries the incessant cognitive and emotional burden of being indebted,” Greenberg and Holmes write.

That finding opened the door to exploring whether nudging student borrowers to have a more positive framing of their loans might help moderate the tendency for the debt to pull down their level of happiness.

Greenberg and Holmes ran an experiment among more than 600 participants, with some having student loans and some not. Participants were then sorted into writing exercises that had implicit mental accounting nudges. Some were asked to write about how this type of loan could make them feel indebted, while the other group was asked to write about how student loans would not make them feel indebted. Participants were then asked to rate their life satisfaction on a scale of 1 to 7 (7 being most satisfied).

Among participants who had student debt and were nudged to mentally label their student loans as debt, life satisfaction clocked in at 3.8 compared to 4.49 for participants with student loans who were nudged to think about ways it was not a debt.

For the record, not having student loan debt was, not surprisingly, the ticket to higher life satisfaction. Participants with no student loans reported an average happiness score of more than 5 in both mental accounting prompts.

The ability of that framing nudge to increase happiness led Greenberg and Holmes to give it a real-world spin. Nearly 400 college grads with student loans were recruited on Amazon M-Turk. Half were asked to write about how they are still benefiting from having gone to college. With that nudge, the average life satisfaction score (on a 1–7 scale) was 4.29 for those prompted to think about the benefit, compared to 3.87 for the control group.

Playing up that mental framing could be especially helpful given the timing mismatch inherent in student loans. Payback typically starts after the loans have been consumed; that is, after one has finished school. That’s different from other types of debt (mortgages, car loans), for which payment is occurring while you are consuming (living in the house, driving the car).

The burden of paying back those loans is increasingly cited as crowding out a variety of financial and personal goals; studies and surveys find that student loan repayment is a factor in why younger adults are delaying home-buying, saving for retirement, settling down and starting a family.

Even so, for the typical borrower, payments should be manageable. Among bachelor’s degree recipients who take on federal student loans, the average balance at graduation is between $27,000 (four-year public school) and $31,000 (four-year private nonprofit). Mark Kantrowitz, an expert in college financing, arrived at a manageable borrowing guideline based on studying student loan default data: If total borrowing is limited to no more than the expected first-year salary, that should enable the borrower to earmark no more than 10% of gross income to repayment, and have the debt paid off in 10 years. Given that the average starting salary for bachelor’s degree holders is around $50,000, emerging with a typical debt load of $30,000 or so should be manageable.

For grad school debt, the average tab (including undergraduate loans) is around $71,000; law degrees, $113,000; medical degrees, $224,000. Salaries in those fields are far higher, too, of course.

Short of a reordering of the U.S. higher education system, the best safeguard for happiness would seem to be to educate potential borrowers on how not to over-borrow, given their expected earnings after graduation. But even with that guardrail in place, Greenberg and Holmes’ research suggests that reminding borrowers of the long-term benefits they are accruing can reduce the extent to which student debt weighs down happiness.

Featured Faculty

  • Cassie Mogilner Holmes

    Professor of Marketing and Behavioral Decision Making; Donnalisa ’86 and Bill Barnum Endowed Term Chair in Management

About the Research

Greenberg, A.E., & Mogilner, C. (2020). Consumer debt and satisfaction in lifeJournal of Experimental Psychology: Applied. doi: 10.1037/xap0000276

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