The next generation of college students has heard the message loud and clear about the perils of taking on too much student loan debt—so much so that many are unwilling to go into debt at all in order to attend college.
The drawback to this wariness is that for those who do not borrow, they are unlikely to get four-year degrees.
The vast majority of people aged 16-19 recognize the importance of a college degree, but most say they either want to avoid education debt entirely or to limit their borrowing to nominal amounts, according to a recent survey by Northeastern University of 1,000 teenagers nationwide.
About a quarter of those polled said they want to remain debt-free, while 45% felt they could afford to pay a maximum of $100 a month, which at current interest rates means borrowing no more than about $10,000.
That amount would not cover a single year at many public four-year colleges, even after financial aid is taken into account.
The problem with not borrowing is that most families do not have nearly enough saved to pay for college. About half of U.S. families are not saving for their children’s educations at all, according to a survey by Sallie Mae. Among those who are, the average amount saved is around $15,000. (To see if a school you’re interested in is worth borrowing for, see MONEY’s rankings of the Best College Values.)
Meanwhile, some commonly recommended ways to cut costs—such as starting at a community college or working your way through school—dramatically increase the chances of a student dropping out without a degree.
One recent study found a 17-percentage-point difference in bachelor’s degree completion between those who start at a four-year college and those who start at a two-year school intending to transfer.
Another study found that those who work 30 hours a week or less, excluding work study, were 140% more likely to graduate college within six years than those who worked more.
Now no one expects teenagers to be financially savvy. Many do not understand the difference between bad debt that can sink their finances and good debt that can help them get ahead. The trouble comes when teenagers make an all-or-nothing decision based on their ignorance.
That is true for those who will spend anything to get their degree and those who are so averse to debt they will borrow nothing.
The nuance that the debt-avoiding teens are missing is that those sob stories about unemployed or barely employed college graduates with six-figure student loan debt are very much the minority. (Still, see how you could end up with a six-figure debt for film degree here.)
Even though student loan debt is rising, just 7% of borrowers take out more than $50,000, according to the Brookings Institution’s Brown Center on Education Policy. Only 2% take more than $100,000.
The average debt at graduation for bachelor’s degree recipients is $33,000, said Mark Kantrowitz, author of Filing the FAFSA and publisher of Edvisors.com, a higher education resources site.
That amount may seem formidable, but for most graduates it is not.
“If total student loan debt at graduation is less than the annual starting salary, the borrower will be able to repay his or her student loans in ten years or less,” Kantrowitz says.
For most graduates, that’s the case. The average starting salary for new college graduates this year was $45,473, according to the National Association of Colleges and Employers, ranging from a low of $38,365 for humanities and social science majors to a high of $62,719 for engineers.
Even larger debts may not be cause for concern. About a quarter of the increase in student loan debt comes from rising levels of education—more people attending graduate and professional schools.
Advanced degrees typically confer higher incomes, according to Georgetown University’s Center on Education and the Workforce. Master’s degree holders can expect to earn $2.7 million over a lifetime while professional degree holders can expect $3.6 million.
That compares to the $2.3 million someone with a bachelor’s degree can expect to earn and the $1.3 million expected earnings for those with only a high school diploma.
Of course, not everyone needs or wants a four-year degree. The payoff for a two-year associate’s degree from a community college—an education mostly covered by that $10,000 in borrowing—can be considerable. The Georgetown researchers figured an associate’s degree-holder can expect to earn $1.7 million over a lifetime. What’s more, 28% of associate’s degree make more than the median earned by a four-year degree holder.
For most people, though, the investment in a four-year degree will pay off handsomely in terms of higher incomes and lower unemployment. An unreasonable fear of debt should not be the deciding factor between a good education and something less.