The Logic of Loans: students' perceptions of the costs and benefits of the student loan

Abstract

Government policy towards financial support for students means that students increasingly have to bear the costs of their education, often through acquiring significant student debt. This policy is largely justified with reference to the private benefits (through enhanced life-time earnings) that university graduates can expect to enjoy. Using evidence from a qualitative study of 49 students, this paper analyses the extent to which students are engaged in a process of rational weighing-up of the costs and benefits of higher education as implied by the policy stance. It also explores their interpretation of their financial position and Government policy towards them. It argues that students are very poorly informed about both the costs and benefits of higher education, and that financial outcomes are not created in an essentially private and individual fashion, but instead are strongly mediated by cultural and familial resources.

Understanding High School Students’ Willingness to Borrow to Pay College Prices

“…Human capital theory does not assume that individuals have perfect and complete information, but that they make decisions based on available information about the benefits and costs (DesJardins & Toutkoushian, 2005). Thus, perceptions of loans may vary because of differences in students' knowledge of loans, including their awareness of mechanisms that protect students' from unfair treatment by lenders, potential for loan forgiveness and forbearance, and availability of interest subsidies, as well as differences in their knowledge of the benefits and costs of attending college more generally (as suggested by Christie and Munro [2003] and Callender and Jackson [2005]). …”

“…Using interviews with students enrolled at two universities in the United Kingdom, Christie and Munro (2003) found that students from lower-class backgrounds are typically uninformed about the economic benefits of higher education and, thus, believe loans to be risky. In contrast, students from upper-class backgrounds are certain of the economic benefits of higher education, but, because of their parents' resources, often do not need to use loans to pay college expenses.…”

“…John, 2003), and graduate school enrollment (Choy & Carroll, 2000;Ehrenberg, 1991;Fox, 1992;Monks, 2001;Perna, 2004;Weiler, 1991), prior research on students' perceptions of loans is limited in several respects. First, much of what is known about willingness to borrow is inferred from examinations of other indicators, such as the actual use of loans (e.g., ECMC Group Foundation, 2003), examines the loan-related perceptions and experiences of students who successfully enrolled in college (e.g., Baum & O'Malley, 2003;Christie & Munro, 2003;Christou & Haliassos, 2006;Monks, 2001;Porter et al, 2006;Wroblewski, 2007), and focuses on perceptions of loans among students in other nations (e.g., Callender & Jackson, 2005;Christie & Munro, 2003;Eckel et al, 2007). Second, while some research suggests that students' perceptions of loans vary across groups (e.g., Christie & Munro, 2003;Christou & Haliassos, 2006;ECMC Group Foundation, 2003;Linsenmeier, Rosen, & Rouse, 2006), only a few studies have explored the forces that contribute to these differences (e.g., Christie & Munro, 2003).…”

Paying for Higher Education in England: Funding Policy and Families

“…In addition to the support of the immediate family, the wider family, especially grandparents, were involved in financially supporting the students in different ways (cf. Christie and Munro 2003). 'In return' for the financial support they provided, parents and other relatives could impose conditions, some of which were an attempt to inculcate a sense of responsibility into the students (see also Holmstrom et al, 2011).…”

The Effect of Financial Literacy and Emotions on Intent to Control Personal Budget: A Study among Israeli College Students

“…Examining budgeting intentions among students is important since strong evidence indicates that college students do not possess a high degree of financial knowledge (Chen & Volpe, 1998;Avard et al, 2005;Jones, 2005;Shahrabani, 2012) and that students have increasing debt burdens (e.g., Austin & Phillips, 2001;Christie & Munro 2003;Warwick & Mansfield, 2000). Understanding the factors that influence individuals to maintain a budget may be useful in formulating interventions designed to reduce debt likely to accumulate due to the lack of money management.…”