Student Loan Debt Effect on Net Worth and Home Values

Author: University of Illinois at Urbana-Champaign
Published: 23 May 2016 - Updated: 7 Sep 2026
Publication Type: Research, Study, Analysis

Table of Contents:
Synopsis - Definition - Overview - FAQs - Insights, Updates - Related Content

Synopsis

This research examines peer-reviewed findings published in the journal Children and Youth Services Review, analyzing data from over 1,200 participants in the National Longitudinal Survey of Youth. Led by University of Illinois professor Min Zhan, the study provides crucial evidence about how education debt affects financial outcomes for young adults, particularly those with disabilities who may face additional barriers to wealth accumulation. The findings reveal specific dollar amounts tied to reduced net worth, assets, and home values at age 30, offering practical insights for students, families, and policy advocates working to address education affordability. The research holds particular relevance for disabled individuals and seniors returning to education, as it quantifies long-term financial consequences of borrowing and highlights concerning racial wealth disparities that compound existing economic challenges.*

At a Glance

• 1 - Borrowers held $39,630 less in financial assets by age 30. These include savings, retirement plans, stocks, and mutual funds.
• 2 - Black graduates with loans saw net worth fall 40 percent below white peers. Higher debt-to-income ratios helped drive this gap.
• 3 - The average borrower in the sample owed about $15,200 when leaving school. Slightly more than half of participants carried this debt.
• 4 - A bachelor's degree still raised all four wealth measures, even after controlling for loans. Parental income and health insurance also predicted stronger wealth building.

Topic Definition

Student Loan Debt

Student loan debt is the money a person still owes on borrowed funds used to pay for college or other higher education, including tuition, fees, and living costs, that has not yet been repaid after they graduate or leave school. It covers federal and private loans alike, and the balance follows a borrower into adult life, shaping their ability to save, invest, and buy a home. Researchers treat it as a lasting financial obligation rather than a one-time expense, because the amount owed, the interest attached to it, and the years spent paying it back can hold down a person's net worth and slow the growth of both financial and nonfinancial assets long after the classroom years are over.

Overview

People who had outstanding balances on their student loans when they graduated or dropped out of college had lower net worth, fewer financial and nonfinancial assets, and homes with lower market values when they reached age 30, according to a paper accepted for publication in the journal Children and Youth Services Review.

"After controlling for various student characteristics and parental income, we found that having student loan debt when people graduated or dropped out of college compromised their ability to accumulate wealth afterward," said principal investigator Min Zhan, a professor of social work at the University of Illinois.

For black young adults, leaving college burdened with student loans may be especially detrimental, diminishing their net worth by 40 percent compared with white students, the researchers found.

The findings underscore the importance of accessing alternative sources of funding besides education loans and other forms of credit to pay for college expenses, said Zhan, who co-wrote the paper with William Elliott III, director of the Center on Assets, Education and Inclusion at the University of Kansas; and Xiaoling Xiang, a recent graduate of the doctoral program in social work at Illinois.

The researchers examined the impact of education loans on four markers of wealth accumulation: total net worth, which was calculated by subtracting each person's total liabilities from their total assets; the value of their financial assets, such as savings accounts, retirement plans or pensions, stocks, bonds and mutual funds; the value of their nonfinancial assets, such as real estate equity and vehicles; and the total market value of each person's primary housing.

The sample comprised more than 1,200 people, including 626 participants with student loan debt and 581 of their counterparts who did not have outstanding education loans when they left college. All of the participants were born between 1980 and 1984.

All of the people in the study sample had completed at least one year of college.

• About half of the people in the sample (45%) dropped out of college without earning a degree.
• Thirty-nine percent of the sample obtained a bachelor's degree.
• 11 percent received an associate degree.
• 5 percent of participants earned a master's degree or other postgraduate degree.
• Slightly more than half (51%) of the study sample had education loan debt when they left college; the average amount owed was about $15,200.

The average net worth of people who had student loan debt after graduating or dropping out of college was $13,680 lower than that of their counterparts.

People with outstanding education loans when they left college also had $39,630 less in financial assets and $12,670 less in nonfinancial assets, Zhan said.

Student loan debt after college also was associated with lower home values. About 39 percent of respondents were homeowners at age 30. However, the average home value of people with post-college student loan debt was $103,000 less than that of their counterparts, the researchers found.

"Our findings suggest that in addition to negatively impacting young people in the short term, education loans may also compromise their financial well-being over the longer term," Zhan said. "Both large and small amounts of education debt act as a barrier to future wealth building."

Student loan debt also may be exacerbating wealth inequality between black and white young adults, the researchers suggested. Blacks were more likely to have education loans after college, and their debt-to-income ratios and loan-to-financial assets ratios were much greater than those of their white counterparts, according to the study.

Despite these findings, a college degree is still a worthwhile investment, Zhan said:

"Values on all four measures of wealth were higher for people who had a bachelor's degree, and the differences persisted even when we controlled for student loan debt and other factors," Zhan said. "A college degree is still very important in building wealth for young adults, although carrying student loan debt after college graduation can reduce the payoff."

Parental economic status and having health insurance coverage as a young adult were important predictors of wealth accumulation, the researchers found.

Data for the study were taken from the 1997 cohort of the National Longitudinal Survey of Youth, a nationally representative sample of the U.S. population that included more than 8,900 respondents.

Frequently Asked Questions

NOTE: Researched FAQs by Disabled World (DW)

Does refinancing a student loan lower its long term effect on wealth

Refinancing can reduce the interest rate and monthly payment, which frees up money for saving and investing over time. It does not erase the balance, so the debt still influences how quickly a borrower builds assets.

Are federal student loans different from private student loans

Federal loans are funded by the government and often carry fixed rates, flexible repayment plans, and forgiveness options. Private loans come from banks or lenders and usually depend on credit history with fewer built in protections.

What is a debt to income ratio for student loans

A debt to income ratio compares the total monthly debt payments a person owes against their gross monthly income. Lenders use it to judge whether a borrower can take on new credit such as a mortgage.

Can student loan debt affect a mortgage application

Yes, because lenders count monthly loan payments when calculating how much a buyer can afford. A large balance can raise the debt to income ratio and reduce the size of the mortgage a person qualifies for.

Do income driven repayment plans help borrowers build wealth

Income driven plans set payments as a share of earnings, which can ease monthly strain and leave room to save. Lower payments may stretch the loan over more years and add to total interest paid.

How does student loan debt influence retirement savings

Money spent on monthly loan payments is money not placed into retirement accounts during early career years. Missing those early contributions reduces the compounding growth that builds retirement wealth.

Are there alternatives to student loans for paying for college

Scholarships, grants, work study jobs, and employer tuition help can cover costs without adding to debt. Savings plans such as 529 accounts also reduce the need to borrow for school.

What options exist for student loan forgiveness

Programs such as Public Service Loan Forgiveness cancel remaining federal balances after set years of qualifying work and payments. Eligibility depends on the loan type, employer, and repayment plan a borrower follows.

Insights, Analysis, and Developments

Editorial Note: While these findings paint a sobering picture of student debt's ripple effects across decades of financial life, they also reinforce what many borrowers already know from experience - the real cost of education extends far beyond tuition bills. The $103,000 difference in home values alone represents not just lost equity, but delayed stability, postponed family planning, and dreams deferred. Yet the research doesn't advocate abandoning higher education; rather, it calls for reimagining how we fund it. For disabled students and working adults already navigating healthcare costs and employment barriers, this data underscores why accessible alternatives to traditional loans aren't just nice to have - they're essential to breaking cycles of economic inequality that education should be helping to solve, not perpetuate.*

Attribution/Source(s): This quality-reviewed publication was selected for publishing by the editors of Disabled World (DW) due to its relevance to the disability community. Originally authored by University of Illinois at Urbana-Champaign and published on 23 May 2016, this content may have been edited for style, clarity, or brevity.

* Editorial additions by Ian C. Langtree.