College graduates less likely to be trapped by credit card debt

By Kelly Dilworth

If you’re thinking about skipping college in order to avoid becoming saddled with too much debt, you may want to think twice about your decision.

College graduates not only earn substantially more over the course of their lifetimes. They’re also much less likely to become mired in high-interest credit card debt, according to a new study from the left-leaning think tank Demos.

“As incomes for many Americans fail to keep up with costs during this period of slow economic recovery, credit cards can become a high-interest ‘plastic safety net’ that enables households to make ends meet,” said Demos’ Amy Traub in a press release.

According to the study, college graduates are 22 percent less likely than nongraduates to carry credit card debt — in part because they typically have more financial resources to keep up with life’s challenges without resorting to borrowing.

In addition, previous studies have shown that college graduates are more likely to be employed than nongraduates, which gives those who graduate a bigger financial cushion than those who don’t. Grads typically spend less time looking for a job, too.

For example, according to a February 2014 study by the nonprofit research group Pew, the unemployment rate for millennials without a college degree is more than three times the unemployment rate for millennial college graduates (12.2 percent vs. 3.8 percent, respectively). It also takes high school graduates up to a month longer, on average, to find a new job. And recent grads with just a high school degree are more likely to be underemployed even after they’ve snagged a new gig.

That, in turn, puts high school graduates at even higher risk for running up credit card debt, say researchers. For example, unemployment is a leading risk factor for racking up card debt, the Demos study found. So is not having health insurance. (According to the nonprofit group, the College Board, college graduates are much more likely to be covered by employer-sponsored insurance.)

As young people age, the financial gap between college graduates and nongraduates widens even further. For example, the Federal Reserve Bank of San Francisco research release May 4 found that the average college degree-holder earns approximately $800,000 more by the time he or she retires than the average worker with just a high school degree.

That extra income makes borrowing much less risky for college graduates who are more likely than nongraduates to be able to repay their loans, eventually. It also allows college grads to avoid using their credit cards for emergency expenses, since they’re more likely to have a larger amount of savings. High school grads, by contrast, have less of a cushion to fall back on and so they’re more likely to charge unexpected expenses to their cards.

“What we’ve seen is that, by and large, households don’t have credit card debt because they’re irresponsible,” said Demos’ Traub in the release. “More commonly, they have debt because they’ve experienced unemployment or had to cope with medical costs without insurance.”

Student debt is also an important risk factor for card debt
A second study published by Pew found that college graduates who are saddled with student debt are also at higher risk for credit card debt because they have less room to pay for extra expenses.

For example, according to the study, college grads with student debt are 60 percent more likely to have credit card debt than graduates who made it through college debt-free. They’re also 43 percent more likely to have to borrow for their car.

That, in turn, underscores the need for high school students to plan ahead well before school begins. If you’re still in high school and are choosing between a less expensive college and a pricier school with more prestige, you may be better off choosing the less expensive college. You’ll still have a college degree — which will put you far ahead of your peers who choose to stay home instead. But you’ll also be less likely to accumulate so much debt that you put yourself at risk for not being able to pay your bills at all.

Kelly Dilworth is a former staff reporter at She began her career in journalism at The Atlantic in 2007, then detoured into nonfiction book publishing for several years. She returned to journalism in 2010 and since then has written about everything from 20-somethings with Herculean credit scores to the Federal Reserve’s monetary policy decisions. Kelly holds a degree in liberal arts from Sarah Lawrence College and lives in Austin, TX.