Dr. Zarifa collaborates on new study analyzing student loan defaults

University graduates in applied and professional programs, such as business and engineering, are more likely to pay back their student loans than their counterparts in liberal arts or in similar college programs, according to a new study from the University of Guelph in collaboration with Nipissing University Sociology professor Dr. David Zarifa.The study found that university students are generally more likely to repay loans than their college counterparts despite higher university tuition fees. It also found that, starting salaries being even, students in certain fields, including business, health or engineering, were more likely to repay their student loans than those in the liberal arts.
It was authored by sociology professor David Walters and Laura Wright from Guelph, with Zarifa. They analyzed student data from Statistics Canada’s most recent version of the National Graduates Survey, with about 40,000 responding graduates from all provinces and territories.
The study controlled for a range of factors, including starting salaries. It excluded those in graduate programs and those who took additional schooling after completing a degree or diploma.
“Since college graduates earn less on average than university graduates, and graduates of liberal arts fields typically earn less than graduates of applied fields, we expected that the former would be more likely to default on their student loans,” said Wright, the lead author and now a PhD candidate at Western University.
“Our results confirmed this probability in general, but what was surprising was that this pattern was evident regardless of earnings. Conceptually, if you compare two individuals who both work full-time, have the same earnings, and have the same amount of student debt, the individual who graduated from a liberal arts program or with a college diploma is still more likely to default than the individual who graduated from an applied program or with a university degree.”
Why? Walters said there are a number of possibilities and that further study is required.
“We don’t know for certain at the moment,” he said. “First-year university students tend to have higher entrance grades than their college counterparts, so it could be said that they are more conscientious. It could also be a matter of lifestyle. It could also be argued that universities are better preparing their students in life skills. And graduates of applied fields may have stronger numeracy skills that help them understand and manage debt.”
Student loan default is a growing concern with rising costs and more students depending on loans. In 2004, the Canada Student Loans Program (CSLP) distributed more than $1.9 billion to 330,000 students. Three years earlier, defaulted loans cost the program more than $400 million.
Default rates for university loans range from two per cent to eight per cent, with some programs doing better than others, said the researchers.
The study offers ideas to improve repayment rates.
“It might be valuable for government and institution officials involved in the CSLP to consider making additional courses or workshops relating to financial planning available, if not mandatory, for students who require financial assistance,” the study concluded.