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‘Tuition myopia’ study reveals the long-term financial risks of lower-cost colleges

According to new research, 18% of students who selected ‘low-cost, low-return’ colleges defaulted on their student debt just three years after graduation.

‘Tuition myopia’ study reveals the long-term financial risks of lower-cost colleges
[Source Images: vkyryl/iStock; Tsokur/iStock]

Spending less on college tuition may lead to greater financial trouble in the long run, according to new research from the Kelley School of Business at Indiana University. Students who make college decisions based primarily on financial factors are often clouded by “tuition myopia,” says lead researcher Haewon Yoon, making them more likely to choose “low-cost, low-return” universities to limit temporary debt instead of attending schools that promise better long-term financial gain.

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This strategy may not be as lucrative for the pocketbook as students think. Not only do cheaper universities lead to lower average incomes over time, but students who attend low-return schools may find it more difficult to repay their student loans. According to the study, 18% of those who selected low-cost, low-return colleges defaulted on their student debt just three years after graduation, compared to only 2% of those who chose high-cost, high-return universities.

Psychologically, tuition myopia causes students to overestimate the short-term costs of education and underestimate the long-term trade-offs, Yoon says, adding that colleges should be aware of this mindset and pivot their marketing campaigns to prospective students, limiting talk of costs and stressing instead the importance of developing “human capital.” High-cost universities have work to do if they intend to change public perception, however, as nearly two-thirds of college students say higher-level education is not worth the cost.

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