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The Student Loan Trade-Off: How Debt Aversion During College Choice Leads to Future Financial Woes

The Student Loan Trade-Off: How Debt Aversion During College Choice Leads to Future Financial Woes

Ishita Nagpal and Archana Mannem

Journal of Marketing Research Scholarly Insights are produced in partnership with the AMA Doctoral Students SIG – a shared interest network for Marketing PhD students across the world.

Higher education exposes students to novel ideas, fosters critical thinking, and gives them the tools needed to succeed in the global workforce. Indeed, college graduates earn 202% more than those who do not complete high school and 62% more than people whose highest degree is a high school diploma. Nevertheless, enrollments in American higher education institutions have decreased. Compared to 2021, graduate enrollments were down by 1.1% in the fall of 2022. Many students also continue to drop out of college degree programs, with the average graduation rate at public schools being 62%.

Lower graduation rates may be a result of students being forced to take on more debt as a result of rising college costs. This trend is evident in the current year, where the total amount of student loan debt in the United States alone is $1.745 trillion (Hanson & Checked, 2023). And student loans aren’t the only problem: Many people who do not take out enough loans end up using credit cards that have considerably higher interest rates to pay for their tuition and living expenses. In all, college debt is now the second-largest source of consumer debt in the U.S.


With college debt being such a life-changing issue, are prospective students correct in choosing cheaper college options? The authors of a recent Journal of Marketing Research study find that students’ aversion to the debt associated with student loans impairs their college choices, ultimately limiting their career choices and decreasing the odds of attending or graduating college. They propose the “Tuition Myopia Model,” which states that although the benefits of attending college are realized after graduation, students psychologically anticipate realizing the cost of their tuition before loan repayments are actually due. This hinders them from attaining higher earnings in the future by leading them to choose lower-cost, lower-return (LC-LR) colleges over higher-cost, higher-return (HC-HR) colleges. (Note that the idea of choosing between an LC-LR college and an HC-HR college may conjure thoughts of choosing between a state university and an expensive, elite, nonprofit private college. However, “LC-LR” and “HC-HR” are relative terms; a state university may be the LC-LR option in one choice pair and the HC-HR option in another choice pair. Roughly two-thirds of potential college choices involve a choice between an LC-LR college and an HC-HR college.)

One of the most striking findings is that that graduates from lower-cost, lower-return colleges are more likely to default on their student loans, implying that the minimization of student debt may not necessarily ensure future financial security.

One of the most striking findings is that that graduates from lower-cost, lower-return colleges are more likely to default on their student loans, implying that the minimization of student debt may not necessarily ensure future financial security. Evidently, about 18% of students who attended the least expensive category of universities (whose graduates earn less) defaulted on their student debts three years after graduating (Yoon et al. 2022).

To understand more about this trade-off in students’ college choices, we got in touch with the authors:

Q: The article mentions “decision aids such as the College Scorecard” are used to help students make college decisions. At what stage in the education process (e.g., elementary, high school) do you think such decision aids will be most effective in guiding students? Do you think making students aware of financial options, even when they are not actively thinking about college, will motivate them to pursue higher education?

A: The problem is not “when” but “how” to present such decision aids. When people search for a college on Google, the right side of the search page shows financial information about the college (i.e., average attending cost). Our findings suggest that the typical way in which this financial information is presented can lead students to make choices against their long-term interests. It can create “tuition myopia.” We find in our studies that people tend to feel the costs of tuition before the benefits of a higher salary, even when both are experienced after graduation. This earlier “realization” of the cost, rather than benefits, of college can, in many cases, lead them to choose cheaper colleges that net them less money over their lifetime than more expensive colleges that would provide larger lifetime returns.

Q: Your research addresses a very “real-time issue” regarding student loans. Often, researchers work on a real-time issue, but by the time the research is published, the issue might not be as relevant anymore. How can researchers ensure that they study timely and relevant topics?

A: I think it helps to study phenomena that are socially important, where existing theories make competing predictions. Student loan debt has been increasing for several decades and now exceeds all but mortgage debt…yet how students choose between colleges is a topic that hasn’t received much attention in the marketing literature. We noticed that government and nonprofit organizations gather and make college financial metrics publicly available to help people make better choices. Naturally, we were interested in how these decision aids would affect college choices. As we dug deeper, we discovered that this information can impair student choice, and there were a variety of plausible explanations. People might simply be averse to carrying a high degree of debt, for instance, or might be seeking to treat colleges like other assets and maximize their return on investment. These alternatives to our tuition myopia model made it a socially important and theoretically exciting topic that should matter to consumers for many years to come.

Q: According to the tuition myopia model, students cognitively understand the annual costs of attending a college at the start of each academic year, and those prices stay the same until graduation. Do you anticipate any boundary circumstances around this assumption that might have an impact on the precision and accuracy of the result?

A: The tuition myopia model (formula 2 in the main paper) looks a bit complicated with detailed specifications (e.g., realizing costs at the beginning of each school year), but it simply tries to capture the sense of early cost realization. Even with generous loans, students do not have to begin repaying until graduation. Prospective students psychologically realize or feel the financial loss incurred by the cost of college during enrollment, which is earlier than when they psychologically realize the gains they will derive from its financial returns (Study 1). In terms of model robustness, we tried really hard to crack it by testing a wide range of model parameters. We tested whether the model prediction holds under different loan interest rates (0%–11.85% APR), loan repayment periods (10–30 years), annual income growth rates (0%–3.9%), type of tuition (that is, in-state and out-of-state tuition), and even the calculation styles (applying different discount rates for gain and loss outcomes). We did find one exception. In Study 4, we found that when financial information aligned the costs incurred and financial returns (e.g., costs and returns per year after graduation), participants no longer exhibited tuition myopia. This reversal is promising, as it suggests that organizations can help students make better choices, if they change the way that financial information is conveyed.

Q: Could “early psychological realization” affect behavior in other contexts? For example, an individual on a diet program might psychologically realize weight loss even before the diet program (e.g., a program to reach a target weight) is completed, thereby increasing their caloric intake and rendering the diet program ineffective.

A: Yes, anticipatory emotions can affect behaviors in nonfinancial contexts. However, I would predict that people realize future costs earlier than future benefits. In our article, students realized losses (i.e., tuition payments after graduation) earlier than gains (i.e., salary after graduation), even though both occurred in the same distant future. In your diet example, this asymmetry might even be more exacerbated. People might be hesitant to start a diet because they both actually and psychologically realize the losses (i.e., what they’d give up) earlier than the gains (i.e., improved health and appearance).

Q: The article mentions that “a majority of students believe that expensive colleges can lead to better education, but as many as 76% eliminate college options based on their cost.” Do the students have a prospective rationalization of how they can overcome the disadvantage of a lower quality of education?”

A: Prospective students may choose lower-cost and lower-return colleges for various reasons other than tuition myopia. Students with high debt aversion might strategically choose lower-cost and lower-return colleges to avoid the higher-than-average psychological pain they would incur from a high debt burden after graduation. Unlike tuition myopia, these students are not necessarily short-sighted. Rather, they are far-sighted but particularly focused on their future debt balance. Still, their choice could create financial distress down the road. One of our analyses, based on the College Scorecard database (Department of Education), allowed us to categorize colleges from lower-cost and lower-return colleges to higher-cost and higher-return colleges. The database reported the three-year default rate (that is, how many students default on their debt three years after graduation). We discovered that 18% of students who attended the cheapest group of colleges (whose graduates earn less) defaulted on their student loans three years after graduation. By contrast, only 2.5% of students who attended the most expensive group of colleges (whose graduates earn more) defaulted during the same period (Web Appendix L). From an individual perspective, a smaller investment in a college education could lower future debt but also increase the risk of financial bankruptcy. Underestimating the value of positive outcomes of a college education can be detrimental.

Read the full article:

Haewon Yoon, Yang Yang, and Carey K. Morewedge (2022), “Early Cost Realization and College Choice,” Journal of Marketing Research, 59 (1), 136–52. doi:10.1177/00222437211026337.


Hanson, M. and Checked, F. (2023), “Student Loan Debt Statistics [2023]: Average + Total Debt,” Education Data Initiative. Available at: (Accessed: January 20, 2023).

“How Student Enrollment Changed in 2022,” Higher Education Today. Available at: (Accessed: January 20, 2023).

Bareham, H., “2022 College Graduation Statistics,” Bankrate. Available at: (Accessed: January 20, 2023).

Avery, C. and Turner, S. (2012) “Student Loans: Do College Students Borrow Too Much—or Not Enough?,” Journal of Economic Perspectives, 26 (1), 165–92. Available at:

Ishita Nagpal is a doctoral student in marketing, Georgia State University, USA.

Archana Mannem is a doctoral student in marketing, Wayne State University, USA.