How Student Debt Skews Career Choices

Graduates anxious to quickly pay off debt turn their backs on non-profit and public sector jobs
Alan Morantz

Many university and college students embark on their careers already behind the eight ball. In a typical year, about half of Canadian school graduates carry financial debt when they enter the workforce—on average more than $26,000. Total student debt in Canada is at least $18 billion, and that just includes debt administered by the federal government’s Canada Student Loans program and not the private bank loans held by more than a quarter of students. The U.S. offers a supersized version of the same story; more than 44 million Americans have outstanding student loan debt totalling $1.5 trillion.

Student federations and others argue that loan obligations pressure some graduates to accept higher-paying jobs for which they’re not suited at the expense of lower-paying jobs in their desired field. Some surveys and studies, mostly in the U.S., suggest the issue is real.

A recent study presents a Canadian perspective. It focuses on whether educational debt influences a student’s choice to pursue a career in the private, public or non-profit sectors. It also examines whether students who are predisposed to serve the public and help others, but in lower-paying sectors (such as government and non-profits), are willing to overlook their concerns about personal finances as their education debt rises.

How was the study designed?

The study is based on survey responses from a sample of 8,383 undergraduate students in their final year of study at 126 Canadian colleges and universities. The students also completed a survey that measured their public service motivation (PSM). Those who score high in PSM are said to value job fulfilment—including contributions to society—over financial rewards.

Respondents were predominantly female (63 per cent) and white (77 per cent), with an average age of 22. A majority majored in business (28 per cent) and liberal arts (26 per cent). The average student carried approximately $15,000 in education debt. 

What did the study find?

  • Students interested in public sector careers had the largest education debt ($18,300 on average), followed by students interested in non-profits ($15,600) and the private sector ($14,300).
  • Students predisposed to serving others (those scoring higher in PSM) preferred public sector and non-profit employment over the private sector. Students opting for non-profit careers also scored higher on social responsibility, making a personal impact and valuing diversity than students preferring to work in the public sector.
  • Students with rising education debt were marginally more likely to select a private over public sector job. 
  • Education debt may discourage students from non-profit careers even if they have high levels of PSM.

What do I need to know?

The perennial issue of post-secondary student debt has added urgency due to the COVID pandemic. Fifty-four per cent of respondents to a Statistics Canada survey said they would have to acquire additional student debt to make up for lost jobs.

For good reason, student debt has been raised as a platform issue in the current federal election campaign, with the NDP vowing to do away with interest on federal student loans as well as forgive student debt.

This study offers a glimpse at the tough decisions that some early-career Canadians must make. It appears that for many student debtors—even those with high levels of “public service motivation”—quickly paying off their financial obligations is a more immediate consideration than their desire for public service. An important caveat is that the study looked at initial career intentions; plenty of people make mid-career resets once they find their footing in the job market.

This could mean fewer medical students opting for a family practice or fewer young lawyers choosing public interest law. The researchers make clear where they stand: “Rising education debt should not be a reason for shunning public and non-profit careers,” they write. 

It’s ironic that Canadian graduates assume a private sector job is a faster route to debt repayment. At least in Canada, the public sector on average pays more than the private sector, at least up to the middle-management level. Thank public service unions for that. But the message apparently isn’t getting through. In this sample, students sorting into private, public and non-profit careers expected to make $53,700, $46,900 and $38,700, respectively.

This study adds Canadian evidence to a phenomenon noted in the U.S. Several studies, for example, have revealed the influence of debt burden on graduates’ job choices. One study examined the decision of a highly selective U.S. university to phase in a “no-loans” policy, under which the loan component of financial aid awards was replaced with no-strings-attached grants. Taking a before-and-after look, researchers compared the career choices of otherwise-identical students who graduated from the university with different levels of debt. They found that education debt did, indeed, lead graduates to choose higher-salary jobs. When students received grants rather than loans, they shifted to lower-salary jobs in public service industries.

The message from this new study for public sector recruiters is that they may want to strengthen their messaging around public sector compensation, as well as their reputation for impact, social responsibility and equality—all values that resonate with many early-career Canadians.

One question this study did not address is the impact of student debt on entrepreneurial intentions of new graduates. If there’s a researcher out there with extra time on her hands, this would be a worthwhile extension of the research.


Study Title: Game of Loans: The Relationship Between Education Debt, Social Responsibility Concerns, and Making a Career Choice in the Public, Private, and Nonprofit Sectors

Authors: Eddy S. Ng (Bucknell University and Smith School of Business) and Jasmine McGinnis Johnson (George Washington University)

Published: Nonprofit and Voluntary Sector Quarterly

Smith School of Business

Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

Follow us on:

Queen's logo