Student Loans Rising An Overview of Causes, Consequences, and Policy Options - Economic studies at Brookings, mai 2014

Par William Gale, Director, Retirement Security Project, The Brookings Institution, Benjamin Harris, Deputy Director, Retirement Security, The Brookings Institution, Bryant Renaud, Research Assistant, Economic Studies, The Brookings Institution, Katherine Rodihan, Claremont McKenna College.

Lire ici.

Extrait :

Economic Effects of Rising Student Loan Burdens

Rising student debt burdens can affect a variety of economic outcomes. For those enrolled in school, student loan debt may affect completion rates, choice of major, and student performance. Once students graduate, student debt can impact career choice and willingness to seek a graduate education. Lastly, student loan burdens can also affect financial decisions later in life, influencing decisions about home purchase and marriage.

An immediate impact of student loan debt can be seen in the performance of students while still enrolled in higher education. Rothstein and Rouse (2011) show that student debt has a significant impact on choice of major, pushing some students toward jobs with higher expected wages—such as those in engineering and economics. Students also widely report that the presence of student debt affects their studies.
For example, Baum and O’Malley (2003) show that 40 percent of students with student loan debt reported that they did not return to school or transferred to a lower cost school due to student loan debt.

Student debt can also affect students’ mental health ; Cooke et al. (2004) find that students in the UK with higher student debt experienced significantly higher rates of stress and anxiety. Student loan debt can influence career choice and post-graduation employment decisions. Akers (2013), using exogenous variation in student loan debt levels driven by student aid formulas, finds that higher student loan debt causes a higher rate of employment among recently graduated women and appears to reduce the likelihood of attending graduate school. Her study finds no evidence, though, that student loan debt leads graduates to reject low-paying jobs.

In contrast, Rothstein and Rouse (2011) find evidence that student loan debt drives graduates away from low-paying and public-sector jobs. Specifically, they find that each $10,000 in student loan debt reduces the likelihood that a graduate will find employment in the government, non-profit, or education sectors by about 6 percentage points, with especially strong impacts on graduates taking jobs in education. In another study, Field (2009) finds that the rate of placements in public-interest law are roughly one-third higher when law students are offered tuition waivers instead of loan repayment assistance. Minicozzi (2005) finds that student debt is associated with students pursuing jobs that pay higher wages initially, perhaps at the expense of wages in the future. Millet (2003) finds that student loan borrowers are roughly 60 to 70 percent less likely to apply to graduate school—after controlling for other factors—than non-borrowers. Student debt can also influence homeownership decisions.

The pace of the current housing recovery, for example, may be influenced by high student loan debt among the pool of potential first-time home-buyers, who typically account for a large share of overall home purchases (ElBoghdady 2014).

High student loan burdens may disqualify students from taking on mortgage debt, and debt aversion may dissuade student loan holders from purchasing a home even if qualified to do so. Brown and Caldwell (2013) show a stark divergence between 2003 and 2013 in the credit scores—a key indicator of ability to undertake a mortgage—of student loan borrowers and non-borrowers (Figure 1). In 2003, there was essentially no difference between the two groups but by 2012, a 30 year-old with student loan debt has an average credit score that is 24 points lower than one without debt. They also show that over the past several years, as credit scores of student debt holders have declined and as student debt per borrower has increased, the home ownership rate of 30-year-olds with student debt has fallen by more than 5 percentage points relative to the home ownership rate for 30-year-olds without student debt.

This is a substantial change, given that the overall home ownership rate for 30-year-olds in their sample is below 24 percent. Andrew (2010) finds that increased student debt in the UK was responsible for part of a decline in homeownership among younger individuals.10Student debt may also discourage retirement saving, by delaying the initiation of contributions to retirement plans, by reducing the level of contributions, or by increasing the demand for early withdrawals.

Although we are aware of no study that explicitly determines a causal relationship in this regard, several studies are suggestive. For example, Cavanagh and Sharpe (2002) find that installment and credit card debt are negatively correlated with the likelihood of retirement saving and, conditional on saving, the amount of retirement saving.

Student debt can even affect quality and timing of marriage. Gicheva (2011), using instrumental variable techniques, finds a negative relationship between student debt holding and the probability of marriage for people younger than 37. Dew (2008) finds a negative correlation between reduced marital satisfaction and student loan debt, positing that increased stress related to consumer debt—including student loans—could diminish marital satisfaction.

About 14 percent of borrowers surveyed in 2002 reported delaying marriage due to student loan debt, up from 9 percent 15 years earlier. Over the same period, the share of borrowers who reported that they delayed having children due to student loans jumped from 12 percent to 21 percent (Baum and O’Malley 2003).

In summary, there is some evidence showing that student loan debt can impact students during and after college. We emphasize that this evidence reflects just one side of the educational decision, and should be measured against the well-established gains to attending college.