How much is too much? Evidence on financial well-being and student loan debt

Shutterstock.com

Article Highlights

  • The highest rates of late bill payments on student loans are observed among households with outstanding debts less than $5,000.

    Tweet This

  • As of 2010, almost 40 percent of adults under the age of 40 had some outstanding student loan debt.

    Tweet This

  • Households with higher educational attainment are less likely to face financial hardship, regardless of their debts.

    Tweet This

Subscribe to AEI's education emails
Articles and events on education policy. Published approximately weekly.

First Name:
Last Name:
Email:
Zip Code:

Executive Summary

The media have paid a tremendous amount of attention to the plight of graduates who struggle to make payments on their student loans. The message is that young people are taking on too much debt. But how much debt is too much?

To answer that question, we need to understand how previous generations of student borrowers are faring financially. This paper examines the incidence of financial hardship among households in the United States that have taken on debt to pay for college. The findings indicate that there is not a strong positive relationship between student debt and financial hardship; high-debt borrowers face financial hardship at only slightly higher rates than comparable households with less debt. Additionally, the highest rates of financial hardship are seen among households with relatively little outstanding student loan debt.

This pattern suggests that discouraging borrowing through restrictive limits on federal borrowing or other means may not be the most effective way to prevent overborrowing and the financial hardship that it can lead to. Rationing federal credit through a more complex system involving individual loan underwriting that assesses the likelihood that a given borrower will be able to repay the debt, rather than through the flat borrowing caps that are in place today, could be a more effective way to protect consumers.

Beth Akers is a fellow in the Brown Center on Education Policy at the Brookings Institution.

Click here to read the full report.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.