NCPA - National Center for Policy Analysis

Student Loan Debt Affects Borrowers Differently

July 11, 2014

A larger student debt load does not mean that a borrower is in worse shape than a person with less debt, writes Andrew Kelly, founding director of the Center on Higher Education Reform at the American Enterprise Institute. 

While many see a higher student debt load as evidence of a worse financial position, Kelly writes that a borrower with only $10,000 in student debt could actually be much worse off than one with $60,000 in debt. In fact, a paper from Beth Akers for the American Enterprise Institute found little correlation between financial hardship and the amount of student debt owed:

  • Akers found that financial hardship was highest among those who had relatively low levels of debt (debt below $5,000) and no college degree.
  • Those with the highest levels of debt often had the least amount of financial hardship, because of their education levels.

Similarly, recent data from the Consumer Financial Protection Bureau indicates that student borrowers in default tend to be those with the lowest average debt balances.

One of the biggest problems in this area, Kelly writes, is that student loan programs encourage college attendance, no matter the cost, leading the government to subsidize failure. He points to the fact that 37 percent of undergraduate loans in the Stafford and Parent PLUS programs in the 2012-2013 school year went to schools that had six-year graduation rates of 40 percent and below.

Instead, Kelly says, the United States needs to institute policies that encourage students to enroll in more effective, and affordable, programs.

Source: Andrew Kelly, "Who's Struggling to Pay Back Their Student Loans? (Hint: It May Not Be Who You Think)," Forbes, June 30, 2014.


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