Career and Social Choices
Survey data from American Student Assistance (2013) finds that 30 percent of respondents say that student debt
played a role in their career choice. In line with the survey data, Rothstein and Rouse (2011) find evidence that
student loan debt drives graduates away from low-paying and public-sector jobs (also see, Minicozzi, 2005).
Similarly, Field (2009) finds that the rate of placements in public-interest law are roughly a third higher when law
students are given tuition waivers instead of loan repayment assistance.
Taken together, what these findings suggest
is that borrowers may see their career opportunities differently than non-borrowers, in ways that distort their postcollege planning. Given the widespread reliance on student loans across this cohort of college students, these
selection pressures may have significant repercussions in the broader economy.
Beyond career decisions, student loans also appear to provide people with an embedded thought process that
conveys the message that they should wait to start their social lives. For example, Gicheva (2011) finds that students
with outstanding student debt have a lower probability of marriage than students without outstanding debt, among
people younger than 37 (also see, Baum and O’Malley, 2003). If they marry, graduates with student debt express
less satisfaction with their marriage than students with no debt (Dew, 2008). Moreover, when asked, survey data
indicate that 43 percent of student loan borrowers say they have delayed having children (American Student
Assistance, 2013; also see, Baum and O’Malley, 2003).
Financial Stress
Not surprisingly then, Fry (2014) discovers that 18- to 39-year-olds with two- or four-year degrees who have
outstanding student debt are less satisfied overall with their financial situations than similarly-situated young adults
without outstanding student debt (70 percent versus 84 percent, respectively). Further, he finds that 18- to 39-yearolds with two- or four-year degrees who have outstanding student debt are less likely to perceive an immediate
payoff from having gone to college than similarly-situated young adults without outstanding student debt (63
percent versus 81 percent, respectively). Compounding the problem of financial stress associated with repaying
student loans may be the evidence of abusive debt collection practices and the lack of enforcement collection
agencies face for these excesses (Burd, 2014).
Student borrowers face large penalties if they are late or fail to pay
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back their debt on time, and they may be frustrated in their efforts to better manage their debts by onerous
restrictions, many of which are peculiar to this type of consumer borrowing (CFPB, 2013). While media attention
and cohort effects may increase the perception of distress among student borrowers, it must be emphasized that the
strains felt by many student borrowers today are, indeed, grounded in the economic realities they face.
Delinquency and Default
Considerable popular attention, and significant financial resources, have been dedicated to the problem of student
loan delinquency and default. Student loans become delinquent when payment is 60 to 120 days late. In 2011 the
U.S. Department of Education spent $1.4 billion to pay collection agencies to track down students whose loans are
delinquent or in default (Martin, 2012). While all types of consumer debt have some experiences of repayment
difficulty, there is evidence that something about the student loan product, or the context in which it is situated
,
makes it particularly difficult to service successfully. According to Brown, Haughwout, Lee, Scally, and van der
Klaauw (2014), the measured student debt delinquency rate is currently the highest of any consumer debt product.
Cunningham and Kienzl (2011) find that 26 percent of borrowers who began repayment in 2005 were delinquent on
their loans at some point but did not default. By 2012, Brown, Haughwout, Lee,
Scally, and van der Klaauw (2014)
report that just over 30 percent of borrowers who began repayment were delinquent at some point. And some of the
practices utilized by borrowers and lenders to cope with repayment difficulties may have the perverse effects of
deepening loans’ negative implications for student borrowers. About 21 percent of borrowers avoid delinquency by
using deferment (temporary suspension of loan payments) or forbearance (temporary postponement or reduction of
payments for a period of time because of financial difficulty) to temporarily alleviate the problem (Cunningham and
Kienzl, 2011).
While this may allow borrowers to stay out of official ‘trouble’ with their loans, by stretching out the
period of total indebtedness, these practices may further retard capital development. In total, Cunningham and
Kienzl (2011) find that nearly 41 percent of borrowers have been delinquent or defaulted on their loans. Again, these
trends have effects far beyond the cohort of young adults most plagued by student loan difficulties. Accompanying
the increase in student loan indebtedness, delinquency is also a growing problem among older adults. Among
student loans held by Americans aged 60 or older, 9.5 percent were at least 90 days delinquent, up about 7.4 percent
from 2007 (Greene, 2012).
Defaults are also on the rise. According to the U.S. Department of Education (2012), the national 2-year student loan
default rate was 9.1 percent in 2010 and the 3-year default rate was 13.4 percent. Not surprisingly, defaults occur
unevenly. Students from lower-income households are more likely to default (Woo, 2002), along with students of
color (Herr & Burt, 2005). With fewer familial resources to cushion the payment strain prompted by student loan
obligations and greater likelihood of inadequate income upon leaving college (Woo 2002; Lochner & MongeNaranjo, 2004),
these borrowers may have to confront the failed economics of student loans very shortly after
exiting higher education.
Given rising rates of delinquency and default some researchers have suggested making loan eligibility determinations on an individual basis, taking into consideration all of the circumstances faced as well as the outlook for future
ability to repay (see Akers, 2014). This concept,
predicated as it is on the availability of nearly unattainable
information, seems born of a desperate attempt to justify the continued existence of the student loan program, while
mitigating its most visibly negative effects. That is, there are too many ways in which the student loan program fails
(individuals and society), so we try to patch solutions together when the reality is that only reducing the prominence
of student borrowing as a part of the financial aid system will address the roots of the problems. In sharp contrast,
these patchwork solutions are likely to exacerbate inequality, perpetuating the survival of a program that will
continue to fail whole cohorts of aspiring college students, while diverting massive resources that could be deployed
toward more promising approaches.
Overall Debt
Since recent college graduates’ annual earnings are usually much lower than they will be during later, prime earning
years, most young adults with student loan debt are forced to rely on credit as a key mechanism for purchasing
wealth-building items like a home (Keister, 2000; Oliver & Shapiro, 2006). However, delinquent and defaulted
accounts may be reflected in students’ credit scores. For many students, this reveals another way in which student
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loans may haunt them as they embark on financial independence. Research by Brown and Caldwell (2013) indicates
that students with student loans have credit scores that are 24 points lower than students without student loans.
Contrary to idea that student loan borrowers face credit constraints,
however, research using data from 2010 or
earlier finds that there was a positive correlation between having outstanding student debt and other debt (such as
mortgage, vehicle, or credit card), when comparing graduates with and without debt. For instance, Fry (2014) uses
2010 Survey of Consumer Finance data and finds that 43 percent of households headed by a college graduate with
student debt have vehicle debt and 60 percent have credit card debt. However, using 2012 data, Brown et al. (2013)
find that households with student debt have lower overall debt than households without student debt. They speculate
that borrowers post-Great Recession have become less sure about the labor market, causing a drop in the demand for
credit. Additionally, lenders may have become more reserved about supplying loans to high-balance student
borrowers in the tighter credit markets that followed the financial collapse.
