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Student Debt's Impact on Human Capital, Long-Run Finances

August 11, 2020
 
 

Increased student loan availability raises student debt levels, but also improves degree completion, earnings later in life and student loan repayment, a new working paper found, while having no effect on homeownership or other types of debt.

Rapidly increasing student debt levels is a hot topic of concern for policymakers. And some previous research has found long-term financial impacts from increased student loan burdens, including a correlation with a decreased likelihood of owning a home.

However, the new working paper, which seeks to "provide a comprehensive picture of the short‐ and longer‐run effects of increased student borrowing" and was published by the National Bureau of Economic Research, did not find any negative effects on borrowers' homeownership or repayment of other types of debt. And among borrowers whose student debt was constrained by federal loan limits, the study found improvements in degree completion, post-college earnings and student loan repayment.

"Despite concerns that students are 'overborrowing,' our findings are most consistent with students underborrowing for college, on average. Our results also directly inform federal policymakers when considering changes to current loan limits and suggest that raising borrowing limits for dependent students would likely increase human capital accumulation and improve credit outcomes," concluded the working paper's five coauthors.

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