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Student Loan Debt: Can Parental College Savings Help?

Author

Listed:
  • William Elliott
  • Michal Grinstein-Weiss
  • Melinda Lewis
  • IlSung Nam

Abstract

Postsecondary education costs in the United States today are rising with an increasing shift from societal responsibility to individual burden, thereby driving greater student borrowing. Evidence suggests that (i) such student debt may have undesirable educational effects and potentially jeopardize household balance sheets and (ii) student loans may better support educational attainment and economic mobility if accompanied by other, non-repayable financial awards. However, given declines in need-based aid and falling state support for postsecondary costs, policymakers and parents alike have failed to produce a compelling complement to debt-dependent financial aid that is capable of improving outcomes and forestalling assumption of ever-increasing student debt for a majority of U.S. households. This article, which relies on longitudinal data from the Educational Longitudinal Study, finds parental college savings may be an important protective factor in reducing debt assumption. However, several other factors increase the likelihood students will borrow: perceiving financial aid as necessary for college attendance, expecting to borrow to finance higher education, having moderate income, and attending a for-profit college. After controlling for student and school variables, the authors find that parental college savings increase a student?s chance of accumulating lower debt (less than $2,000) compared with students lacking such savings. Policy innovations to increase parental college savings? such as children?s savings accounts?could be an important piece of the response to the student debt problem in the United States.

Suggested Citation

  • William Elliott & Michal Grinstein-Weiss & Melinda Lewis & IlSung Nam, 2014. "Student Loan Debt: Can Parental College Savings Help?," Review, Federal Reserve Bank of St. Louis, vol. 96(4), pages 331-357.
    • Handle: RePEc:fip:fedlrv:00031
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I2 - Health, Education, and Welfare - - Education
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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