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How useful are default rates? Borrowers with large balances and student loan repayment

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  • Looney, Adam
  • Yannelis, Constantine

Abstract

We examine the distribution of student loan balances and repayment rates in the United States using administrative student loan data. We show that increases in credit limits and expansions in credit availability resulted in rising borrowing amounts, and that the share of borrowers holding very large balances has surged. For instance, the share of borrowers leaving school with more than $50,000 of federal student debt increased from 2% in 1992 to 17% in 2014. Consequently, a small share of borrowers now owes the majority of loan dollars in the United States. Although these large-balance borrowers have historically had strong labor market outcomes and low rates of default, repayment rates have slowed significantly between 1990 and 2014 reflecting, in part, changes in the characteristics of students, the schools they attended, and the rising amounts borrowed.

Suggested Citation

  • Looney, Adam & Yannelis, Constantine, 2019. "How useful are default rates? Borrowers with large balances and student loan repayment," Economics of Education Review, Elsevier, vol. 71(C), pages 135-145.
    • Handle: RePEc:eee:ecoedu:v:71:y:2019:i:c:p:135-145
    DOI: 10.1016/j.econedurev.2018.10.004
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    References listed on IDEAS

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    1. Lance Lochner & Alexander Monge-Naranjo, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis.
    2. Charlie Eaton & Sabrina T Howell & Constantine Yannelis & Francesca Cornelli, 2020. "When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education," The Review of Financial Studies, Society for Financial Studies, vol. 33(9), pages 4024-4060.
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    6. Adam Looney & Constantine Yannelis, 2015. "A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 1-89.
    7. Goodman, Sarena & Isen, Adam & Yannelis, Constantine, 2021. "A day late and a dollar short: Liquidity and household formation among student borrowers," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1301-1323.
    8. Bleemer, Zachary & Brown, Meta & Lee, Donghoon & Strair, Katherine & van der Klaauw, Wilbert, 2021. "Echoes of rising tuition in students’ borrowing, educational attainment, and homeownership in post-recession America," Journal of Urban Economics, Elsevier, vol. 122(C).
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    Cited by:

    1. Barr, Nicholas & Chapman, Bruce & Dearden, Lorraine & Dynarski, Susan, 2019. "The US college loans system: Lessons from Australia and England," Economics of Education Review, Elsevier, vol. 71(C), pages 32-48.
    2. Paolo Guasoni & Yu-Jui Huang, 2022. "Minimizing the Repayment Cost of Federal Student Loans," Papers 2207.03438, arXiv.org.
    3. Jason Jabbari & Mathieu Despard & Olga Kondratjeva & Brinda Gupta & Michal Grinstein-Weiss, 2023. "Nothing to show for it: Financial Distress and Re-Enrollment Aspirations for those with non-degreed debt," Research in Higher Education, Springer;Association for Institutional Research, vol. 64(1), pages 1-32, February.
    4. Lisa J. Dettling & Sarena Goodman & Sarah Reber, 2022. "Saving and Wealth Accumulation among Student Loan Borrowers: Implications for Retirement Preparedness," Finance and Economics Discussion Series 2022-019, Board of Governors of the Federal Reserve System (U.S.).
    5. Dearden, Lorraine, 2019. "Evaluating and designing student loan systems: An overview of empirical approaches," Economics of Education Review, Elsevier, vol. 71(C), pages 49-64.

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    More about this item

    Keywords

    Student loans; Human capital; Education; Default;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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