Does Education Loan Debt Influence Household Financial Distress? An Assessment Using the 2007-09 SCF Panel

Abstract

This paper uses the recent 2007-09 SCF panel to examine the influence of student loans on financial distress. Families with student loans in 2007 have higher levels of financial distress than families without such loans, and these families were more susceptible to transitions to financial distress during the early stages of the Great Recession. This correlation persists once we control for a host of other demographic, work-status, and household balance sheet measures. Families with an average level of student loans were 3.1 percentage points more likely to be 60 days late paying bills and 3 percentage points more likely to be denied credit. During this same time period, families with other types of consumer debt were no more or less likely to be financially distressed.

Education loans enable students to go to college and improve their employment and earnings prospects. On average, families with education loans in the 2007-09 SCF saw higher income growth between surveys. Further, the value of completing a degree is evident in the data: families without a degree but with education debt drive much of the correlations between financial distress and education loans.

Keywords: Student loans, financial distress

JEL Classification: I22, D12, E21, I30