Student Loans, Access to Credit and Consumer Credit Demand

61 Pages Posted: 24 Aug 2022

See all articles by Alvaro Mezza

Alvaro Mezza

Board of Governors of the Federal Reserve System

Daniel Ringo

Board of Governors of the Federal Reserve System

Kamila Sommer

Board of Governors of the Federal Reserve System

Abstract

This paper provides novel evidence that increased student loan debts, caused by rising tuitions, increase borrowers’ demand for additional consumer debt, while simultaneously restricting their ability to access it. The net effect of student loan debt on consumer borrowing varies by market, depending on whether the supply or demand channel dominates. In loosely underwritten credit markets, increased student loan debt causes borrowing to increase, while in tightly underwritten markets, increased student loan debt reduces the use of credit. These findings match predictions of a standard lifecycle model of household consumption and borrowing, augmented with a realistic student loan repayment contract.

Keywords: Student loan debt, college tuition, consumer credit, demand for credit, supply of credit, credit constraints.

Suggested Citation

Mezza, Alvaro and Ringo, Daniel and Sommer, Kamila, Student Loans, Access to Credit and Consumer Credit Demand. Available at SSRN: https://ssrn.com/abstract=4199097 or http://dx.doi.org/10.2139/ssrn.4199097

Alvaro Mezza

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Daniel Ringo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Kamila Sommer (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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