The Effects of Student Loans on Long-Term Household Financial Stability

By examining how student borrowers fare financially after graduation, we attempt to further the existing knowledge of the costs associated with education debt and the manageability of the typical debt burden. We compare the financial stability of individuals who have borrowed for education to similar individuals who have not. We show that, keeping education constant, more student debt is associated with higher probability of being credit constrained and greater likelihood of declaring bankruptcy, particularly for individuals who accumulate debt but do not complete a Bachelor’s degree. We find evidence that homeownership rates may also be affected by education loans. Controlling for earnings tends to strengthen these relationships, which is consistent with omitted variable bias combined with positive return to student loans.