Research Paper
In the last decade there has been a significant spike in student loan debt. Within the recent years there has been an increasing number of Americans whom are overwhelming burdened by student loan debt than ever before. Statistics show that Americans owe nearly $1.3 trillion dollars in student loan debt alone. The process of borrowing loans to assist with the cost of postsecondary education in the US has recently become a normal occurrence throughout this past decade. Student loan debt has surpassed credit card and mortgage debt becoming the largest amount of household debt. In this decade the enrollment rates for postsecondary has steadily increased, having more young adults between the ages of 18-24 enrolling in a 2-year or 4-year institution. With the rise in the rate of enrollment there has also been a rise in the cost of attending a college or university. While the cost has skyrocketed the traditional sources of financial aid have not kept up with the pace (College Board 2006). Without financial assistance, attending postsecondary institutions would be impossible for most students. To aid the gap between rising cost and flagging aid more students have turned to student loans to compensate being able to afford their college education. This deems the question are students making the best decisions in regards to the amount of education they should pursue and how much money should be invested to earn this learning? The average debtor has $37,172 in student loan debt and most of this are borrowed from young adults between the ages of 20-30. The rise in debt is the combined effect of more young adults entering college, longer college completion times, state defunding of higher education, flagging federal aid and increasing tuition costs (Bound et al. 2007; Fitzpatrick and Turner 2007). Student loan debt is unlike any other household liabilities because it cannot be discharged in bankruptcy. It is long-tern financial burden that is a hindrance on individuals and their household until the debt is fully paid. So, how does student loan debt impact individual economic outcomes? Students maybe borrowing more than what is actually needed to pay for their education, creating high student loan debt that is causing a decline in homeownership, the formation of small businesses, and wealth accumulation. Student loan debt lowers the likelihood of homeownership for students upon graduating from school. The decline in homeownership have been the largest (both in relative and absolute terms) among young households—a population segment that owes the preponderance of the outstanding student loan debt (Bound et al. 2015). This decline of homeownership is contributed by households of young adults suggesting that for those borrowers that are in debt due to their student loans are less likely to purchase a home because of fear of adding on more debt or not qualifying for a mortgage. To say that the effect of student loan debt is somehow correlated to homeownership is complicated because there are other factors involved that have to be accounted for. Researchers have previously attempted to isolate the effect by controlling for a set of observable student characteristics (Cooper and Wang (2014) and Houle and Berger (2015)). For example, students preparing for a career with a high expected income might borrow more
In the last decade there has been a significant spike in student loan debt. Within the recent years there has been an increasing number of Americans whom are overwhelming burdened by student loan debt than ever before. Statistics show that Americans owe nearly $1.3 trillion dollars in student loan debt alone. The process of borrowing loans to assist with the cost of postsecondary education in the US has recently become a normal occurrence throughout this past decade. Student loan debt has surpassed credit card and mortgage debt becoming the largest amount of household debt. In this decade the enrollment rates for postsecondary has steadily increased, having more young adults between the ages of 18-24 enrolling in a 2-year or 4-year institution. With the rise in the rate of enrollment there has also been a rise in the cost of attending a college or university. While the cost has skyrocketed the traditional sources of financial aid have not kept up with the pace (College Board 2006). Without financial assistance, attending postsecondary institutions would be impossible for most students. To aid the gap between rising cost and flagging aid more students have turned to student loans to compensate being able to afford their college education. This deems the question are students making the best decisions in regards to the amount of education they should pursue and how much money should be invested to earn this learning? The average debtor has $37,172 in student loan debt and most of this are borrowed from young adults between the ages of 20-30. The rise in debt is the combined effect of more young adults entering college, longer college completion times, state defunding of higher education, flagging federal aid and increasing tuition costs (Bound et al. 2007; Fitzpatrick and Turner 2007). Student loan debt is unlike any other household liabilities because it cannot be discharged in bankruptcy. It is long-tern financial burden that is a hindrance on individuals and their household until the debt is fully paid. So, how does student loan debt impact individual economic outcomes? Students maybe borrowing more than what is actually needed to pay for their education, creating high student loan debt that is causing a decline in homeownership, the formation of small businesses, and wealth accumulation. Student loan debt lowers the likelihood of homeownership for students upon graduating from school. The decline in homeownership have been the largest (both in relative and absolute terms) among young households—a population segment that owes the preponderance of the outstanding student loan debt (Bound et al. 2015). This decline of homeownership is contributed by households of young adults suggesting that for those borrowers that are in debt due to their student loans are less likely to purchase a home because of fear of adding on more debt or not qualifying for a mortgage. To say that the effect of student loan debt is somehow correlated to homeownership is complicated because there are other factors involved that have to be accounted for. Researchers have previously attempted to isolate the effect by controlling for a set of observable student characteristics (Cooper and Wang (2014) and Houle and Berger (2015)). For example, students preparing for a career with a high expected income might borrow more