Association for Public Policy Analysis & Management

As loans become an increasingly important method of financing postsecondary education, there is concern that certain populations of students are making poor enrollment decisions because of their aversion to borrowing to pay for college expenses. These loan-averse students may decide to delay enrollment, enroll in two-year instead of four-year colleges, or forgo college entirely instead of borrowing money.

Despite qualitative evidence that a subset of students are averse to financing college with loans (Cunningham & Santiago, 2008; Burdman, 2005), we have neither a clear sense of the size and scope of the issue nor how it may differ by student background and characteristics. Caetano, Palacios, & Patrinos (2011) and Palameta & Voyer (2010) study the extent of loan aversion among high school students in Latin America and Canada, but little work has been done within the context of the United States. Goldrick-Rab & Kelchen (2013) study this problem among a select group of Pell recipients, but their analysis inherently conditions on the population that already applied for aid, not the population of greatest interest to policymakers intent on improving students’ choices to finance higher education.

This study seeks to understand the phenomenon of loan aversion by studying the borrowing attitudes of three populations: high school students who may enroll in higher education, community college students who are currently enrolled in higher education, and adults who have not enrolled in higher education. Through a survey administered to individuals representing each of these three groups, we assess the levels of loan aversion in several distinct ways to identify the extent of loan aversion and how levels of loan aversion are related to college-going goals.

Prior qualitative evidence also suggests that loan aversion may differ by background characteristics such as race with some studies suggesting that Hispanic/Latino students are more loan averse. Our survey enables comparisons of the levels of loan aversion across demographic characteristics such as gender, race, and first-generation status to provide the first quantitative evidence of whether this conclusion is valid in different populations.

The survey also identifies current and potential college students’ knowledge about federal loan availability and income-based repayment schemes to identify the relationship between knowledge of federal loans and loan aversion. We hypothesize that an awareness of income-based repayment lowers students’ levels of loan aversion because of the reduced risk associated with poor financial outcomes. The survey instrument is currently in the field and data collection will be completed by mid-summer 2015.

Results of this study have the potential to suggest informational interventions to reduce the information gap between borrowers and non-borrowers. If financially constrained students are aware of income-based repayment options, they may be more likely to make better enrollment decisions by borrowing a limited amount of money to finance postsecondary education.