Association for Public Policy Analysis & Management

Background:  The cost of attending college has skyrocketed in the last 3 decades, which has resulted in staggering increases in the number and amount of loans disbursed. Between 2001 and 2011, the number of Stafford loan borrowers nearly doubled (College Board Advocacy Center, 2012). More than 40 million Americans have at least one student loan, and the total amount owed exceeds $1.2 trillion (Experian, 2014). While loans afford millions the ability to attend higher education institutions, student debt may have negative consequences, especially among low- and middle-income households.

Methods:  As part of Refund to Savings, an initiative between academia and Intuit, Inc., 20,816 qualified low- and middle-income tax filers took detailed household financial surveys immediately after filing taxes with free online software, and 8,484 took the same survey 6 months later. Survey data about student debt were combined with demographic data and tax data to create statistical models to predict material hardships 6 months later. The seven hardship measures were: difficulty covering expenses, not being able to afford rent or mortgage, skipping bills, not getting medical care when needed, not getting necessary dental care, not filling needed prescription drugs, and food insecurity. After excluding outliers and those with missing data, the analytical sample consisted of 6,966 respondents. Independent variables of interest were the presence and amount of student debt.  We calculated propensity scores and weighted individuals by the inverse (Hirano & Imbens, 2001) to balance groups on observed factors associated with student debt: educational attainment, current student status, income, age, sex, race, and number of adults in the household.  Each hardship measure functioned as an outcome in a binary logistic regression.

Results:  More than half (56%) of the sample owed student loans, which averaged $35,820.  About 44% of respondents had a college degree or higher level of education, and 38% had “some college.” Respondents with student loans were 87% more likely to experience any kind of material hardship during the 6-month follow-up than those without student loans. They were 64% more likely to report difficulty covering monthly expenses, twice as likely to skip bill payments, and 56% more likely to be unable to make rent or mortgage payments. Those with student debt were also 49% more likely to skip necessary medical care, 45% more likely to skip necessary dental care, 33% more likely not to fill prescriptions, and 40% more likely to experience food insecurity. Those with loans over $25,000 were at increased risk of skipping bills and necessary dental care compared to those with loans less than $10,000. Those with loans over $50,000 were significantly more likely not to fill prescription medications.

Conclusion:  Among low- and middle-income households, student debt is associated with substantially increased risk for experiencing material hardships. Policies should seek to reduce the burden of student debt. Such policies could include improving access to low- or no-cost higher education, helping families save for school well in advance (e.g., universal 529 accounts), and stricter criteria for evaluating institutions before disbursing loans (e.g., graduation rates, loan default rates).