Association for Public Policy Analysis & Management

Using data from the Survey of Consumer Finances (SCF), we find that student debt is negatively related to the extent of investment in risky financial assets by households. An increase student debt as a result of the 1992 Higher Education Amendments of 1992 significantly reduced portfolio risk-taking for individuals already in four-year college at the time of these regulations. Further, the removal of bankruptcy dischargeability of student loans by the Higher Education Amendment Act of 1998 also reduced the extent of portfolio risk-taking. The negative relation between student debt and personal portfolio risk-taking is stronger for financially constrained households. Our evidence indicates that student debt may reduce investment in risky assets, thus affecting the long-term wealth of individuals, and may also have repercussions for the broader economy.