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Taking It to the Limit: Effects of Increased Student Loan Availability

The nation’s colleges students have an increasing reliance on student loans, with 69 percent of the class of 2018 taking out loans and the student loan debt exceeding $1.5 trillion. This has led to concerns about a “student debt crisis.

 A new study by Sandra Black of Columbia University, Jeffrey Denning of Brigham Young University, Lesley Turner of Vanderbilt University, and Lisa Dettling and Sarena Goodman of the Federal Reserve Board of Governors explores the impact on the long-term financial well-being, human capital, and future earnings of students.

 The team concluded that students should actually be allowed to borrow more, since attending college is a good investment that can led to higher salaries and better career opportunities. The study found that setting higher loan limits lead to an increase in borrowing from students. These students who borrowed more acquired more human capital and, on average, were more likely to enroll in and graduate from college and earn more after graduation.

Moreover, and unexpectedly, the researchers found that this increased borrowing lead to fewer instances of student loan default and delinquency. Finally, they concluded that student loan borrowing had negligible effects on the likelihood of acquiring more debt and the ability to repay other debt in the future. The team concludes that college students are actually under-borrowing for college, on average. “Our results also directly inform federal policymakers when considering changes to current loan limits and suggest that raising borrowing limits for dependent students would likely increase human capital accumulation and improve credit outcomes,” they write.

-By Caroline Berman