View in EDS PDF Full Text

The Benefits of Borrowing

Saved in:
Bibliographic Details
Title: The Benefits of Borrowing
Language: English
Authors: Marx, Benjamin M., Turner, Lesley J.
Source: Education Next. Win 2019 19(1):70-76.
Availability: Hoover Institution. Stanford University, Stanford, CA 94305-6010. Tel: 800-935-2882; Fax: 650-723-8626; e-mail: educationnext@hoover.stanford.edu; Web site: http://educationnext.org/journal/
Peer Reviewed: Y
Page Count: 7
Publication Date: 2019
Document Type: Journal Articles
Reports - Research
Education Level: Two Year Colleges
Higher Education
Postsecondary Education
Descriptors: Student Loan Programs, Debt (Financial), Community Colleges, Two Year College Students, Academic Achievement, Academic Persistence, Cost Effectiveness
ISSN: 1539-9664
Abstract: The number of undergraduates in the United States has increased by more than 30 percent since 2000, with two-year institutions absorbing the majority of new students. At the same time, outstanding student-loan debt has grown nationwide, reaching $1.4 trillion in 2018. Although the federal student-loan program exists to provide such resources, the growth in student loan debt is often described as a "crisis," and many colleges and universities have implemented policies designed to reduce student borrowing. However, there is little rigorous evidence on the causal effect of loans on educational outcomes. As a result, it is not clear whether efforts to reduce borrowing will benefit or harm students. The authors address this question through a randomized experiment at a large community college. Colleges that participate in the federal student-loan program must make loans available to all of their students, and the amount that each student can borrow is determined by his or her class standing and dependence on parental support. However, colleges have discretion over how much loan aid, if any, to list on students' annual financial-aid award letters. Depending on the school's approach, a letter might provide a loan "offer" equal to the maximum dollar amount a student could borrow, zero, or anything in between. The authors designed their experiment to test whether the decision of the amount of loan aid to list--a choice being made every year by most community colleges--has meaningful effects on borrowing and student attainment. Specifically, the experiment varied whether students were offered a nonzero loan amount in their financial-aid award letters. This study provides the first rigorous evidence of the effect of loan offers on both borrowing and academic performance. The authors find that students whose aid letters offered nonzero loans were more likely to borrow, and those who borrowed did better in school. Students who received nonzero loan offers were 7 percentage points more likely to take out a loan (a 30 percent increase) and borrowed $280 more than students whose letters offered $0 in loans. Students who borrowed as a result of receiving a nonzero loan offer earned 3.7 additional credits and raised their grade point averages (GPAs) by more than half a grade on a four-point scale, both representing increases of roughly 30 percent. One year after the intervention, borrowers were 11 percentage points more likely to have transferred to a four-year public institution. Based on these results and past research on the earnings gains from college persistence and attainment, the authors estimate that borrowers are likely to see an increase in their future earnings of at least $370 per year.
Abstractor: ERIC
Entry Date: 2018
Access URL: https://www.educationnext.org/journal/winter-2019-vol-19-no-1/
Accession Number: EJ1199977
Database: ERIC
FullText Links:
  – Type: pdflink
    Url: https://content.ebscohost.com/cds/retrieve?content=AQICAHj0k_4E0hTGH8RJwT4gCJyBsGNe_WN95AvKlDbXJGqwxwEahdzkHyDlN7gg8DTUvXnXAAAA4zCB4AYJKoZIhvcNAQcGoIHSMIHPAgEAMIHJBgkqhkiG9w0BBwEwHgYJYIZIAWUDBAEuMBEEDJa2r9qxyz4cih9XNQIBEICBmxEcclVT2gyxK0As3XUMmGsf7BpktJ37492amUlX8H5U3XG5laEdBYpUjUqFcWURRw2cKB6B1yNKSXBJpuC4odWElITduz1FmdPBWYVBXZxQuEzBqZGrpokXWgrRnAAoatXMHTG3Ny5qAmzgs7YH5BxoG-4uE12R3NKQuJnzxvblAGyy6PeqDm7eo6GAs5VCrv88ko1BInhGtEWI
Text:
  Availability: 0
Header DbId: eric
DbLabel: ERIC
An: EJ1199977
AccessLevel: 3
PubType: Academic Journal
PubTypeId: academicJournal
PreciseRelevancyScore: 0
IllustrationInfo
Items – Name: Title
  Label: Title
  Group: Ti
  Data: The Benefits of Borrowing
– Name: Language
  Label: Language
  Group: Lang
  Data: English
– Name: Author
  Label: Authors
  Group: Au
  Data: <searchLink fieldCode="AR" term="%22Marx%2C+Benjamin+M%2E%22">Marx, Benjamin M.</searchLink><br /><searchLink fieldCode="AR" term="%22Turner%2C+Lesley+J%2E%22">Turner, Lesley J.</searchLink>
– Name: TitleSource
  Label: Source
  Group: Src
  Data: <searchLink fieldCode="SO" term="%22Education+Next%22"><i>Education Next</i></searchLink>. Win 2019 19(1):70-76.
– Name: Avail
  Label: Availability
  Group: Avail
  Data: Hoover Institution. Stanford University, Stanford, CA 94305-6010. Tel: 800-935-2882; Fax: 650-723-8626; e-mail: educationnext@hoover.stanford.edu; Web site: http://educationnext.org/journal/
– Name: PeerReviewed
  Label: Peer Reviewed
  Group: SrcInfo
  Data: Y
– Name: Pages
  Label: Page Count
  Group: Src
  Data: 7
– Name: DatePubCY
  Label: Publication Date
  Group: Date
  Data: 2019
– Name: TypeDocument
  Label: Document Type
  Group: TypDoc
  Data: Journal Articles<br />Reports - Research
– Name: Audience
  Label: Education Level
  Group: Audnce
  Data: <searchLink fieldCode="EL" term="%22Two+Year+Colleges%22">Two Year Colleges</searchLink><br /><searchLink fieldCode="EL" term="%22Higher+Education%22">Higher Education</searchLink><br /><searchLink fieldCode="EL" term="%22Postsecondary+Education%22">Postsecondary Education</searchLink>
– Name: Subject
  Label: Descriptors
  Group: Su
  Data: <searchLink fieldCode="DE" term="%22Student+Loan+Programs%22">Student Loan Programs</searchLink><br /><searchLink fieldCode="DE" term="%22Debt+%28Financial%29%22">Debt (Financial)</searchLink><br /><searchLink fieldCode="DE" term="%22Community+Colleges%22">Community Colleges</searchLink><br /><searchLink fieldCode="DE" term="%22Two+Year+College+Students%22">Two Year College Students</searchLink><br /><searchLink fieldCode="DE" term="%22Academic+Achievement%22">Academic Achievement</searchLink><br /><searchLink fieldCode="DE" term="%22Academic+Persistence%22">Academic Persistence</searchLink><br /><searchLink fieldCode="DE" term="%22Cost+Effectiveness%22">Cost Effectiveness</searchLink>
– Name: ISSN
  Label: ISSN
  Group: ISSN
  Data: 1539-9664
– Name: Abstract
  Label: Abstract
  Group: Ab
  Data: The number of undergraduates in the United States has increased by more than 30 percent since 2000, with two-year institutions absorbing the majority of new students. At the same time, outstanding student-loan debt has grown nationwide, reaching $1.4 trillion in 2018. Although the federal student-loan program exists to provide such resources, the growth in student loan debt is often described as a "crisis," and many colleges and universities have implemented policies designed to reduce student borrowing. However, there is little rigorous evidence on the causal effect of loans on educational outcomes. As a result, it is not clear whether efforts to reduce borrowing will benefit or harm students. The authors address this question through a randomized experiment at a large community college. Colleges that participate in the federal student-loan program must make loans available to all of their students, and the amount that each student can borrow is determined by his or her class standing and dependence on parental support. However, colleges have discretion over how much loan aid, if any, to list on students' annual financial-aid award letters. Depending on the school's approach, a letter might provide a loan "offer" equal to the maximum dollar amount a student could borrow, zero, or anything in between. The authors designed their experiment to test whether the decision of the amount of loan aid to list--a choice being made every year by most community colleges--has meaningful effects on borrowing and student attainment. Specifically, the experiment varied whether students were offered a nonzero loan amount in their financial-aid award letters. This study provides the first rigorous evidence of the effect of loan offers on both borrowing and academic performance. The authors find that students whose aid letters offered nonzero loans were more likely to borrow, and those who borrowed did better in school. Students who received nonzero loan offers were 7 percentage points more likely to take out a loan (a 30 percent increase) and borrowed $280 more than students whose letters offered $0 in loans. Students who borrowed as a result of receiving a nonzero loan offer earned 3.7 additional credits and raised their grade point averages (GPAs) by more than half a grade on a four-point scale, both representing increases of roughly 30 percent. One year after the intervention, borrowers were 11 percentage points more likely to have transferred to a four-year public institution. Based on these results and past research on the earnings gains from college persistence and attainment, the authors estimate that borrowers are likely to see an increase in their future earnings of at least $370 per year.
– Name: AbstractInfo
  Label: Abstractor
  Group: Ab
  Data: ERIC
– Name: DateEntry
  Label: Entry Date
  Group: Date
  Data: 2018
– Name: URL
  Label: Access URL
  Group: URL
  Data: <link linkTarget="URL" linkTerm="https://www.educationnext.org/journal/winter-2019-vol-19-no-1/" linkWindow="_blank">https://www.educationnext.org/journal/winter-2019-vol-19-no-1/</link>
– Name: AN
  Label: Accession Number
  Group: ID
  Data: EJ1199977
PLink https://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=eric&AN=EJ1199977
RecordInfo BibRecord:
  BibEntity:
    Languages:
      – Text: English
    PhysicalDescription:
      Pagination:
        PageCount: 7
        StartPage: 70
    Subjects:
      – SubjectFull: Student Loan Programs
        Type: general
      – SubjectFull: Debt (Financial)
        Type: general
      – SubjectFull: Community Colleges
        Type: general
      – SubjectFull: Two Year College Students
        Type: general
      – SubjectFull: Academic Achievement
        Type: general
      – SubjectFull: Academic Persistence
        Type: general
      – SubjectFull: Cost Effectiveness
        Type: general
    Titles:
      – TitleFull: The Benefits of Borrowing
        Type: main
  BibRelationships:
    HasContributorRelationships:
      – PersonEntity:
          Name:
            NameFull: Marx, Benjamin M.
      – PersonEntity:
          Name:
            NameFull: Turner, Lesley J.
    IsPartOfRelationships:
      – BibEntity:
          Dates:
            – D: 01
              M: 01
              Type: published
              Y: 2019
          Identifiers:
            – Type: issn-print
              Value: 1539-9664
          Numbering:
            – Type: volume
              Value: 19
            – Type: issue
              Value: 1
          Titles:
            – TitleFull: Education Next
              Type: main
ResultId 1