Why Easing Education Debt Won’t Necessarily Help the Economy

Source: Beth Akers, Brookings Institution, Brown Center Chalkboard blog, July 24, 2014

Student loan debt has become the scapegoat for nearly all that ails the U.S. economy, from depressed home ownership, to lower rates of entrepreneurship, and even the sluggish recovery from the great recession. The problem with all of this blame is that the accusations are difficult to substantiate. Much of the discussion about the effects of student loan debt focuses on comparing outcomes faced by individuals with student loan debt to those of individuals without student loan debt. The differences in observed outcomes are cited as evidence of an impact of student loan debt. But, there are two reasons why this approach doesn’t tell us what we need to know about the effects of education debt.

First, the population of individuals who take on debt to pay for college is different from the population of individuals who take on little or no education debt. These differences are sometimes observable and sometimes not. This means that outcomes faced by borrowers and non-borrowers are likely to differ for reasons that are unrelated to the debt itself. In order to effectively measure the effect of debt, we would need to be able to control for all of these differences. This presents a methodological challenge because not all of the differences are observable.

Second, the population of borrowers (and non-borrowers) has been changing over time. This means that longitudinal studies comparing borrowers and non-borrowers are difficult to interpret. The changes in behavior, such as home ownership, that occur over time may be due to trends in borrowing, but could also be due to the changing characteristics of the borrowing population. …