August 2021

Student Loans, Access to Credit and Consumer Financial Behavior

Alvaro Mezza, Daniel Ringo, and Kamila Sommer

Abstract:

This paper provides novel evidence that increased student loan debts, caused by rising tuitions, increase borrowers' demand for additional consumer debt, while simultaneously restricting their ability to access it. The net effect of student loan debt on consumer borrowing varies by market, depending on whether the supply or demand channel dominates. In loosely underwritten credit markets, increased student loan debt causes borrowing to increase, while in tightly underwritten markets, increased student loan debt reduces the use of credit. These findings match predictions of a standard lifecycle model of household consumption and borrowing, augmented with a realistic student loan repayment contract.

Accessible materials (.zip)

DOI: https://doi.org/10.17016/FEDS.2021.050

PDF: Full Paper

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Last Update: February 04, 2022