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Wednesday, November 29, 2017

Small Student Loans May Help, Not Harm

Are student loans a burden or a boost? The National Bureau of Economic Research (NBER) attempted to find out in a recent study.

The study, summarized in a report on MarketWatch, focused on the financial-aid notification letters sent to students at a community college. One randomly assigned group received letters that listed their eligibility for grant and scholarship aid, along with an offer to borrow $3,500-$4,500 in federally subsidized student loans. The other group’s financial-aid letters offered “$0” in federal loans.

Not surprisingly, students in the first group “were 40% more likely to borrow than their peers who received an offer of zero,” said the MarketWatch report. However, it also turned out that these borrowers enrolled in more course credits the following term, earned a higher grade-point average in those courses, and transferred at a higher rate to four-year institutions.

In short, the NBER study concluded, having access to federal loan funds enabled and motivated these students to make faster progress in their higher education. Students who had to rely on other means couldn’t afford to take as many classes and were less likely to complete their studies.

“The big takeaway from this paper is that restricting students’ access to federal student loans, either through making the process of getting the loans more complicated or more opaque or completely opting out of the federal loan program, can harm students’ attainment and potentially make them worse off,” said researcher Lesley Turner, an economics professor at the University of Maryland.

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