Student Loans, Access to Credit and Consumer Financial Behavior

Alvaro Mezza, Daniel R. Ringo and Kamila Sommer
Additional contact information
Alvaro Mezza: https://www.federalreserve.gov/econres/alvaro-mezza.htm
Daniel R. Ringo: https://www.federalreserve.gov/econres/daniel-r-ringo.htm
Kamila Sommer: https://www.federalreserve.gov/econres/kamila-sommer.htm

No 2021-050, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Credit demand and supply; Rising tuition; Access to credit; Student loans; Consumption smoothing (search for similar items in EconPapers)
JEL-codes: D10 D14 D15 I22 (search for similar items in EconPapers)
Pages: 61 p.
Date: 2021-08-02
New Economics Papers: this item is included in nep-isf
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-50

DOI: 10.17016/FEDS.2021.050

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