Are college students better off taking larger or smaller loans?
Professor Susan Dynarski wrote an article for The New York Times’ Economic View column that explains the connection between student loan amounts and default rates. In her piece, titled “Taking out a student loan is better than dropping out,” she discussed new research that shows that cutting student loans can hinder academic progress, and that community college students who borrowed more money ended up defaulting less often. This is most likely because more loans allowed students to take more credits and eventually have more stable careers, she explained.
Dynarski said that students who received detailed financial aid information in this study were also more likely to borrow money, earn more college credits, get better grades, and transfer to four-year colleges at a higher rate. Interestingly, students who received counseling about cautious borrowing ended up with reduced borrowing, lower grades, and fewer earned credits. They also became more likely to default within three years.
“Historically, those with more student debt have been less likely to default on their loans,” Dynarski wrote, suggesting that more borrowing enables students to obtain more education, higher earnings, and a better ability to pay off their debt. “Discouraging students from taking out loans—without providing financial alternatives—harms their ability to progress through college,” she said.
While loans are not yet proven to be the best way to fund students, it’s clear that students cannot succeed if they don’t have enough money to pay for college. Grants and free tuition are also viable options, she said. Around the globe, we see combinations of these three funding sources. “What schools and government shouldn’t do is cut loans without getting money to students in other ways. Every college graduate would be better off without student debt,” she said. “But they would not be better off without their college degrees.”
The Times’ Economic View column explores life through an economic lens with leading economists and writers. Dynarski is a professor in the Gerald R. Ford School of Public Policy and in the Center for the Study of Higher and Postsecondary Education.