Understanding Loan Aversion in Education

Abstract

As the college-going population becomes increasingly diverse and the cost of college continues to rise, it is critical that we better understand the underlying mechanisms by which prospective students make decisions about whether and how to finance their education beyond high school. Student loans are an increasingly necessary tool to help students pay for postsecondary education. Though 35% of all undergraduate students and 55% of all graduate students receive some type of federal loan to help finance their postsecondary education (Snyder & Dillow, 2015), there appears to be a subset of students who are averse to taking out loans and, thus, will choose not to borrow money to finance their college education (Callendar & Jackson, 2005; Cunningham & Santiago, 2008). Loan aversion, as it applies to postsecondary education, is generally defined as "an unwillingness to take a loan to pay for college, even when that loan would likely offer a positive long-term return" (Cunningham & Santiago, 2008, p. 10). Loan-averse students are those interested in investing in higher education but not willing to take out loans to do so (Palameta & Voyer, 2010). Although a handful of studies have provided initial evidence that loan aversion may affect students' decisions about investing in college, this study further tests the hypothesis that loan aversion exists and is widespread in the United States among current and prospective college students. Evidence of the existence of loan aversion has been found among students in various contexts (

“Without them I couldn't pay for my education, so here I am": Latinx college graduates’ experiences with and perceptions of their student loan debt

“…Research on Latinx experiences with student loans emphasizes their aversion to borrowing (Boatman et al, 2017). This is problematic given that non-borrowing Latinx students have been less likely to attain their degrees (Cunningham & Santiago, 2008).…”

“…This is problematic given that non-borrowing Latinx students have been less likely to attain their degrees (Cunningham & Santiago, 2008). Boatman et al (2017) also suggested that avoiding borrowing is more dependent on context. They noted that family influence plays a major role in Latinx decisions to borrow, and speculated that Latinx students were more averse to borrowing because of having less familial capital than their White peers (Boatman et al, 2017).…”

“…The combination of rising tuition and decreasing government support contributed to borrowers relying more on loans to attend college (Furquim et al, 2017). Due to this increased reliance on loans, understanding how students decide about acquiring student loan debt to pay for college is critical (Boatman et al, 2017;Zerquera et al, 2017).…”

National Trends in Federal Student Loan Borrowing by Income Group and First-Generation Status

“…High college costs, both perceived and actual, can have important effects on students' decisions whether to attend college and, if so, which college to attend (Dynarski, Libassi, Michelmore, & Owen, 2018). The prospect of needing to borrow can even deter some students' participation in higher education altogether (Boatman, Evans, & Soliz, 2017). Identifying why and how borrowing has increased over time is paramount to understanding how students participate and succeed in higher education.…”

How Do Students Fund their Higher Education in India? A Study of Loan Financing in Engineering Education

“…With respect to student loans, the most common argument made in its favour is that students from poor households are not able to enrol themselves in higher education due to their financial problems; and educational loan enables them to pursue higher education by deferring the current costs and to pay the same in future when they have secure jobs. But available evidence (e.g., Boatman et al 2017;Callender and Mason 2017) also shows that prospective undergraduates especially from low social and economic classes feel deterred from applying to university education because of fear of debt.…”