New Report: Are Student Loans the Best We Can Do?

article | September 09, 2014

    Willie Elliott

Guest Blog Post: This post is contributed by Willie Elliott, Director of the Assets and Education Initiative at the University of Kansas and Asset Building Program Senior Fellow, and Melinda Lewis, Policy Director of the Assets and Education Initiative. You can find a copy of their new report, The Student Loan Problem in America: It is Not Enough to Say, "Students Will Eventually Recover," here.

The U.S. student loan program was designed to expand access to higher education and in doing so strengthen the education path as the ‘great equalizer’ in society. Student borrowing was supposed to reflect an agreement between aspiring college students and the government; the latter would use loans to augment a robust need-based grant system and level the playing field, by providing more students with more help paying for college. In exchange, students would study hard and promise to pay back loans when their degrees inevitably paid off handsomely. This rather narrow accounting of financial aid as only affecting access to college failed to understand its effects on students’ outcomes before, during and after college and, then, opened the door to an ever-expanding role for student loans within the financial aid system. If financial aid is only supposed to overcome immediate cash gaps at the point of enrollment, then loans may be viewed as an able financial aid instrument. Indeed, for the past few decades, more students have taken out loans and they have borrowed ever-larger amounts. However, a growing body of research is beginning to reveal that student loans, large and small, have negative effects on far too many potential students’ college preparation, the decision to enroll in college, which college to select, whether to stay and complete college, which job to take after college, whether and when to marry, when they have kids, the amount of overall financial stress they experience, whether to buy a home, and whether, when, and how much they save for retirement (for a review of this research see Elliott & Lewis, 2014).

However, from a financial aid program that in the 2011-2012 school year cost Americans $70.8 billion (College Board, 2012), from which the federal government earned $41.3 billion in 2013 (Jesse, 2013) and expended $1.4 billion to pay collection agencies (Martin, 2012), and from which Sallie Mae (the nation’s largest private student loan lender) made $939 million in net profit for 2012 (Hartman, 2013), we must expect broadly and powerfully positive outcomes. We should collectively demand that research demonstrate more than just minimal harm resulting from the use of student loans; we should expect that student loans are helping to produce better outcomes for those who borrow. Instead, there is even weak evidence that loans positively affect college-enrollment rates, particularly for low-income and minority students (e.g. Heller, 2008), the one dimension where we could most anticipate seeing strong effects.

Disturbingly, instead of dedicating our policy attentions to solving the problems created, exacerbated, or hastened by student loan reliance, we have mostly moved the goalposts, no longer expecting student loans to be a pillar of educational opportunity and equity. Instead, we console ourselves that most “students will eventually recover.” Or, even when we acknowledge the real, long-term consequences of over-reliance on student loans, we are so deeply mired in debt-dependent financial aid that we cannot imagine alternatives. Further excusing loans’ poor performance, we compare the outcomes of student borrowers with those who never even go to college, essentially erasing the years of real sacrifice—and expense—exerted by students whose efforts are nonetheless insufficient.

“You’ll get over it” is, of course, a hollow solace to the millions who struggle to meet their debt obligations and find lag in asset accumulation and overall financial well-being even long after college. More Americans, if not many policymakers, are questioning the wisdom of relying on a debt-dependent financial aid system whose greatest recommendation may be that it does only temporary harm to its users. A new analysis by the Assets and Education Initiative (AEDI) at the University of Kansas weaves together a growing body of evidence for a fuller accounting of student loans’ educational and economic effects, as well as disturbing indicators of how student loans exacerbate inequity in the post-secondary education system. While this research is still emerging, it is clear that, if we demand that student loans serve their intended purpose of helping to empower the education system to act as the ‘great equalizer’ in society, they are falling far short of this metric. Instead, the very system that is supposed to ‘aid’ students may contribute to the erosion of education’s role as an equalizing force, short-circuiting the economic mobility opportunities that college has long afforded.

While the popular conversation about the ‘student debt problem’ tends to focus primarily on high-dollar debt, other studies find concerning effects on net worth and asset accumulation, even at relatively low debt levels. Students who borrow to finance college may see reduced financial well-being, on a variety of indicators, throughout their lifespans, and the accompanying constrained asset accumulation may threaten our aggregate economic security.

The report suggests moving away from student loans as the centerpiece of the U.S. financial aid system, in pursuit of the superior outcomes possible with asset-based approaches. As the authors explain, making this transition will require constructing a universal Children’s Savings Account system, providing reparation for Americans already harmed by student borrowing, and repurposing existing financial aid dollars—now largely hemorrhaged through the loan system—to adequately capitalize students’ asset stores. Pivoting from reflexive defense of a flawed student loan system to embrace a truly progressive system of lifelong savings opportunities, financed with generous transfers delivered early enough in a child’s educational trajectory to really make a difference, could make the prospect of college again a path to upward mobility and greater equity. College still matters. Americans with higher levels of education have higher incomes and greater well-being. The U.S. cannot afford to let our financial aid approach undercut the noble objectives of our education system.

Note: Elliott, W. and Lewis, M. (2014). *The Student Loan Problem in America: It is Not Enough to Say, "Students Will Eventually Recover"*. Lawrence, KS: Assets and Education Initiative (AEDI).


College Board. (2012). Trends in student aid 2012: Trends in higher education series. New York: College Board. Retrieved August 19, 2014 from
Elliott, W. and Lewis, M. (2014). We Can Do Better Than This: Asking More of Our Student Loan Program Than Just, "Students Eventually Recover". Lawrence, KS: Assets and Education Initiative (AEDI).
Hartman, R.R. (May 23, 2013). Who makes money off your student loans? You might be surprised. Retrieved August 14, 2014 from Yahoo News website:
Heller, D. E. (2008). The impact of student loans on college access. In S. Baum, M. McPherson, & P. Steele (Eds.), The effectiveness of student aid policies: What the research tells us (pp. 39‒68). New York: College Board.
Jesse, D. (2013, November 25). Government books $41.3 billion in student loan profits. USA Today. Retrieved August 14, 2014 from
Martin, A. (2012). Debt collectors cashing in on student loans. The New York Times. Retrieved January 5, 2012, from


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    Willie Elliott