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...