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Macroeconomic Implications of Student Debt: A State-Level Analysis

Author

Listed:
  • Berrak Bahadir

    (Department of Economics, Florida International University)

  • Dora Gicheva

    (Department of Economics, University of North Carolina at Greensboro)

Abstract

This paper investigates the macroeconomic implications of the rise in outstanding student debt in the United States using state-level data for the 2003-2019 period. We show that an increase in the state-level student debt-to-income ratio contributes to lower consumption growth in the medium run. The estimated effects are larger when we use an instrumental variable approach relying on exogenous policy changes including variations in state appropriations for higher education, increases in annual limits for subsidized federal student loans, and federal loan interest rate changes. The instrumental variable results show the hypothetical impact of an increase in student debt without an associated increase in educational attainment. We also find suggestive evidence that expansions in student loans lead to subsequent increases in credit card debt.

Suggested Citation

  • Berrak Bahadir & Dora Gicheva, 2021. "Macroeconomic Implications of Student Debt: A State-Level Analysis," Working Papers 2126, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2126
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    More about this item

    Keywords

    student loans; household credit; consumption; credit card debt;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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