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Erin Dunlop AIR & CALDER CALDER Conference, February 2013

What Do Stafford Loans Actually Buy You? The Effect of Stafford Loan Access on Community College Students. Erin Dunlop AIR & CALDER CALDER Conference, February 2013. Background. U.S. Dept of Edu spends $150 billion a year in grants, loans, & work study assistance

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Erin Dunlop AIR & CALDER CALDER Conference, February 2013

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  1. What Do Stafford Loans Actually Buy You?The Effect of Stafford Loan Access on Community College Students Erin Dunlop AIR & CALDER CALDER Conference, February 2013

  2. Background • U.S. Dept of Edu spends $150 billion a year in grants, loans, & work study assistance • Growing number of CCs are denying their students access to federal loans • 1992 < 3% w/o access • 2009 > 10% w/o access -> Without access to loans, students may complete less education than optimal

  3. Research Question How does access to federal Stafford loans affect community college students’ educational attainment and college outcomes?

  4. Why Do We Care? • Evaluating the effectiveness of a multi-billion dollar federal program ($100 billion were administered in 2011) • Limited previous research • CC students are a substantial fraction of the higher edu market • Over 1/3 of all college students

  5. What are Stafford Loans? • Federal student loans with fixed interest rates • Largest source of federal student loans • Federal college student support in 2012 • $150 billion/yr total • $100 billion/yr in loans • $92 billion/yr in Stafford loans

  6. Estimation • I estimate the effect of access to Stafford loans on CC students’ educational attainment and other outcomes • Estimate regression comparing outcomes of Stafford eligible students who attend colleges that offer loans to those students who attend colleges that do not • Assume access to Stafford loans is random

  7. Data • Beginning Postsecondary Student Study of 2004 (BPS:04/09) • 16,000 students interviewed in spring 2004 (1styr of college), spring 2006, spring 2009 • Additional info from financial aid records and institutions • Focus on “public two-year” students – 5,549

  8. When Students Have Access to Stafford loans …

  9. Outcomes Not Affected by Stafford Loans: • Employment in the 1styr of college • Credit card debt in the 1styr of college • Number of credits taken in the 1styr of college • Associate’s degree attainment

  10. Subgroup Results

  11. Summary of Results • Access to Stafford loans has a large effect on borrowing in the 1styr ($262), transfers to a four-year college (5.6 percentage points), and employment in the 3rdyr • These effects are even larger for female and high need students • Female, Black, & high need students also have an additional effect from loans on total months of enrollment (2.8 – 5.7 months) • Dependent female and high need students have an effect of loan access on bachelor’s degree attainment (8.7 – 9.7 percentage points)

  12. Is Assuming Access to Stafford Loans is Random a Good Assumption? • Loan access could affect students’ CC decisions • 1a. Decision to enter CC • 1b. Decision between CCs • Community colleges’ decisions could be related to students • 2a. CC decision related to CC chars • 2b. CC decision related to student chars

  13. Why Would Schools Not Offer Loans? • Administrators believe they can save their students from unnecessary debt • Average COA of CC in 2009: $10,390 a year • CC students are just as likely to have documented need (83% compared to 81% at 4 yr schools) • Colleges can loose all federal aid (including Pell grants) if their Stafford default rate is over 25% for 3 consecutive years

  14. Default Rates of Community Colleges that Always Offer Loans and Sometimes Offer Loans

  15. Policy Recommendations – Are Stafford Loans Worth it? • Cost to induce additional student into college: • $1,257 H&R Block FAFSA intervention • $93,667 Upward Bound • $133,333 Head Start • $400,000 Tennessee STAR • >> $11,170 Stafford loans • Cost to induce additional bachelor’s degree: • $750,000 Tennessee STAR • >> $20,850 Stafford Loans

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