Cambridge Business Association
Second Chance
Report

Second Chance

Life without Student Debt

Marco Di Maggio, Ankit Kalda and Vincent W. Yao
SSRN, 2019
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Editorial Rating

8

Qualities

  • Controversial
  • Analytical
  • Hot Topic

Recommendation

Student loan debt in the United States is quickly becoming a crisis. But suppose this debt was forgiven, as some politicians have proposed? Forgetting about the cost of such a policy for a moment, how would forgiveness affect a borrower’s other consumer debt and income growth prospects? In this scholarly paper, economists Marco Di Maggio, Ankit Kalda and Vincent Yao find out what happens to people’s financial situations when they no longer face student debt. The results may surprise you, adding fuel to the arguments about this timely topic.

Summary

The sheer magnitude of student loan debt in the United States has become a major cause for concern. It stood at $1.5 trillion as of the first quarter of 2018. To put this in perspective, student loan debt outpaces the balances on auto loans, credit card debt and home equity lines of credit, to rank second only to mortgages among consumer debt in America. Forty-four million graduates have loans averaging $30,000, and 11% of borrowers have failed to make their last three monthly payments.

But if it were possible to forgive student loan debt...

About the Authors

Marco Di Maggio is an assistant professor at Harvard Business School. Ankit Kalda is an assistant professor at Indiana University. Vincent W. Yao is an associate professor at Georgia State University.

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