Even greater cause for concern arose as student loans outstanding passed credit card debt to become the single largest nonmortgage household debt in 2012. Worries about the risk of massive default have even prompted a comparison with the subprime mortgage crisis.1
Existing theoretical and empirical work by economists on student loans can shed light on the economics behind this trend and, therefore, help provide answers to a number of important questions: What determines whether and how much a household borrows for student loans, and what determines whether and when a household repays these loans? What factors account for the widely noted increase in student loans outstanding and defaults? What are the implications of the trend for households’ consumption and for the broader economy?
This article appeared in the Third Quarter 2013 edition of Business Review.