Study links student loan borrowing to academic success in community college

Adding some nuance to the national conversation about student loan debt, a new study finds that students attending community college who are offered and take out loans may actually be setting themselves up for success. Writing in Education Next, researchers Benjamin Marx and Lesley Turner, assistant professors of economics at the University of Illinois at Urbana-Champaign and University of Maryland, respectively, say the study offers “the first rigorous evidence of the effect of loan offers on both borrowing and academic performance.”

The link between loan offers and academic performance

The randomized study found that students who received a financial aid letter that included a loan offer were 30 percent more likely to borrow than students whose letters did not. More than 5 million students attend U.S. colleges that don’t include loans in their financial aid award letters, the authors note.

In addition, students who borrowed as a result of receiving a loan offer in their letter performed better than students who did not. The loans appeared to help students not only take more classes but to earn a higher grade point average, as well, Marx told Inside Higher Ed.

The study also found that students who received and accepted loan offers were 11 percentage points likelier to transfer to a four-year college or university.

Researchers: ‘Keep this fuller picture in mind’

Marx outlines several reasons why students who carry loans may outperform their peers, including the awareness that they will someday need to pay off their debt. In addition, loans may help reduce the number of hours spent working. “We know a lot of these students are working part-time while taking classes, so having some money available allows them to deal with negative situations that may arise, like if someone in their family is sick,” Marx said.

Newly released survey results reinforce that assertion. Asked about obstacles to college completion, 34 percent of 6,000 two-year college students across the nation cited “work” and/or “paying expenses” as the factors most impeding their academic success.

Marx and Turner point to the costs associated with textbooks, supplies, and living expenses as “important determinants of students’ success” and conclude that “student debt, widely considered a burden, may help facilitate success for students, especially those who lack other resources.” While acknowledging that grants, which don’t need to be repaid, likely have an even stronger positive overall effect, they encourage higher education stakeholders to “keep this fuller picture in mind” before discouraging borrowing.

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