They found that, for black students, loans promoted staying in school and created a higher probability of finishing it

This usually causes the borrowers to default on their debt, which leads to bad credit

Jackson and Reynolds (2013) argued that even though student loans are achieving their goal of creating opportunities for students who could not otherwise attend or finish college, the goal of reducing educational inequality is not necessarily accomplished. However, this same study also found that black students usually had many outstanding loans, and when compared to white students, were more likely to default on their loan. Baker, Andrews, and McDaniel (2017) also found that black and Latino students had larger loan balances than their peers.

Kim (2004) found that when Asian-American students used only loans or a mixture of grants and loans, they were more likely to attend their first choice for college compared to white, African- American, and Hispanic students. Using data from The Freshmen Survey of 1994, Kim (2004) found that Asian-American students exhibited lower price sensitivity than the other groups. Therefore, the usage of loans allowed them to have access to their preferred college.

Effects of being debt averse. For some people, the thought of debt can deter them from seeking student loans. Negative attitudes toward debt appear to be increasing over time (Davies and Lea 1995; Baum and O’Malley 2003). Callender and Jackson (2005) found that students from lower socioeconomic backgrounds had a higher fear of debt compared to their peers from high socioeconomic backgrounds, and students from the lower socioeconomic background tended to avoid taking on student debt because of this debt aversion. Callender and Jackson (2005) also found that students from low socioeconomic backgrounds chose universities close to home in an attempt to reduce the level of student debt.

Even after controlling for other factors such as aspirations and encouragement, those from lower-income families were more averse to taking on student loans

When borrowers drop out. One of the worst outcomes is when borrowers drop out of college before earning a degree. (Gladieux and Perna 2005; Callender and Jackson 2005). This outcome leaves the individual with the burden of debt and without higher earnings associated with obtaining a college degree, making it harder to pay off the debt.

Two important factors associated with college completion are the students’ living arrangements and work hours (Bozick 2007). Bozick (2007) used data from the Beginning Postsecondary Students Longitudinal Study (conducted by the National Center for Education Statistics from 1996 https://getbadcreditloan.com/payday-loans-md/cumberland/ to 2001) to conclude that students living at home and working more than 20 hours a week were associated with higher dropout rates. Callender and Jackson (2005) found that lower-income students were more likely to live at home or close to home and were more likely to drop out as well. Light and Strayer (2000) used data from the National Longitudinal Survey of Youth to explain the determinants of college completion and found that matching the school’s quality to the student’s ability gave the student a better chance of college completion.

Effects of household assets and liabilities. Zhan and Sherraden (2011) suggested a relationship between a household’s assets and liabilities and the expected educational levels for the household’s children. Household assets have a positive relationship to a child’s future college completion, while liabilities have a negative relationship.

Understanding defaults. In an attempt to determine student loan defaults, Flint (1997) found that a higher GPA was associated with lower default rates, and Dynarski (1994) found that minorities, low-income households, and two-year college students were more likely to default on student loans. Knapp and Seaks (1992) claimed that increasing retention programs in college would lower default rates because if the borrower graduated college, then he or she would earn a higher income and be more likely to pay off their student loan debt.