by Beth Akers
American Enterprise Institute
May 15, 2014
There is not a strong positive relationship between student debt and financial hardship; high-debt borrowers face financial hardship at only slightly higher rates than comparable households with less debt. Additionally, the highest rates of financial hardship are seen among households with relatively little outstanding student loan debt. This pattern suggests that discouraging borrowing through restrictive limits on federal borrowing or other means may not be the most effective way to prevent overborrowing and the financial hardship that it can lead to. Rationing federal credit through a more complex system involving individual loan underwriting that assesses the likelihood that a given borrower will be able to repay the debt, rather than through the flat borrowing caps that are in place today, could be a more effective way to protect consumers.



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