Financial Stress, Race, and Student Debt During the Great Recession

Abstract

As the onus of paying for higher education shifted from the state onto students and their families, student indebtedness grew across a wide range of households in the United States in the 2000s, especially among Black and Hispanic households. Holding student debt is a financial risk that may leave households more vulnerable to economic shocks. We study the relationship between household student loan burden and the likelihood of financial stress during the Great Recession using the unique 2007 to 2009 panel of the Survey of Consumer Finances. We find a robust positive relationship across four dimensions of student loan burden and holding constant household characteristics and previous financial stress. We find that Black and Hispanic households with higher student debt burdens experienced higher odds of financial stress relative to White households, even once accounting for prior financial stress. Our results demonstrate the importance of considering the household risk incurred in the US system of financed attainment, especially during the inevitable downturns of a capitalist economy.