found that Canadian graduates in fields with lower expected future earnings
had a higher probability of experiencing repayment problems, even after
controlling for total debt and amount earned.
Financial Aid and Education Debt
The evidence regarding the relationship between financial aid and default is
mixed at best. The amount of education debt faced by students has generally
been on the rise since at least 1997, with the greatest increases among low-
income students—although debt among African American students seems to
have actually decreased slightly between 1997 and 2002 (Baum & O’Malley,
2003a, 2003b). This suggests that, given the positive relationship between debt
burden and default, a decrease in grants and scholarships may promote an
increase in likelihood of default. Indeed, Greene (1989) found that grants and
scholarships reduced the probability of default, at least at one traditional four-
year institution. Another study found, however, that the amount of aid, the
types and number of loans, and loan consolidation had no effect on default at
another four-year institution (Steiner & Teszler, 2003).
Attitudes and Awareness Regarding Education Debt
Relatively few studies have explored the relationship between students’
attitudes about debt and the likelihood of default. One study concluded from
interviews that student attitudes—including ignorance about the borrowing
process—were related to default (Christman, 2000). A more robust analysis of a
national sample of students found, however, that not knowing a loan had to be
repaid did not predict likelihood of loan default (Volkwein et al., 1998). While
two-thirds of students in one national survey said loans were very important to
their being able to attend postsecondary education, differences in attitudes
toward debt by race/ethnicity and income emerged (Baum & O’Malley, 2003a).
African American borrowers participating in that survey reported feeling more
burdened by their debt and less satisfied that the benefits of borrowing
outweighed the costs. Low-income students who had received Pell grants
similarly reported feeling more burdened by debt, and this perception appears
to be increasing. Generally, as the ratio of monthly income to debt payment
increased so too did the negative perception of debt (Baum & O’Malley, 2003b).
A study of the relationship between education and other forms of debt found
that students with high levels of loan debt were also likely to carry significant
credit card debt (Pinto & Mansfield, 2006). Moreover, students were more likely
to prioritize the repayment of credit card debt over that of student loan debt.
Finally, several researchers have explored the effects of loan counseling or
consumer education programs and have found they appear to be related to
lower rates of default (Podgursky et al., 2002; Seifert & Worden, 2004; Steiner
& Teszler, 2005; Wilms et al., 1987). Whether this is a function of self-selection
or program efficacy is unclear, however, as students who participate in such
programs may be less likely to default anyway. However, students who
complete a postsecondary credential, as we discuss above, are less likely to
default regardless of whether they participate in a loan counseling program.
26 Journal of Student Financial Aid Volume 39 • Number 1 • 2009
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