What Do Stafford Loans Actually Buy You? The Effect of Stafford Loan Access on Community College Students Erin Dunlop AIR & CALDER CALDER Conference, February 2013

Background U.S. Dept of Edu spends $150 billion a year in grants, loans, & work study assistance Growing number of CCs are denying their students access to federal loans – 1992 < 3% w/o access – 2009 > 10% w/o access -> Without access to loans, students may complete less education than optimal

Research Question How does access to federal Stafford loans affect community college students’ educational attainment and college outcomes?

Why Do We Care? Evaluating the effectiveness of a multi-billion dollar federal program ($100 billion were administered in 2011) – Limited previous research CC students are a substantial fraction of the higher edu market – Over 1/3 of all college students

What are Stafford Loans? Federal student loans with fixed interest rates Largest source of federal student loans Federal college student support in 2012 – $150 billion/yr total – $100 billion/yr in loans – $92 billion/yr in Stafford loans

Estimation I estimate the effect of access to Stafford loans on CC students’ educational attainment and other outcomes Estimate regression comparing outcomes of Stafford eligible students who attend colleges that offer loans to those students who attend colleges that do not – Assume access to Stafford loans is random

Data Beginning Postsecondary Student Study of 2004 (BPS:04/09) 16,000 students interviewed in spring 2004 (1 st yr of college), spring 2006, spring 2009 Additional info from financial aid records and institutions Focus on “public two-year” students – 5,549

When Students Have Access to Stafford loans … OutcomeAll StudentsDependent Students Independent Students Sample Mean Total Borrowing 1 st Year $262.2***$158.9***$402.7***$596 Transfer to a 4 year school 5.6* percentage points 7.5* percentage points 1.2 percentage points 34% Total Months Enrolled 1.9 months0.1 months3.3 months32 months Bachelor’s Degree Attainment 2.8 percentage points 5.5 percentage points 0 percentage points 13% Employment 3 rd Year -6.8* percentage points -14.8*** percentage points -8.2 percentage points 26%

Outcomes Not Affected by Stafford Loans: Employment in the 1 st yr of college Credit card debt in the 1 st yr of college Number of credits taken in the 1 st yr of college Associate’s degree attainment

Subgroup Results OutcomeFemales – All Females - Dependent Black Students - All High Need - All High Need - Dependent Total Borrowing 1 st Year $290.5***$182.5***$299.9**$354.9***$210.1*** Transfer to a 4 year school 8.8** percentage points 17.4*** percentage points -6.5 percentage points 7.6** percentage points 8.7 percentage points Employment 3 rd Year -3.2 percentage points -0.3 percentage points -7.4 percentage points -4.7 percentage points -4.9 percentage points Total Months Enrolled 3.4* months0.9 months5.7*** months2.8* months0.1 month Bachelor’s Degree Attainment 4.0 percentage points 8.7 ** percentage points 0.3 percentage points 5.7 percentage points 9.7* percentage points

Summary of Results Access to Stafford loans has a large effect on borrowing in the 1 st yr ($262), transfers to a four- year college (5.6 percentage points), and employment in the 3 rd yr – These effects are even larger for female and high need students Female, Black, & high need students also have an additional effect from loans on total months of enrollment (2.8 – 5.7 months) Dependent female and high need students have an effect of loan access on bachelor’s degree attainment (8.7 – 9.7 percentage points)

Is Assuming Access to Stafford Loans is Random a Good Assumption? 1.Loan access could affect students’ CC decisions – 1a. Decision to enter CC – 1b. Decision between CCs 2.Community colleges’ decisions could be related to students – 2a. CC decision related to CC chars – 2b. CC decision related to student chars

Why Would Schools Not Offer Loans? 1.Administrators believe they can save their students from unnecessary debt – Average COA of CC in 2009: $10,390 a year – CC students are just as likely to have documented need (83% compared to 81% at 4 yr schools) 2.Colleges can loose all federal aid (including Pell grants) if their Stafford default rate is over 25% for 3 consecutive years

Default Rates of Community Colleges that Always Offer Loans and Sometimes Offer Loans

Policy Recommendations – Are Stafford Loans Worth it? Cost to induce additional student into college: – $1,257 H&R Block FAFSA intervention – $93,667 Upward Bound – $133,333 Head Start – $400,000 Tennessee STAR – >> $11,170 Stafford loans Cost to induce additional bachelor’s degree: – $750,000 Tennessee STAR – >> $20,850 Stafford Loans