Experience Financial Hardship

Almost by definition, paying back a loan imposes a financial burden on the borrower. The relevant question here is whether the burden is so great as to threaten the financial well-being of the borrower. Since student loans are offered to young people without any consideration of their future ability to repay, fears about excessive borrowing have been voiced ever since Canadian student loan programs were introduced in the 1960s. In this section, I review previous research on the extent to which former students are overburdened by their loans. Efforts to measure how many student loan borrowers face financial hardship as they attempt to repay their loans have had to deal with two difficult issues. First, any definition of “financial hardship” is inherently subjective. In the different, but related, context of assessing the ability of potential bankrupts to pay their debts, Teresa Sullivan, Elizabeth Warren, and Jay Westbrook wrote:
Thus, there is no consensus on exactly what financial hardship might mean. In a discussion of loan debt, Janet Hansen wrote that “[r]esearchers have never been able to agree on what level of debt is likely to be manageable for those who borrow to pay for college; give this lack of consensus, it becomes difficult for policymakers to know if and when the point of ‘too much’ borrowing is reached.”14 A second problem is that very few data sets are rich enough to contain all debts that a former student might have incurred. Student
loan debts are only one of a number of debts by which young people might be burdened. For example, many young people use credit cards and might, therefore, have outstanding balances on them. Others borrow to purchase automobiles and homes. As student loans may not be the only loans that young people are trying to repay, individuals with identical amounts of outstanding student loan debt might have quite
different debt repayment burdens. A person who might easily pay off $10,000 in student loans, if that were his or her only debt, might be struggling desperately to repay such a loan if accompanied by a $5,000 credit card balance and a $15,000 car loan. Without data on all debt obligations, no measure of financial hardship can be complete. Faced with these challenges, researchers have tried three general lines of attack. First, an early group of studies estimated the proportion of a typical starting salary that might reasonably be spent on debt repayment and then compared that proportion to the amount required to repay debts of various amounts. Second, researchers used survey data either to calculate rough indicators of debt burden or to ask debtors directly whether or not their loans were causing financial hardship. Other researchers used survey data to approach the issue indirectly by looking at various aspects of the economic situation of student loan borrowers (such as their access to credit or their propensity to purchase major consumer durables). Third, administrative data on the incidence of student loan default and of bankruptcies involving student loans has been analyzed on the assumption that default and bankruptcy indicate financial hardship.

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