Quantify Financial Hardship

Early studies of the burden created by student loan repayment
relied largely on rough theoretical measures derived from aggregate
borrowing patterns.André Danière provides an early example of an effort made to develop a rough theoretical
indicator of the burden created by student loan repayment: see A. Danière, “The Benefits and Costs
of Alternative Federal Programs of Financial Aid to College Students” in The Economics and
Financing of Higher Education in the United States: A Compendium of Papers Submitted to the Joint
Economic Committee, Congress of the United Stat e(sWashington, D.C.: U.S. Government Printing
Office, 1969) 556. Danière defines, at 577, what he considers to be a “comfortable repayment
stream.” Using United States census data, he then assumes that the average person spends 90 per
cent of after-tax income on consumption goods (i.e., food, shelter, and any other expenses that are
not “savings”). Of the remaining 10 per cent, Danière reasons, at 578, that one-quarter should be
spent on “securing life insurance, providing emergency funds, etc.” The remaining 7.5 per cent of
after-tax income is described, at 578, as the “average ‘comfortable’ repayment amount.” Danière
writes, at 576, that the amount of debt burden that is “tolerable” should be based on “a social
consensus of what constitutes tolerability.” He undertook this calculation only to facilitate his
numerical simulations of debt burden. Other authors simply adopt the standards developed by
banks for extending credit. These include ratios of mortgage-debt service to pre-tax income in the
25 per cent range, and ratios of total-debt service to pre-tax income in the 40 per cent range. Summarizing this literature, Sandy Baum and I
In the absence of survey data that included flows of both debt
repayment obligations and income, no calculation of the proportion of
former students facing unmanageable student loan debts could be
attempted. As a result, these studies were used primarily to advise
governments on where to set borrowing limits, and to advise students on
how much debt they might reasonably be able to repay.

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