Student Debt and the Siren Song of Systemic Risk
Jonathan D. Glater, Student Debt and the Siren Song of Systemic Risk, 53 Harv. J. on Legis. 99 (2016).
This Article analyzes the dangerous effects of restricting federal student aid, which aims to expand college access, in response to fear of a student loan “bubble” that could cause a future financial crisis. Scholars and pundits have suggested that increases in student debt resemble the expansion of mortgage borrowing in the years before the 2008 financial crisis and that higher default rates on student loans contribute to risk of a similar financial calamity in the future. The Article identifies the analogy’s potentially pernicious effects, given the popular narratives attached to mortgage borrowers who defaulted on their debts in the period leading up to and following the financial crisis. Critics of government policies that made homeownership more accessible to poor and minority buyers blamed borrowers, whom they characterized as greedy and foolish. Applying such reasoning to student debt would imply that access to education loans should be limited, a development utterly at odds with the purpose of the Higher Education Act of 1965. Thus, those likening student loans to home loans sing a siren song that could mislead lawmakers who for decades have sought to use federal aid to make higher education more accessible regardless of students’ financial resources. Further, the Article’s analysis shows that student loans and home loans differ in ways that make it unlikely that defaults could contribute to a crisis.