They found that, for black students, loans promoted staying in school and created a higher probability of finishing it

This usually causes the borrowers to default on their debt, which leads to bad credit

Jackson and Reynolds (2013) argued that even though student loans are achieving their goal of creating opportunities for students who could not otherwise attend or finish college, the goal of reducing educational inequality is not necessarily accomplished. However, this same study also found that black students usually had many outstanding loans, and when compared to white students, were more likely to default on their loan. Baker, Andrews, and McDaniel (2017) also found that black and Latino students had larger loan balances than their peers.

Kim (2004) found that when Asian-American students used only loans or a mixture of grants and loans, they were more likely to attend their first choice for college compared to white, African- American, and Hispanic students. Using data from The Freshmen Survey of 1994, Kim (2004) found that Asian-American students exhibited lower price sensitivity than the other groups. Therefore, the usage of loans allowed them to have access to their preferred college.

Effects of being debt averse. For some people, the thought of debt can deter them from seeking student loans. Negative attitudes toward debt appear to be increasing over time (Davies and Lea 1995; Baum and O’Malley 2003). Callender and Jackson (2005) found that students from lower socioeconomic backgrounds had a higher fear of debt compared to their peers from high socioeconomic backgrounds, and students from the lower socioeconomic background tended to avoid taking on student debt because of this debt aversion. Read more