Faculty of Social Science

Examining the impact of student loans on student success

December 02, 2016

Lance Lochner, Tier 1 CRC, Western University Department of Economics

How do student loans affect the success of students, the choice of major and the equity of education?

These are some of the questions considered by Lance Lochner, Professor in the Department of Economics.

On December 2, Lochner was named as the Tier 1 Canada Research Chair (CRC) in Human Capital and Inequality. While he has been working in the area for some time, the CRC position will move his research beyond the theoretical and move to quantify some of the issues, providing data to determine how important the concerns might be.

Lochner’s area of expertise is human capital and education issues, and financing human capital investments, specifically the design of student loan programs affects students, during and after their education and the labour market risk of loans.

How student loan programs are designed can impact more than just students following graduation.

Post-secondary financing and loan repayment options are important for equity, said Lochner. “Deciding how we fund education can determine who goes to university, what they study and what they do in the labour market.”

The design of programs can also affect inter-generational movement and financial situations.

“In the U.S. the relationship between parents’ income and college attendance has gotten stronger,” said Lochner. “Student loan programs were designed when the cost of education was lower and the labour market outcomes were less risky.”

Following decades of changes to post-secondary education, including increased tuition costs, and changes to the labour market, with fewer job prospects and less job security for recent grads, the existing loan systems may not work.

There are more concerns around whether people can even go to school, or whether they can repay the loans when they are completed. There has been an increase in loan defaults, notes Lochner, and this shows the system is not working, and may need a re-design.

“How do we design programs to consider the risk of students not being able to re-pay?” asked Lochner. “Ideally we would like to provide some form of insurance, whether income-contingent loans or repayment, but too much of this could reduce incentives in terms of the types of jobs people take or even what they study.”

Lochner has worked with the Canada Student Loan agency, as well as officials in the U.S. to discuss the issue, and he believes his research has been influential in how they think about the issues.

“Everyone is trying to think around this but policy has been a bit paralyzed in place because they don’t have quantifiable data,” said Lochner. “This chair is a great opportunity to push the research forward.”