As the policy debate over student loan debt and interest rates continues a new study found that student borrowers have much worse credit scores than other young people.
The Federal Reserve Bank of New York recently determined that young adults who avoided student loans had better credit scores.
“By 2012, the average score for twenty-five-year-old non-borrowers is 15 points above that for student borrowers, and the average score for thirty-year-old nonborrowers is 24 points above that for student borrowers,” wrote the study’s authors.
Student loan debt used to be a mark of long-term financial success, because young people who invested in a college education were more likely to hold jobs and make money later in life, according to the Wall Street Journal.
But now that collective student loan debt has topped $1 trillion, and half of all recent graduates are either unemployed or underemployed, a degree is no longer such a strong indicator of future success — or ability to pay back the loan debt.
The findings are relevant to the current debate in Congress over student loan interest rate policy. The more liberal Senate Democrats want to approve a temporary extension of the lower interest rate — 3.4 percent — which would generally encourage borrowing. Republicans and moderate Democrats want to index the rate to the Treasury bond market under a plan called the Burr-Manchin bill. This would allow the rate to fluctuate, and could push it higher years from now.
The Democratic bill was voted down on Wednesday, as lawmakers struggled to come up with a solution that would satisfy everyone.
“Today’s vote was the failure of a bad idea,” said Tennessee Sen. Lamar Alexander, a Republican and proponent of the Burr-Manchin bill, in a statement.
Noting that student loan debt has increased 281 percent in the last 10 years, economist Veronique de Rugy said that Congress should stop tinkering with the interest rate, instead leaving it up to the market.
“By keeping student loan rates artificially low, the federal government is contributing to the rapid increase in college tuition and forcing today’s workers to subsidize the educational choices of big earners,” she wrote.
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