Financing College Through Student Loans: An Incentive for Academic Performance?

Abstract

Student debt in the United States has reached unprecedented levels. Whereas student loans have paved the way to a college degree for millions of young Americans, it is not clear if student debt acts an incentive for academic performance or not. Using the results from a survey conducted with 877 undergraduate business students in a large public university in the United States, we evaluate the association between student debt and academic performance, measured by cumulative GPA. Students with debt have a significantly higher probability of obtaining a GPA below 3.0 than those without debt. For students with a debt balance below $10,000, the probability of achieving a GPA above 3.5 is 7.8 percentage points lower than for students without debt. This difference increases to 13.7 percentage points when the debt balance is between $10,001-20,000. Our findings indicate that the burden of student debt is exacerbated by poorer academic performance.