The Long-Run Impact of the Great Recession on Student Debt

Abstract

This paper investigates the effect of local labor market shocks during the Great Recession on subsequent student debt-related outcomes for a panel of 1 million student loan borrowers between the ages 17 and 34 in 2009, following that cohort for the subsequent 10 years. We find that the Great Recession significantly increased student indebtedness, delinquency and default on student debt, and other forms of non-repayment of student loans. The Great Recession’s effect on student indebtedness amplifies throughout the length of the panel, through 2019. A one-percentage-point-larger increase in the local unemployment rate be- tween 2007 and 2009 corresponds to a $812.20-larger change in outstanding student debt in 2019, relative to a 2009 baseline loan balance. We interpret these findings as evidence that student indebtedness and associated non-repayment is an effect of prolonged labor market slackness and credentialization.