To borrow for college is to take a risk. Indebted students may not earn enough to repay their loans after they graduate or, worse, may fail to graduate at all. For students who cannot pay for college without borrowing, this risk is both a disincentive and a penalty. Greater risk undermines the efficacy of federal financial aid policy that seeks to promote access to higher education. This Essay situates education borrowing within a larger cultural and political trend toward placing risk on individuals and criticizes this development for its failure to achieve any of the typical goals of legislation that allocates risk””such as prevention of moral hazard or other, particular public policy outcomes.
The Essay describes dramatic increases in student borrowing and explains the negative effects of greater reliance on debt, which increases the risk of investing in higher education. The Essay contends that recognizing student debt as a mechanism that transfers risk bolsters criticisms of increased borrowing and provides a consistent way to evaluate aid policy. The Essay outlines an insurance regime as the logical response to undesirable or unmanageable risk. Such a regime would preserve access to higher education and mitigate the danger of borrowing for college.