If there is one trope that keeps coming up in higher education, it’s how student loans are evil because they discriminate against young people from low-income backgrounds, who – it is alleged – are debt-averse.

The problem with this trope is two-fold: the first is that empirical evidence proving that debt aversion is concentrated among the poor, or even that it exists in the first place, is remarkably thin (though, in fairness, it’s a difficult phenomenon to prove).  The second is that there’s no necessary link between debt-aversion and PSE attainment.  Debt-averse students might simply make ends meet by working more and being more frugal.

However, in the last year or so there have been two excellent studies – one published by HEQCO and the other by the World Bank – which have improved our understanding of the phenomenon enormously (hat tip to Anne Motte).  Read them both: they’re the best student aid papers you’ll see all year.

Both use ingenious research methods to examine the question of debt aversion.  The HEQCO paper measured debt aversion by offering students both a grant and a grant plus a small loan and measuring difference in take-up rates.  The World Bank paper offered identical offers for student loans to two randomized groups of students, except that in one group the offer was described as a loan and in the other it was described as a “Human Capital Contract.”

Both studies came to similar conclusions: debt aversion can be demonstrated, but the effect is relatively small.  The HEQCO survey showed students were slightly less likely to accept a grant for education if a loan offer was attached as well; the World Bank survey found an 8% improvement in the take-up rate if the loan offer was framed as a human capital contract.

Good news for the trope-promoters?  Yes and no.  While the HEQCO study found that debt aversion exists, they found no evidence that it was related to family income (the World Bank paper didn’t take up the question). And there remains no evidence that the presence of debt aversion negatively affects participation. Though we used a fairly crude measure, Sean Junor and I showed seven years ago in the Price of Knowledge 2004 (see page 107) that youth who reported extreme education debt aversion were slightly more likely to attend PSE than those who did not.

Verdict: debt aversion exists, but it is still a pretty weak argument against student loans.