Student Debt and Personal Portfolio Risk

Abstract

Using data from the Survey of Consumer Finances (SCF), we find that student debt is negatively related to the extent of investment in risky financial assets by households. An exogenous shock to student debt due to the Higher Education Amendments of 1992 negatively impacts portfolio risk-taking for students already in four-year college at the time of this regulation. Households with significant student debt are more likely to fall behind on their student debt payments when they have significant personal financial portfolio risk. Our evidence also suggests that student debt reduces the frequency of trades by households. Further, the negative relation between student debt and personal portfolio risk-taking is stronger for more financially constrained households. Our evidence indicates that student debt may reduce investment in risky assets, thus affecting the long-term wealth of individuals, and may also have repercussions for the broader economy.