What Do Stafford Loans Actually Buy You? - The Effect of Stafford Loan Access on Community College Students

Students who do not have access to credit may not be able to complete their optimal level of post-secondary education. More than one out of every ten community college students nationwide attends a community college that does not allow access to federal college loans. This paper takes advantage of plausibly exogenous variation in whether a student's community college offers student loans to evaluate the effect of access to Stafford loans on student outcomes, including educational attainment, employment, and finances. Using the Beginning Postsecondary Student Study of 2004, I show that access to federal Stafford loans does not affect the decision to attend community college. However, I find that Stafford loan access increases overall borrowing among community college students by $262 a year and increases the likelihood of transferring to a four-year school by 5.6 percentage points. Additionally, for high-need and female students, loan access increases their total months of enrollment and dependent students' bachelor's degree attainment as well. These sizable effects of loan access on student behavior indicate that federal loans relax credit constraints for some community college students.