Study: All Aid Is Not Created Equal: Examining the Effects of Unsubsidized Federal Loans on Student Persistence Over Time

Authors: Ray Franke (University of Massachusetts Boston) and Mike Walker (University of Massachusetts Boston)

This study was presented at the AERA 2017 Annual Meeting
Session: Dreams Deferred by Debt: Student Outcomes Federal and State Loan Programs
Date/Time: Monday, May 1, 12:25 pm CT

  • Preliminary results from this study show that for low-income college students, taking out unsubsidized Stafford loans is detrimental to success. For every $1,000 in additional money borrowed in unsubsidized loans, students are 5.6 percent less likely to graduate within six years. This negative relationship for unsubsidized loans is found only among low-income students.
  • Using data from the U.S. Department of Education, researchers looked at 6,561 full-time, dependent undergraduate students who enrolled across 651 four-year colleges and universities in 2003-04. In their first year, 20.2 percent of students used unsubsidized loans.
  • Low-income students on average borrowed $3,318 in their first year (2003-04), with that increasing to $3,898 in their fourth year (2006-07).  Their high-income peers on average borrowed $2,529 in their first year and $4,448 in their fourth year.
  • From 2005-06 to 2014-15, the unsubsidized Stafford loan program increased by about 90 percent. In 2014-15, the federal government issued more than twice as many unsubsidized loans ($51.7 billion) as subsidized loans ($24.7 billion), making it the largest federal student aid program.
  • Unsubsidized loans differ from subsidized ones in that they accrue interest when students are still enrolled in college and thus are more costly; have higher borrowing limits; and do not require students to demonstrate financial need. Until August 2013, unsubsidized loans also carried higher interest rates, but this provision was eliminated; they now have equal rates at the undergraduate level. Currently, interest rates for unsubsidized loans are 4.29 percent for undergraduates and 5.84 percent for graduate students.
  • Prior research has hypothesized that the high costs associated with unsubsidized loans and their relatively low value, when compared to other forms of aid, particularly grants and subsidized loans, have the most detrimental effect on the least affluent students.

To receive an embargoed copy of a full paper, or to talk to paper authors, please contact AERA Communications: Tony Pals, Director of Communications, [email protected], cell: (202) 288-9333Victoria Oms, Communications Associate, [email protected], cell: (505) 850-3907

About AERA
The American Educational Research Association (AERA) is the largest national interdisciplinary research association devoted to the scientific study of education and learning. Founded in 1916, AERA advances knowledge about education, encourages scholarly inquiry related to education, and promotes the use of research to improve education and serve the public good. Find AERA on Facebook and Twitter.


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AERA 2017 Annual Meeting